<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENHALL INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ARIZONA 7353 86-0634394
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
1801 PENHALL WAY
P.O. BOX 4609
ANAHEIM, CALIFORNIA 92803
(714) 772-6450
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
MARTIN W. HOUGE
VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER
PENHALL INTERNATIONAL CORP.
1801 PENHALL WAY, P.O. BOX 4609
ANAHEIM, CALIFORNIA 92803
(714) 772-6450
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH COPIES TO:
BRUCE B. WOOD, ESQ.
DECHERT PRICE & RHOADS
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 698-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
12% Senior Notes due 2006.................. $100,000,000 100% $100,000,000 $29,500
Guarantees of Senior Notes................. $100,000,000 -- -- None
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PENHALL INTERNATIONAL CORP.
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR
OTHER IRS
JURISDICTION PRIMARY STANDARD EMPLOYER
OF INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME INCORPORATION CODE NUMBER NUMBER
- ------------------------------------------------------------ ------------- ------------------------- -------------
<S> <C> <C> <C>
Penhall Rental Corp......................................... California 7353 33-0286366
Penhall Company............................................. California 7353 33-0349226
</TABLE>
The address, including zip code and telephone number, including area code,
for each of the additional registrants' principal executive offices is 1801
Penhall Way, P.O. Box 4609, Anaheim, California 92803, (714) 772-6450.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
PROSPECTUS
OFFER TO EXCHANGE
12% SENIOR NOTES DUE 2006
FOR ALL OUTSTANDING
12% SENIOR NOTES DUE 2006
OF
PENHALL INTERNATIONAL CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 199 , UNLESS EXTENDED
------------------------
Penhall International Corp., an Arizona corporation formerly known as
Phoenix Concrete Cutting, Inc. (the "Company"), hereby offers to exchange an
aggregate principal amount of up to $100,000,000 of its 12% Senior Notes due
2006 (the "New Notes") for a like principal amount of its 12% Senior Notes due
2006 (the "Existing Notes") outstanding on the date hereof upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
letter of transmittal (the "Letter of Transmittal" and, together with this
Prospectus, the "Exchange Offer"). The New Notes and the Existing Notes are
hereinafter collectively referred to as the "Notes." The terms of the New Notes
are identical in all material respects to those of the Existing Notes, except
for certain transfer restrictions and registration rights relating to the
Existing Notes. The New Notes will be issued pursuant to, and be entitled to the
benefits of, the Indenture (as defined) governing the Existing Notes.
The New Notes will bear interest from and including the date of consummation
of the Exchange Offer. Interest on the New Notes will be payable semi-annually
on February 1 and August 1 of each year, commencing February 1, 1999.
Additionally, interest on the New Notes will accrue from the last interest
payment date on which interest was paid on the Existing Notes surrendered in
exchange therefor or, if no interest has been paid on the Existing Notes, from
the date of original issue of the Existing Notes. Holders whose Existing Notes
are accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Existing Notes.
The New Notes will mature on August 1, 2006. The New Notes will be
redeemable, in whole or in part, at the option of the Company on or after August
1, 2003 at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, at any time on or prior to
August 1, 2001, the Company, at its option, may redeem, with the net cash
proceeds of one or more Public Equity Offerings (as defined) by the Company, up
to 30% of the aggregate principal amount of the Notes, at a redemption price
equal to 112% of the principal amount thereof, plus accrued and unpaid interest
to the date of redemption; PROVIDED that at least 70% of the aggregate principal
amount of the Notes remains outstanding immediately following such redemption.
Upon a Change of Control (as defined), each holder of New Notes will have the
right, subject to certain conditions, to require the Company to repurchase such
holder's New Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date. In addition, the
Company will be obligated to offer to repurchase the New Notes at 100% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase in the event of certain Asset Sales (as defined). See "Description of
the Notes."
The New Notes will be general unsecured senior obligations of the Company
and will rank PARI PASSU in right of payment with all existing and future
unsubordinated indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. The New Notes will
(CONTINUED ON FOLLOWING PAGE)
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
be effectively subordinated in right of payment to all secured indebtedness of
the Company, including indebtedness incurred under the New Credit Facility (as
defined), to the extent of the assets securing such indebtedness. The New Notes
will be unconditionally guaranteed (the "Guarantees"), on a senior basis by each
of the Company's subsidiaries that guarantee amounts under the New Credit
Facility (the "Guarantors"). The Guarantees will be general unsecured
obligations of the Guarantors and will rank PARI PASSU in right of payment with
all existing and future unsubordinated indebtedness of the Guarantors and senior
in right of payment to all existing and future subordinated indebtedness of the
Guarantors. The Guarantees will be effectively subordinated in right of payment
to all secured indebtedness of the Guarantors to the extent of the assets
securing such indebtedness. As of June 30, 1998, on a Pro Forma Basis (as
defined), the Company would have had approximately $120.6 million of
indebtedness outstanding (exclusive of $30.0 million of unused commitments under
the New Credit Facility), $20.0 million of which would have been secured, and
the Guarantors would have had approximately $4.1 million of indebtedness
outstanding (exclusive of the guarantees by the Guarantors of the Company's
obligations under the Notes and the New Credit Facility), all of which would
have been secured. See "Description of Certain Indebtedness."
The Existing Notes were issued by Penhall Acquisition Corp., an Arizona
corporation (the "Issuer") formed by Bruckmann, Rosser, Sherrill & Co., L.P.
("BRS") to effect a recapitalization (the "Recapitalization") of Penhall
International, Inc., a California corporation and former corporate parent of the
Company ("PII"). As part of the Recapitalization, a series of mergers (the
"Mergers") were consummated pursuant to which the Company became the corporate
parent of PII, BRS acquired an interest in the Company and the Company became
the successor obligor on the Existing Notes. Immediately following consummation
of the Transactions (as defined), PII changed its name to "Penhall Rental Corp."
and the Company changed its name from "Phoenix Concrete Cutting, Inc." to
"Penhall International Corp."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantors contained in the Registration
Rights Agreement dated August 4, 1998 (the "Registration Rights Agreement") by
and among the Issuer, the Company, the Guarantors, BT Alex. Brown Incorporated
("BTAB") and Credit Suisse First Boston (collectively with BTAB, the "Initial
Purchasers") with respect to the initial sale of the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Existing Notes with respect to the Exchange Offer, the Company will promptly
return such Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. If a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system, and no active
public market for the New Notes is currently anticipated. There can be no
assurance that an active public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes being offered hereby.
This Prospectus does not contain all the information set forth in the Exchange
Offer Registration Statement. For further information with respect to the
Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
The Company is not currently subject to the periodic reporting and other
information requirements of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any of
the Notes remain outstanding, it will furnish to the holders of the Notes and to
the extent permitted by applicable law or regulation, file with the Commission
following the consummation of the Exchange Offer (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company was required to file such
Forms, including for each a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's independent auditors and (ii) all
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. All reports filed with the
Commission will be available on the Commission's web site at http:\\www.sec.gov.
In addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or beneficial
owner of the Notes, in connection with any sale thereof, the information
required by Rule 144A(d)(4) under the Securities Act.
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," ANTICIPATES," "INTENDS,"
"EXPECT," "SHOULD," "MAY," "WILL," "CONTINUE" AND "ESTIMATE," AND WORDS OF
SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY OR INDUSTRY RESULTS TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS, BOTH
DOMESTIC AND FOREIGN; INDUSTRY AND MARKET CAPACITY; DEMOGRAPHIC CHANGES;
EXISTING GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH,
GOVERNMENT REGULATIONS; LIABILITY AND OTHER CLAIMS ASSERTED AGAINST THE COMPANY;
COMPETITION; THE LOSS OF ANY SIGNIFICANT CUSTOMERS; CHANGES IN OPERATING
STRATEGY OR DEVELOPMENT PLANS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL; THE SIGNIFICANT INDEBTEDNESS OF THE COMPANY AFTER THE TRANSACTIONS
CONTEMPLATED HEREBY; THE AVAILABILITY AND TERMS OF CAPITAL TO FUND THE EXPANSION
OF THE COMPANY'S BUSINESS; AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS.
CERTAIN OF THESE FACTORS ARE DISCUSSED IN MORE DETAIL ELSEWHERE IN THIS
PROSPECTUS, INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS "SUMMARY," "RISK
FACTORS," "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. THE
COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE FACTORS OR TO PUBLICLY ANNOUNCE THE
RESULT OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT
OTHERWISE REQUIRES, REFERENCES TO (I) THE "ISSUER" ARE TO PENHALL ACQUISITION
CORP., AN ARIZONA CORPORATION, (II) "PENHALL GROUP" ARE TO PENHALL
INTERNATIONAL, INC., A CALIFORNIA CORPORATION, AND EACH OF ITS SUBSIDIARIES FOR
PERIODS PRIOR TO THE TRANSACTIONS (AS DEFINED) AND TO PENHALL INTERNATIONAL
CORP., AN ARIZONA CORPORATION, AND ITS DIRECT AND INDIRECT SUBSIDIARIES FROM AND
AFTER THE TRANSACTIONS, AFTER GIVING EFFECT THERETO, (III) "MANAGEMENT" ARE TO
THE EXECUTIVE OFFICERS IDENTIFIED UNDER "MANAGEMENT--DIRECTORS AND EXECUTIVE
OFFICERS" AND (IV) "FISCAL YEARS" ARE TO THE FISCAL YEARS OF PENHALL
INTERNATIONAL, INC., WHICH END ON JUNE 30. INFORMATION PROVIDED HEREIN ON A "PRO
FORMA BASIS" FOR ANY PERIOD OR AS OF ANY DATE GIVES EFFECT TO THE HSI
ACQUISITION (AS DEFINED) AND THE TRANSACTIONS IN THE MANNER DESCRIBED UNDER
"UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS." CERTAIN
MARKET DATA USED IN THIS PROSPECTUS REFLECT MANAGEMENT ESTIMATES; WHILE SUCH
ESTIMATES ARE BELIEVED BY MANAGEMENT TO BE RELIABLE, NO ASSURANCE CAN BE GIVEN
THAT SUCH DATA IS ACCURATE IN ALL MATERIAL RESPECTS.
THE PENHALL GROUP
The Penhall Group, founded in 1957, is one of the largest operated equipment
rental providers in the United States. The Penhall Group differentiates itself
from other equipment rental companies by providing specialized services in
connection with infrastructure projects through renting equipment along with
skilled operators on an hourly or fixed-price quote basis ("Operated Equipment
Rental Services") to serve construction, industrial, manufacturing, governmental
and residential customers. In addition, the Penhall Group complements its
Operated Equipment Rental Services by providing services on a fixed-price
contract basis for long-term projects. The Penhall Group employs over 510
skilled operators and has approximately 497 units in its diverse operated
equipment rental fleet, which includes a broad selection of equipment ranging
from smaller items such as diamond abrasive saws and coring units, to large
equipment such as backhoes, excavators, water trucks, and concrete grinders. The
Penhall Group provides its services from 21 locations in nine states, with a
presence in some of the fastest growing states in terms of construction spending
and population growth, including its primary market, California, as well as
other strategic markets including Arizona, Colorado, Nevada, Texas, Georgia and
Utah (collectively, the "Markets"). The Penhall Group has a diverse base of over
6,800 customers, and other than projects for federal, state and municipal
agencies, no one customer has accounted for more than 5% of its total revenue in
any of the past five fiscal years. The Penhall Group has a reputation for high
quality service which results in a high degree of customer loyalty and, based on
the last fiscal quarter, Management believes that on average in excess of 95% of
its revenues are derived through repeat business from existing customers. The
Penhall Group has increased its EBITDA margin from 13.2% in fiscal 1993 to 20.7%
in fiscal 1998 due to Management's focus on (i) maximizing high-margin Operated
Equipment Rental Services revenues through increased equipment rental fleet
utilization, (ii) controlling overhead and (iii) successfully integrating
acquisitions and start-up locations. During that same period, revenue and EBITDA
grew at a compound annual growth rate ("CAGR") of 15.0% and 25.7%, respectively.
During fiscal 1998, on a Pro Forma Basis, the Penhall Group generated revenues
and EBITDA of approximately $114.7 million and $24.7 million, respectively.
Through its skilled operators and equipment rental fleet, the Penhall Group
performs new construction, rehabilitation and demolition services in connection
with infrastructure projects. For short duration assignments, typically lasting
from several hours to a few weeks, the Penhall Group generally provides Operated
Equipment Rental Services on an hourly or fixed-price quote basis. Services
provided in this manner include specialized work such as highway and airport
runway grooving and asphalt cutting, as well as demolition work such as concrete
breaking, removal and recycling. Operated Equipment Rental Services represented
approximately three quarters of total revenues for fiscal 1998. For longer
duration projects, which may last from a few days to several years, the Penhall
Group provides services on a fixed-
1
<PAGE>
price contractual basis. Services provided in this manner include work for
highway, airport and building general contractors, federal, state and municipal
agencies and for property owners. A majority of fixed-price contract revenues
are derived from long-term highway projects which have an average contract
length of approximately ten months. The Penhall Group strives to maximize
utilization of its operated equipment rental fleet and uses its fixed-price
contract services to (i) market its Operated Equipment Rental Services, (ii)
increase utilization of its operated equipment rental fleet and (iii)
differentiate it from other equipment rental competitors. As part of a
fixed-price contract project, the Penhall Group is responsible for completion of
an entire job or project, and typically employs its Operated Equipment Rental
Services. On average, approximately 20% to 30% of Operated Equipment Rental
Services revenues are generated from fixed-price contracts. Revenues generated
by Penhall's contract divisions, excluding services performed by the equipment
rental divisions on long-term contracts, represent approximately 23.5% of the
total revenues for fiscal 1998.
The operated equipment rental industry ("Operated Equipment Rental
Industry") is a specialized niche segment of the highly fragmented United States
equipment rental industry. There are an estimated 17,000 equipment rental
companies in the United States, and no single company represented more than 2%
of total market revenues in 1996. According to industry sources, the United
States equipment rental industry grew from approximately $600 million in
revenues in 1982 to an estimated $18 billion in 1997, representing a CAGR of
23.7%. Management believes that the Operated Equipment Rental Industry has grown
at a similar rate during this period. This growth has been driven primarily by
construction spending and continued outsourcing of equipment needs by
construction and industrial companies. While customers traditionally have rented
equipment for specific purposes such as supplementing capacity during peak
periods and in connection with special projects, customers are increasingly
looking to rental operators to provide an ongoing, comprehensive supply of
equipment, enabling such customers to benefit from the economic advantages and
convenience of rental. Also, according to industry sources, for the six months
ended January 31, 1998, construction spending in the Penhall Group's Markets
grew by an average of 12.3%, significantly outperforming the 8% growth of United
States construction spending, primarily due to strong regional economies,
favorable demographics and growing levels of construction activity present in
these Markets. In addition, Management believes the Operated Equipment Rental
Industry will continue to grow significantly as, according to the United States
Department of Transportation, 59% of the nation's major roads are in poor or
mediocre condition and 31% of the nation's bridges are structurally deficient
and/or functionally obsolete. Also, the Transportation Bill (as defined)
recently approved by the President of the United States calls for approximately
a 44% increase in national spending on highways and mass transit from current
levels over the next six years and approximately a 58% increase in the Penhall
Group's Markets overall on a non-weighted average basis.
COMPETITIVE STRENGTHS
Management believes that the following strengths will provide the Penhall
Group with significant competitive advantages and the opportunity to achieve
continued growth and increased profitability:
DIVERSIFIED REVENUE BASE. The Penhall Group has a diverse revenue base
resulting from (i) a broad base of over 6,800 customers, (ii) serving a broad
array of end-user markets, and (iii) offering a variety of services. Management
believes that the Penhall Group's diverse revenue base, along with the portion
of its business derived from customers that have fixed spending budgets, help
insulate it from economic downturns. The Penhall Group derives its revenues from
a diverse group of customers consisting of highway, airport and building general
contractors, and federal, state and municipal agencies in various construction,
industrial, manufacturing, governmental and residential markets. Other than
projects for federal, state and municipal agencies, no one customer has
accounted for more than 5% of the Penhall Group's total revenue in any of the
past five fiscal years. A significant portion of the Penhall Group's revenues
are generated from federal, state and municipal agencies, which typically invest
in infrastructure projects based on a fixed budget for a certain time period, as
opposed to discretionary spending tied to
2
<PAGE>
economic cycles. The Penhall Group also offers a broad array of services ranging
from the rental of a single unit to contracting for an entire job, and its
specialized services are concentrated in both new construction as well as
rehabilitation and maintenance of existing infrastructure, which serves to
mitigate the effects of cycles within the construction industry. Within its
array of services, the Penhall Group's fixed-price contracts complement its
Operated Equipment Rental Services and serve to diversify the Penhall Group's
revenue base, increase utilization of its operated equipment rental fleet, and
differentiate it from other equipment rental competitors.
BROAD, MODERN OPERATED EQUIPMENT RENTAL FLEET. Management believes that the
Penhall Group has one of the most modern, diversified and well-maintained
operated equipment rental fleets in the United States and believes that the
quality and breadth of its fleet differentiates the Penhall Group from other
local operators. The Penhall Group has invested over $59.1 million in new
equipment over the past five fiscal years, during which period the Penhall
Group's operated equipment rental fleet grew from 298 to approximately 497 units
of equipment. The units in the Penhall Group's operated equipment rental fleet
have an average age of approximately four and a half years and an average useful
life of approximately nine years. The Penhall Group conducts a preventative
maintenance program which increases fleet utilization, extends the useful life
of the equipment and generally results in higher resale values.
WELL-POSITIONED FOR GROWTH. Management believes that the Penhall Group is
well-positioned for continued growth, primarily due to (i) its presence in
high-growth Markets, (ii) its leadership position in the growing Operated
Equipment Rental Industry, especially with respect to services for highway
projects, and (iii) acquisition opportunities resulting from the fragmented
nature of the Operated Equipment Rental Industry. In fiscal 1997, construction
spending in the Penhall Group's Markets significantly outperformed the national
growth rate of 8%. Management expects construction growth in the Markets to
continue to outpace national growth due to strong local economies, favorable
demographics and increased spending under the new Transportation Bill. In
addition, Management believes that based on the number of grinder units in its
operated equipment rental fleet, the Penhall Group is the largest provider of
grinding services in the United States, maintaining a market share of over 40%
of the national grinding market and approximately 80% of the grinding market in
California. As a market leader, the Penhall Group is well-positioned to benefit
from highway spending, which will increase from current levels by approximately
44% nationally, and approximately 58% in the Penhall Group's Markets overall on
a non-weighted average basis, under the new Transportation Bill. Finally,
Management believes that the financial resources available to the Penhall Group
following consummation of the Transactions, along with the fragmented nature of
the Operated Equipment Rental Industry, will enable the Penhall Group to take
advantage of strategic acquisition opportunities in both existing and new
markets.
The Penhall Group has benefited from having the majority of its operations
located in some of the fastest growing states in terms of construction spending
and population growth. The following table shows
3
<PAGE>
construction spending and population growth statistics, two widely used
indicators of activity in the Operated Equipment Rental Industry, in the Penhall
Group's Markets as compared to national levels:
<TABLE>
<CAPTION>
INCREASE IN
% OF FISCAL 1998 PENHALL CONSTRUCTION POPULATION PROJECTED INCREASE IN
MARKETS GROUP REVENUES SPENDING(1) GROWTH(2) HIGHWAY SPENDING(3)
- ----------------------------- ------------------------- --------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Arizona...................... 8.7% 10.1% 2.7% 59.5%
California................... 70.8 19.5 1.3 45.6
Colorado..................... 3.4 4.0 2.0 52.3
Georgia...................... 2.9 5.3 2.0 69.7
Nevada....................... 4.3 19.5 4.8 61.8
Texas........................ 3.8 19.4 2.0 60.7
Utah......................... 1.6 8.6 2.1 57.8
Other........................ 4.5
Non-weighted average
for the Markets.......... 12.3% 2.4% 58.2%
National average........... 8.0% 0.9% 44.1%
</TABLE>
- ------------------------
(1) Year-over-year growth for six months ended January 31, 1998.
(2) Year-over-year growth for year ended December 31, 1997.
(3) Represents the projected percentage increase in aggregate highway spending
under the Transportation Bill for the period between 1998-2003 as compared
to the aggregate highway spending for the period between the 1992-1997.
STRONG REPUTATION AND SUPERIOR CUSTOMER SERVICE. Over its 40-year history,
the Penhall Group has built a reputation for high quality service, encompassing
(i) responsiveness to customer requirements, (ii) quality and availability of
equipment, (iii) experienced operators, and (iv) reliability of service. As a
result of its focus on customer service, the Penhall Group has developed many
long-term relationships, and based on the last fiscal quarter, Management
believes that on average in excess of 95% of its revenues are derived through
repeat business from existing customers. In addition, the Penhall Group's
skilled operators contribute to its superior customer service as they are
trained to specialize in the operation of particular types of equipment and
provide effective and efficient on-site services to complement the Penhall
Group's modern equipment rental fleet.
EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY STAKE. Management has
an average of approximately 19 years of industry experience and 17 years of
experience with the Penhall Group. The Penhall Group's senior and regional
managers have successfully developed and implemented equipment rental fleet
management and financial strategies which have enabled the Penhall Group to
become one of the largest operators in its Markets. Upon consummation of the
Transactions, the Management Stockholders (as defined) held approximately 37.5%
of the common equity of the Company.
GROWTH STRATEGY
Management has implemented a business strategy which is designed to enhance
the Penhall Group's position as one of the leading Operated Equipment Rental
Services companies in its Markets and to capitalize on opportunities to enter
new markets through a combination of acquisitions and start-up operations. The
Penhall Group has increased its EBITDA margin from 13.2% in fiscal 1993 to 20.7%
in fiscal 1998, and during the same period revenues and EBITDA grew at a CAGR of
15.0% and 25.7%, respectively. The Penhall Group believes that the following key
elements of its on-going strategy will provide it with the opportunity to
continue to achieve growth and increased profitability:
EXPAND GEOGRAPHIC PRESENCE. Management intends to continue to expand the
Penhall Group's geographic presence through both acquisitions and start-up
operations. Since 1994, the Penhall Group has effected four strategic
acquisitions and plans to continue to opportunistically target acquisition
candidates that (i) have a strong local market share and participate in a
high-growth market, and (ii) are led by an experienced management team that will
continue to manage the acquired business. Acquisitions enable the
4
<PAGE>
Penhall Group to (i) enter new markets and increase geographic diversity, (ii)
realize synergies by leveraging its expertise in operated equipment rental fleet
management, and (iii) expand its operated equipment rental fleet and range of
services. Management believes that the equipment rental industry offers
substantial consolidation opportunities for large equipment rental providers
such as the Penhall Group. Relative to smaller companies with only one or two
rental locations, multi-regional operators such as the Penhall Group benefit
from a number of competitive advantages, including access to capital, the
ability to offer a broader range of modern, high-quality equipment, standardized
management information systems, volume purchasing discounts and the ability to
service larger, multi-regional accounts. Management also plans to selectively
enter new markets which have favorable growth dynamics through start-up
operations. The Penhall Group's decision to open a start-up location is based
upon its review of demographic information, business growth projections and the
level of existing competition. The Penhall Group opened three start-up locations
in fiscal 1997, the benefits of which have not yet been fully realized. Based on
the Penhall Group's historical experience, a new location tends to realize
significant increases in revenues, cash flow and profitability during the first
two years of operation as the Penhall Group builds a diverse operated equipment
rental fleet and contributes skilled management.
EXPAND OPERATED EQUIPMENT RENTAL FLEET AND INCREASE RANGE OF SERVICES
OFFERED. Management intends to continue to grow the Penhall Group's business in
both new and existing markets through further expansion of its operated
equipment rental fleet and services provided to its customers. Management plans
to expand the Penhall Group's operated equipment rental fleet by (i) adding new
units to existing equipment lines as utilization increases, and (ii) expanding
into new equipment lines which complement an existing Penhall Group service. In
addition, Management intends to further increase utilization through the
introduction of new services. To that end, the Penhall Group has recently
started offering non-operated equipment rentals ("Bare Equipment Rentals") to
its customers in Southern California and expects to introduce this service to
other markets. Management believes that this strategy will help continue to
increase profitability and enable the Penhall Group to attract new business as a
single source supplier for its customers.
RECENT DEVELOPMENTS
ACQUISITION OF HSI. In April 1998, Penhall Company, a California
corporation and a wholly-owned subsidiary of PII ("PenCo"), purchased
substantially all of the assets of Highway Services, Inc. ("HSI") for
approximately $9.7 million plus the assumption of approximately $1.3 million of
liabilities (the "HSI Acquisition"). PenCo paid approximately $6.0 million of
the purchase price in cash, with the remainder payable in equal installments in
April 1999 and 2000 pursuant to a $3.7 million secured promissory note which
bears interest at 5.5% per annum. In connection with the HSI Acquisition,
certain stockholders of HSI purchased $1.0 million of PII's common stock. Based
in Minnesota, HSI operates in approximately 25 states and is a national provider
of construction services including grinding, grooving, sawing, sealing and
pavement replacement. The HSI Acquisition has combined two of the largest
grinding operations in the United States, and will provide the Penhall Group
with a strong platform for growth in the Mid-West and the South. During fiscal
1998, HSI generated revenues and EBITDA of $16.7 million and $2.3 million,
respectively.
THE TRANSPORTATION BILL. On June 9, 1998, the President of the United
States approved the approximately $216.0 billion transportation bill (the
"Transportation Bill") which will increase spending by approximately 44% from
current levels nationally, and approximately 58% overall on a non-weighted
average basis in the Penhall Group's Markets, over the next six years and is
aimed at financing the repair and new construction of roads, mass transit,
bridges, bike paths, bus garages and other infrastructure in the United States.
Approximately 80% of the proposed funding has been designated for maintenance
and new construction of highways. Approximately 24% of total United States
highway spending appropriated by the Transportation Bill will be allocated to
the Penhall Group's Markets, and Management believes that the Transportation
Bill represents a significant growth opportunity for the Penhall Group.
5
<PAGE>
THE TRANSACTIONS
PII is a California corporation which, prior to the consummation of the
Transactions, conducted all its operations through the Company, an Arizona
corporation, and PenCo, a California corporation. As of June 30, 1998, PII, the
stockholders of PII, the Company, BRS and the Issuer entered into an Agreement
and Plan of Merger (as amended pursuant to letter agreements executed in
connection therewith, the "Merger Agreement"). Pursuant to the Merger Agreement,
a newly formed, wholly-owned subsidiary of the Company ("Phoenix Merger Sub")
was merged with and into PII (the "Reorganization Merger"), with the result that
(i) PII continued as the surviving corporation, (ii) each stockholder of PII had
his or her common equity in PII converted into common equity in the Company,
(iii) PII received common equity in the Company approximately equal in value to
the value of its common equity in the Company immediately prior to the
consummation of the Reorganization Merger and (iv) the Company received common
equity in PII such that the Company became the corporate parent of and obtained
ownership of all the outstanding capital stock of PII (which continued to hold
all the outstanding capital stock of PenCo). In accordance with the Merger
Agreement, immediately following the Reorganization Merger the Issuer was merged
with and into the Company (the "Recapitalization Merger" and, together with the
Reorganization Merger, the "Mergers"), with the Company continuing as the
surviving corporation (the "Surviving Corporation"). Prior to or simultaneously
with the consummation of the Recapitalization Merger, the Issuer entered into a
new senior secured credit facility (the "New Credit Facility") providing for
$20.0 million of Term Loans (as defined) and up to $30.0 million of Revolving
Loans (as defined), and all indebtedness of the Penhall Group except $4.7
million of notes payable was repaid (the "Refinancing"). Following the
consummation of the Mergers, the Company changed its corporate name to "Penhall
International Corp." and PII changed its corporate name to "Penhall Rental
Corp."
CORPORATE STRUCTURE PRIOR TO THE TRANSACTIONS
[LOGO]
EXISTING CORPORATE STRUCTURE
[LOGO]
- ------------------------
(1) Corporate name was changed from "Phoenix Concrete Cutting, Inc." to
"Penhall International Corp."
(2) Corporate name was changed from "Penhall International, Inc." to "Penhall
Rental Corp."
6
<PAGE>
The aggregate consideration paid upon consummation of the Recapitalization
Merger (the "Merger Consideration") was approximately $136.2 million. Pursuant
to the Merger Agreement, (i) certain management stockholders of PII (the
"Existing Management Stockholders") converted a portion of the common equity in
the Company received by them pursuant to the Reorganization Merger into $8.7
million of common and preferred equity of the Surviving Corporation (the "Equity
Rollover"), (ii) the National Christian Charitable Foundation, Inc., an existing
stockholder of PII (the "Foundation"), received $10.0 million of preferred
equity of the Surviving Corporation in lieu of $10.0 million of cash Merger
Consideration otherwise payable to it in the Recapitalization Merger and (iii)
BRS and certain persons affiliated with BRS (together with BRS, the "BRS
Entities"), and certain members of PII management other than the Existing
Management Stockholders (the "New Management Stockholders" and, together with
the Existing Management Stockholders, the "Management Stockholders"), purchased
$21.1 million and $0.2 million, respectively, of common and preferred equity of
the Surviving Corporation for an aggregate of $21.3 million (the "Equity
Contribution" and, together with the Mergers, the Refinancing, the Equity
Rollover and the issuance of preferred equity of the Surviving Corporation to
the Foundation, the "Recapitalization"). Following the consummation of the
Recapitalization, the BRS Entities held approximately 62.5% of the Common Stock,
par value $.01 per share, of the Surviving Corporation ("Common Stock"), 100.0%
of the Series A Preferred Stock, par value $.01 per share, of the Surviving
Corporation ("Series A Preferred Stock") and 43.3% of the Series B Preferred
Stock, par value $.01 per share, of the Surviving Corporation ("Series B
Preferred Stock"); the Management Stockholders held approximately 37.5% of the
Common Stock and 38.6% of the Series B Preferred Stock; the Foundation held 100%
of the 10.5% Senior Exchangeable Preferred Stock, par value $.01 per share, of
the Surviving Corporation ("Senior Exchangeable Preferred Stock"); and PII held
approximately 18.1% of the Series B Preferred Stock.
The foregoing transactions, together with the issuance of the Notes, the
application of the proceeds therefrom and the payment of related fees and
expenses, are collectively referred to herein as the "Transactions." See "The
Transactions."
The Company will not receive any proceeds from the Exchange Offer. The
following table sets forth the sources and uses of funds in connection with the
Recapitalization. To reflect the conversion by the Existing Management
Stockholders of a portion of the common equity in the Company received by them
pursuant to the Reorganization Merger into $8.7 million of common and preferred
equity of the Surviving Corporation and the receipt by the Foundation of $10.0
million of Senior Exchangeable Preferred Stock in lieu of $10.0 million of cash
Merger Consideration otherwise payable to if in the Recapitalization Merger, the
table includes each of the Equity Rollover and the issuance of Senior
Exchangeable Preferred Stock as both a source and a use of funds.
7
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(IN
MILLIONS)
-----------
<S> <C>
SOURCES OF FUNDS:
Term Loans(1).................................................................... $ 20.0
Senior Notes..................................................................... 100.0
Equity Rollover.................................................................. 8.7
Senior Exchangeable Preferred Stock.............................................. 10.0
Equity Contribution.............................................................. 21.3
Working capital.................................................................. 1.0
-----------
Total sources.............................................................. $ 161.0
-----------
-----------
USES OF FUNDS:
Cash portion of Merger Consideration(2).......................................... $ 117.5
Equity Rollover.................................................................. 8.7
Senior Exchangeable Preferred Stock.............................................. 10.0
Refinancing of existing indebtedness(3).......................................... 14.5
Fees and expenses................................................................ 10.3
-----------
Total uses................................................................. $ 161.0
-----------
-----------
</TABLE>
- ------------------------
(1) The New Credit Facility entered into in connection with the
Recapitalization provides for $20.0 million of Term Loans and up to $30.0
million of Revolving Loans. See "Description of Certain Indebtedness--New
Credit Facility." Term Loans in an aggregate principal amount of $20.0
million were drawn on the closing date of the New Credit Facility in
connection with the Recapitalization.
(2) The $117.5 million cash portion of the Merger Consideration is net of the
$8.7 million Equity Rollover and the issuance of $10.0 million of Senior
Exchangeable Preferred Stock. See "The Transactions."
(3) The outstanding indebtedness which was repaid pursuant to the Refinancing
consisted of $14.5 million of revolving loans (including approximately $6.3
million of revolving loans used to finance the HSI Acquisition and repay
certain notes payable assumed in connection with the HSI Acquisition).
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
SECURITIES OFFERED........................... Up to $100,000,000 aggregate principal amount
of 12% Senior Notes due 2006. The terms of
the New Notes and Existing Notes are
identical in all material respects, except
for certain transfer restrictions and
registration rights relating to the Existing
Notes.
THE EXCHANGE OFFER........................... The New Notes are being offered in exchange
for a like principal amount of Existing
Notes. Existing Notes may be exchanged only
in integral multiples of $1,000. The issuance
of the New Notes is intended to satisfy
obligations of the Company contained in the
Registration Rights Agreement.
EXPIRATION DATE; WITHDRAWAL OF TENDER........ The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 199 , or such
later date and time to which it may be
extended by the Company. The tender of
Existing Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holder thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer.
ACCRUED INTEREST ON THE NEW NOTES AND THE The New Notes will bear interest from and
EXISTING NOTES............................. including the date of consumation of the
Exchange Offer. Additionally, interest on the
New Notes will accrue from the last interest
payment date on which interest was paid on
the Existing Notes surrendered in exchange
therefor or, if no interest has been paid on
the Existing Notes, from the date of original
issue of the Existing Notes. Holders whose
Existing Notes are accepted for exchange will
be deemed to have waived the right to receive
any interest accrued on the Existing Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER..... The Company's obligation to accept for
exchange, or to issue New Notes in exchange
for, any Existing Notes is subject to certain
customary conditions relating to compliance
with any applicable law and any applicable
interpretation by the staff of the
Commission, which may be waived by the
Company in its reasonable discretion. The
Company currently expects that each of the
conditions will be satisfied and that no
waivers will be necessary. See "The Exchange
Offer--Certain Conditions to the Exchange
Offer."
PROCEDURES FOR TENDERING EXISTING NOTES...... Each holder of Existing Notes wishing to
accept the Exchange Offer must complete, sign
and date the
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with such
Existing Notes and any other required
documentation, to the Exchange Agent (as
defined) at the address set forth herein. See
"The Exchange Offer--Procedures for Tendering
Existing Notes."
USE OF PROCEEDS.............................. The Company will not receive any proceeds
from the Exchange Offer.
EXCHANGE AGENT............................... United States Trust Company of New York (the
"Exchange Agent") is serving as the Exchange
Agent in connection with the Exchange Offer.
FEDERAL INCOME TAX CONSEQUENCES.............. The exchange of Notes pursuant to the
Exchange Offer should not be a taxable event
for federal income tax purposes. See "Certain
Federal Income Tax Considerations."
</TABLE>
CONSEQUENCES OF EXCHANGING EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Existing Notes (other than any holder who is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) who exchange
their Existing Notes for New Notes pursuant to the Exchange Offer generally may
offer such New Notes for resale, resell such New Notes and otherwise transfer
such New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for
Existing Notes must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or in compliance with an available exemption from
registration or qualification. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Existing Notes does not exchange
such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Holders of Existing Notes do not have any appraisal or
dissenters' rights under the Arizona Business Corporation Act in connection with
the Exchange Offer. See "The Exchange Offer--Consequences of Failure to
Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
10
<PAGE>
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
Existing Notes, except for certain transfer restrictions and registration rights
relating to the Existing Notes.
<TABLE>
<S> <C>
SECURITIES OFFERED........................... $100,000,000 aggregate principal amount of
12% Senior Notes due 2006.
MATURITY DATE................................ August 1, 2006.
INTEREST PAYMENT DATES....................... February 1 and August 1 of each year,
commencing February 1, 1999.
RANKING...................................... The New Notes will be general unsecured
senior obligations of the Company and will
rank PARI PASSU in right of payment with all
existing and future unsubordinated
indebtedness of the Company and senior in
right of payment to all existing and future
subordinated indebtedness of the Company. The
New Notes will be effectively subordinated in
right of payment to all secured indebtedness
of the Company, including indebtedness
incurred under the New Credit Facility, to
the extent of the assets securing such
indebtedness. As of June 30, 1998, on a Pro
Forma Basis, the Company would have had
approximately $120.6 million of indebtedness
outstanding (exclusive of $30.0 million of
unused commitments under the New Credit
Facility), $20.0 million of which would have
been secured.
GUARANTEES................................... The New Notes will be unconditionally
guaranteed on a senior basis by the
Guarantors. The Guarantees will be general
unsecured obligations of the Guarantors and
will rank PARI PASSU in right of payment with
all existing and future unsubordinated
indebtedness of the Guarantors and senior in
right of payment to all existing and future
subordinated indebtedness of the Guarantors.
The Guarantees will be effectively
subordinated in right of payment to all
secured indebtedness of the Guarantors to the
extent of the assets securing such
indebtedness. As of June 30, 1998, on a Pro
Forma Basis, the Guarantors would have had
approximately $4.1 million of indebtedness
outstanding (exclusive of guarantees by the
Guarantors of the Company's obligations under
the Notes and the New Credit Facility), all
of which would have been secured.
OPTIONAL REDEMPTION.......................... The New Notes will be redeemable, in whole or
in part, at the option of the Company on or
after August 1, 2003, at the redemption
prices set forth herein, plus accrued and
unpaid interest to the date of redemption. In
addition, at any time on or prior to August
1, 2001, the Company, at its option, may
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
redeem up to 30% of the aggregate principal
amount of the New Notes with the net cash
proceeds of one or more Public Equity
Offerings (as defined) of the Company, at a
redemption price equal to 112% of the
principal amount thereof, plus accrued and
unpaid interest to the date of redemption;
PROVIDED that at least 70% of the aggregate
principal amount of New Notes originally
issued remains outstanding immediately
following such redemption. See "Description
of the Notes-- Redemption."
CHANGE OF CONTROL............................ Upon a Change of Control, each holder of the
New Notes will have the right, subject to
certain conditions, to require the Company to
repurchase such holder's New Notes at a price
equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to
the repurchase date. See "Description of
Notes."
CERTAIN COVENANTS............................ The Indenture governing the New Notes (the
"Indenture") will contain certain covenants
that limit the ability of the Company and its
Restricted Subsidiaries to, among other
things, incur additional indebtedness, pay
dividends or make investments and certain
other restricted payments, consummate certain
asset sales, enter into certain transactions
with affiliates, incur liens, impose
restrictions on the ability of a subsidiary
to pay dividends or make certain payments to
the Company and its subsidiaries, merge or
consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the
assets of the Company. In addition, the
Company will be obligated to offer to
repurchase the New Notes at 100% of the
principal amount thereof plus accrued and
unpaid interest to the date of repurchase in
the event of certain Asset Sales (as
defined). See "Description of the
Notes--Certain Covenants."
</TABLE>
For additional information regarding the New Notes, see "Description of the
Notes."
RISK FACTORS
Holders of Existing Notes should carefully consider the specific matters set
forth under "Risk Factors," as well as the other information and data included
in this Prospectus, in connection with the Exchange Offer.
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information of PII for the three fiscal years ended June 30, 1998. The
consolidated statement of earnings data for the three years ended June 30, 1998
and the consolidated balance sheet data as of June 30, 1997 and 1998 was derived
from the audited consolidated financial statements of PII included elsewhere
herein. The consolidated balance sheet data as of June 30, 1996 was derived from
audited consolidated financial statements of PII. The other data presented below
was derived from PII prepared schedules. This table is qualified in its entirety
by reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of PII, including the related notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Revenues.................................................................. $ 74,895 $ 95,298 $ 101,170
Gross profit.............................................................. 23,695 26,757 28,775
General and administrative expenses....................................... 15,156 16,953 19,880
Other compensation........................................................ -- -- 3,271
Earnings before interest expense and income taxes......................... 9,406 10,675 6,268
Interest expense.......................................................... 783 811 1,036
Net earnings.............................................................. 5,085 5,457 2,701
EARNINGS PER SHARE:
Basic..................................................................... 13.24 13.61 6.67
Diluted................................................................... 13.05 13.38 6.55
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic..................................................................... 383,958 400,813 405,103
Diluted................................................................... 389,621 407,728 412,434
OTHER DATA:
EBITDA (1)................................................................ $ 15,644 $ 19,565 $ 20,931
EBITDA margin (2)......................................................... 20.9% 20.5% 20.7%
Depreciation and amortization............................................. $ 5,417 $ 6,878 $ 8,870
Capital expenditures...................................................... $ 11,511 $ 16,089 $ 13,816
Units of operated equipment rentals at end of period...................... 369 420 497
Number of operating locations at end of period............................ 16 21 22
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Total assets.............................................................. $ 53,378 $ 69,833 $ 88,323
Long-term obligations, including current maturities....................... 8,981 14,111 18,564
Stockholders' equity...................................................... 32,032 39,253 43,606
</TABLE>
- ------------------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, and excludes stock-related compensation
expense, reorganization costs and other compensation (for discussion of
stock-related compensation expense and reorganization costs and other
compensation, see notes 8 and 14, respectively, to consolidated financial
statements). EBITDA is presented because Management believes it provides
useful information regarding a company's ability to incur and/or service
debt. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows, or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles
("GAAP") or as a measure of a company's profitability or liquidity.
(2) EBITDA margin is defined as EBITDA divided by total revenues.
13
<PAGE>
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following table sets forth summary unaudited consolidated pro forma
financial data of the Company for the fiscal year ended June 30, 1998. The
summary unaudited consolidated pro forma financial data is based on the
historical consolidated financial statements of PII and the historical financial
statements of HSI, and gives effect to the HSI Acquisition and the Transactions
in the manner described under "Unaudited Pro Forma Condensed Consolidated
Financial Statements." The summary unaudited consolidated pro forma financial
data is presented for informational purposes only and is not necessarily
indicative of the financial position or results of operations of the Company had
the HSI Acquisition and the Transactions actually occurred on the indicated
dates or been in effect for the period presented and does not purport to be
indicative of the financial position or results of operations of the Company as
of any future date or for any future period. The summary unaudited consolidated
pro forma financial data is qualified in its entirety by reference to, and
should be read in conjunction with, "Unaudited Pro Forma Condensed Consolidated
Financial Statements," the consolidated financial statements of PII and the
financial statements of HSI, including the related notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
JUNE 30, 1998
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Revenues........................................................................... $ 114,706
Gross profit....................................................................... 32,526
General and administrative expenses................................................ 20,449
Earnings before interest expense and income taxes.................................. 12,721
Interest expense................................................................... 13,973
Net loss........................................................................... (751)
LOSS PER SHARE:
Basic.............................................................................. (5.57)
Diluted............................................................................ (5.57)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic.............................................................................. 1,000,000
Diluted............................................................................ 1,000,000
OTHER DATA:
EBITDA (1)......................................................................... $ 24,735
EBITDA margin (2).................................................................. 21.6%
Depreciation and amortization...................................................... $ 10,699
Capital expenditures............................................................... $ 12,389
Units of operated equipment rentals at end of period............................... 497
Number of operating locations at end of period..................................... 22
Ratio of Total Debt to EBITDA...................................................... 5.0x
Ratio of EBITDA to Interest Expense................................................ 1.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
-------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets....................................................................................... $ 97,175
Long-term obligations, including current maturities................................................ 124,704
Stockholders' deficit.............................................................................. (74,048)
</TABLE>
- ------------------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, and excludes stock-related compensation
expense and reorganization costs and other compensation (for discussion of
stock-related compensation expense and reorganization costs and other
compensation, see notes 8 and 14, respectively, to consolidated financial
statements). EBITDA is presented because Management believes it provides
useful information regarding a company's ability to incur and/or service
debt. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows, or other consolidated income or cash flow data
prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.
(2) EBITDA margin is defined as EBITDA divided by total revenues.
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RISK FACTORS
HOLDERS OF EXISTING NOTES SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET
FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, IN
CONNECTION WITH THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE EXISTING NOTES AS WELL AS THE NEW NOTES.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company has substantial indebtedness and debt service obligations. See
"Description of Certain Indebtedness--New Credit Facility" and "Description of
the Notes." As of June 30, 1998, on a Pro Forma Basis, the Company and its
subsidiaries would have had approximately $124.7 million of total indebtedness
outstanding (including the Notes) and a stockholders' deficit of approximately
$74.0 million. The Company would also have had borrowing availability under the
New Credit Facility of $30.0 million, subject to the borrowing conditions
contained therein. On a Pro Forma Basis, the Company's ratio of earnings to
fixed charges was 0.9x for fiscal 1998.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate or other purposes
may be impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on
indebtedness; (iii) the agreements governing the Company's long-term
indebtedness will contain restrictive financial and operating covenants that
could limit the Company's ability to compete and expand; (iv) the Company's
leverage may make it more vulnerable to industry-related or general economic
downturns and may limit its ability to withstand competitive pressures; and (v)
certain of the Company's borrowings are and will continue to be at variable
rates of interest, which exposes the Company to the risk of increased interest
rates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company's ability to meet its debt service
obligations and to reduce or refinance its total debt (including the Notes) will
depend upon its future operating performance, which, in turn, is subject to
general economic conditions and to financial, business and other factors
affecting the Company, many of which are beyond its control. There can be no
assurance that the Company's business will generate sufficient cash flow for the
Company to meet its debt service obligations. If the Company is unable to
generate sufficient cash flow from operations or to borrow sufficient funds in
the future to service its debt, it may be required to sell assets, reduce
capital expenditures, refinance all or a portion of its existing debt (including
the Notes) or obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any additional financing could be
obtained, particularly in view of the Company's high level of debt, the
restrictions on the Company's ability to incur additional debt under the New
Credit Facility and the Indenture, and the fact that substantially all of the
Company's assets will be pledged to secure obligations under the New Credit
Facility.
RANKING; ASSET ENCUMBRANCE
The Notes are general unsecured senior obligations of the Company and rank
PARI PASSU in right of payment with all existing and future unsubordinated
indebtedness of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. The Notes are unconditionally
guaranteed on a senior basis by the Guarantors. The Guarantees are general
unsecured obligations of the Guarantors and rank PARI PASSU in right of payment
with all existing and future unsubordinated indebtedness of the Guarantors and
senior in right of payment to all existing and future subordinated indebtedness
of the Guarantors. However, the Notes are effectively subordinated in right of
payment to all secured indebtedness of the Company and the Guarantees are
effectively subordinated in right of payment to all secured indebtedness of the
Guarantors, in each case to the extent of the assets securing such indebtedness.
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As of June 30, 1998, on a Pro Forma Basis, the Company would have had
approximately $120.6 million of indebtedness outstanding (exclusive of $30.0
million of unused commitments under the New Credit Facility), $20.0 million of
which would have been secured, and the Guarantors would have had approximately
$4.1 million of indebtedness outstanding (exclusive of the guarantees by the
Guarantors of the Company's obligations under the Notes and the New Credit
Facility), all of which would have been secured. In the event of a default on
such secured indebtedness (or other secured indebtedness incurred by the
Company), or a bankruptcy, liquidation or reorganization of the Company and its
subsidiaries, the assets secured by such indebtedness will be available to
satisfy obligations with respect to such secured indebtedness before any payment
therefrom will be made on the Notes.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture contains covenants that restrict, among other things, the
ability of the Company to: incur additional indebtedness, pay dividends or make
certain other Restricted Payments (as defined therein), enter into transactions
with affiliates, allow its subsidiaries to make certain payments, create certain
liens, make certain asset dispositions and merge or consolidate with, or
transfer substantially all of its assets to, another person, or engage in
certain change of control transactions. See "Description of the Notes--Certain
Covenants." If the Company fails to comply with these covenants, it would be in
default under the Indenture and the principal and accrued interest on the Notes
would become due and payable. In addition, the New Credit Facility contains
other and more restrictive covenants and prohibits the Company from prepaying
certain of its indebtedness, including the Notes. Under the New Credit Facility,
the Company is required to maintain specified financial ratios, including
maintaining specified Interest Coverage Ratios, Fixed Charge Coverage Ratios and
Leverage Ratios (each as defined in the New Credit Facility). The failure by the
Company to maintain such financial ratios or to comply with the restrictions
contained in the New Credit Facility or the Indenture could result in a default
thereunder, which in turn could cause such indebtedness (and by reason of
cross-default provisions, other indebtedness) to become immediately due and
payable. No assurance can be given that the Company's future operating results
will be sufficient to enable compliance with such covenants, or in the event of
a default, to remedy such default. If the Company is unable to pay amounts due
under the New Credit Facility, the lenders thereunder could proceed against the
collateral granted to them to secure that indebtedness. There can be no
assurance that the Company's assets would be sufficient to repay in full such
indebtedness or the Company's other indebtedness, including the Notes. See
"Description of Certain Indebtedness--New Credit Facility" and "Description of
the Notes--Certain Covenants."
RISKS INHERENT IN GROWTH STRATEGY
The Penhall Group has recently accelerated its growth, expanding its
operated equipment rental fleet at existing locations, adding three new
locations during fiscal 1997 and consummating the HSI Acquisition in April 1998.
The Penhall Group intends to continue this rapid growth by expanding its
operated equipment rental fleet at existing locations, continuing to make
acquisitions and opening several new locations each year. There can be no
assurance that the Penhall Group will be able to identify acquisition candidates
and attractive new locations or obtain financing for acquisitions and internal
expansion on satisfactory terms, or at all. The Penhall Group's growth strategy
presents the risks inherent in assessing the value, strengths and weaknesses of
growth opportunities, in evaluating the costs and uncertain returns of expanding
its operations, and in integrating acquisitions with existing operations. The
Penhall Group expects that its growth strategy will affect short-term cash flow
and net income as the Penhall Group increases the amount of its indebtedness and
incurs expenses to expand its operated equipment rental fleet, make acquisitions
and open new locations. There can be no assurance that the Penhall Group will
successfully expand, that any acquired businesses will be successfully
integrated into its operations or that any expansion will result in
profitability.
The integration of the administrative, finance and other operations of HSI
and other acquired businesses, the coordination of their respective sales and
marketing organizations with those of the Penhall
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Group and the implementation of appropriate operational, financial and
management systems and controls may require significant financial resources and
substantial attention from Management, and will result in the diversion of such
resources and attention from the Penhall Group's existing businesses. Any
inability of the Penhall Group to integrate the operations of such businesses
successfully in a timely and efficient manner could adversely affect the its
financial condition and results of operations. In addition, the Penhall Group's
future growth will place significant demands on Management and its operational,
financial and marketing resources. In connection with acquisitions and the
start-up of new locations, the Penhall Group anticipates experiencing growth in
the number of its employees, the scope of its operating and financial systems
and the geographic area of its operations. The Penhall Group believes this
growth will increase the operating complexity of the Penhall Group and the level
of responsibility exercised by both existing and new management personnel. To
manage this expected growth, the Penhall Group intends to invest further in its
operating and financial systems and to continue to expand, train and manage its
employee base. There can be no assurance that the Penhall Group will be able to
attract and retain qualified management and employees or that the its current
operating and financial systems and controls will be adequate as the Penhall
Group grows or that any steps taken to improve such systems and controls will be
successful. See "Business--Growth Strategy."
COMPETITION
The equipment rental industry is highly competitive. The Penhall Group's
competitors include large national rental companies, regional companies, smaller
independent businesses and equipment vendors which both sell and rent equipment
to customers. Some of the Penhall Group's competitors are more geographically
diverse, have greater name recognition than the Penhall Group, have greater
financial and other resources available to them and may be substantially less
leveraged than the Penhall Group. There can be no assurance that the Penhall
Group will not encounter increased competition from existing competitors or new
market entrants, such as manufacturers of heavy equipment, that may be
significantly larger and have greater financial and marketing resources than the
Penhall Group. If existing or future competitors reduce prices to gain or retain
market share and the Penhall Group must also reduce prices to remain
competitive, the Penhall Group's operating results could be adversely affected.
Additionally, existing or future competitors may seek to compete with the
Penhall Group for start-up locations or acquisition candidates, which may have
the effect of increasing acquisition prices and reducing the number of suitable
acquisition candidates or expansion locations. See "Business--Competition."
GOVERNMENTAL REGULATION
The operations of the Penhall Group are subject to certain federal, state
and local laws and regulations concerning labor relations, wage rates, equal
opportunity employment and affirmative action. While compliance with such laws
and regulations has not adversely affected the Penhall Group's operations in the
past, there can be no assurance that these requirements will not change or that
future compliance will not adversely affect the Penhall Group's operations.
The Penhall Group's facilities and operations are also subject to certain
federal, state and local laws and regulations relating to environmental
protection and occupational health and safety, including those governing
wastewater discharges, the treatment, storage and disposal of solid and
hazardous wastes and materials, and the remediation of contamination associated
with the release of hazardous substances. The Penhall Group believes that it is
in material compliance with such requirements. The Penhall Group operates at a
number of locations at which petroleum products are stored in underground tanks.
The Penhall Group is currently in the process of complying with up-coming
regulatory obligations to upgrade or close underground storage tanks under the
Resource Conservation and Recovery Act of 1980, as amended ("RCRA"), including
all applicable requirements of state regulatory agencies, which must be met by
December 22, 1998. The Penhall Group believes that the costs associated with the
storage tank upgrades or closures (including the cost to address any associated
contamination) would not reasonably be expected to exceed $170,000.
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Certain of the Penhall Group's present and former facilities and operations
at off-site construction sites have used substances and generated or disposed of
wastes which may include material which is or may be considered hazardous or are
otherwise regulated by environmental laws, and the Penhall Group may incur
liability in connection therewith. Moreover, there can be no assurance that
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. Such future changes or
interpretations, or the identification of adverse environmental conditions
currently unknown to the Penhall Group, could result in additional environmental
compliance or remediation costs to the Penhall Group. Such compliance and
remediation costs could be material to the Penhall Group's financial condition
or results of operations. See "Business--Governmental Regulation."
SENSITIVITY TO GENERAL ECONOMIC CONDITIONS; SEASONALITY
A majority of the Penhall Group's revenues are derived from customers who
are in industries and businesses that are cyclical in nature and subject to
changes in general economic conditions, such as the construction industry. In
addition, because the Penhall Group conducts its operations in a variety of
geographic markets, it is subject to economic conditions in each such geographic
market. In fiscal 1998, the Penhall Group derived 70.8% and 8.7% of its revenues
from customers located in California and Arizona, respectively, and therefore
the Penhall Group's operations are particularly affected by the economic
conditions in such states. Although the Penhall Group believes that its
operating strategy may help to mitigate the effects of economic downturns,
general economic conditions or localized downturns in markets where the Penhall
Group has operations, including any downturns in the construction industry,
could have a material adverse effect on the Penhall Group's financial condition
and results of operations.
Equipment rental businesses often experience a slowdown in demand during the
winter months when adverse weather conditions affect construction activity. To
date, seasonal demand fluctuations have not materially affected the Penhall
Group's operating results. However, as the Penhall Group expands geographically,
seasonal demand fluctuations may lower operating results, particularly in the
second and third fiscal quarters.
INSURANCE AND BONDING
The Penhall Group's business exposes it to possible claims for property
damage and personal injury or death resulting from the use of equipment rented
by the Penhall Group and from injuries caused in motor vehicle accidents in
which Penhall Group delivery and service personnel are involved. The Penhall
Group maintains general liability and excess liability insurance for all of its
operations, as well as an equipment floater covering contractors' equipment.
Workers' compensation insurance is maintained in amounts consistent with
industry practices. Although Management believes that the Penhall Group's
insurance programs are sufficient to cover existing and future claims, there can
be no assurance that existing or future claims will not exceed the level of the
Penhall Group's insurance or that such insurance will continue to be available
on economically reasonable terms, or at all. In addition, the Penhall Group, in
the course of providing its operated equipment rental services, places its
employees at the worksites of other companies. An attendant risk of such
activity includes possible claims for property damage caused by the activities
of such employees, in addition to possible claims for theft of property,
discrimination, harassment and other criminal or tort claims. While the Penhall
Group has not historically experienced any material claims of these types, there
can be no assurance that the Penhall Group will not experience such claims in
the future.
The Penhall Group is required under the terms of approximately 15% of its
subcontracts to provide surety bonds to ensure that such contracts will be
completed in accordance with their terms and conditions. The Penhall Group
recently retained a new surety for the writing of all of its surety bonds. The
Penhall Group believes that there are a number of other companies providing
similar services that would be available to the Penhall Group in the event that
such surety becomes unable or unwilling to continue to
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meet the Penhall Group's surety bond needs. In the short term, however, the loss
of such surety's services could have a material adverse effect on the Penhall
Group and its operations.
DEPENDENCE ON KEY PERSONNEL
The Penhall Group's success depends to a significant degree upon the
continued contributions of Management, certain of whom would be difficult to
replace. The loss of the services of certain of these executives could have an
adverse effect on the Penhall Group. There can be no assurance that the services
of such personnel will continue to be available to the Penhall Group. See
"Management."
LABOR RELATIONS
Approximately 376 of the Penhall Group's employees are represented by
various labor unions. These unionized employees are organized into 16 certified
or lawfully recognized bargaining units several of which are represented by the
same local union. Although the Penhall Group considers its employee relations
generally to be good, a prolonged work stoppage or strike by union employees
could have a material adverse effect on the business and operations of the
Penhall Group. In addition, there can be no assurance that upon the expiration
of existing collective bargaining agreements new agreements will be reached
without union action or that any such new agreements will be on terms
satisfactory to the Penhall Group. One collective bargaining agreement expired
in May 1998, and the Penhall Group and the union have agreed to abide by the
terms of the expired agreement on a month-to-month basis while the multi-
employer association attempts to negotiate a successor agreement. Although the
Penhall Group is currently negotiating a successor agreement, there can be no
assurance that the Penhall Group will be able to successfully negotiate a new
agreement or that the terms of any such new agreement will not have an adverse
effect on the Penhall Group's results of operations. Moreover, the ability of
the Penhall Group to implement its growth strategy may be adversely affected by
the unavailability of qualified and skilled workers. See "Business--Labor
Relations."
MULTI-EMPLOYER PENSION PLANS
The Penhall Group's collective bargaining agreements provide for Penhall's
participation in multi-employer pension plans. In the event of the Penhall
Group's partial or total withdrawal from such plans, it may be liable for its
share of any unfunded vested benefits thereunder. The Penhall Group also may be
assessed for its share of any unfunded vested benefits resulting from partial or
total withdrawal from such plans and any non-payment by other employer
participants.
FRAUDULENT CONVEYANCE CONSIDERATIONS; AVOIDANCE OF GUARANTEES
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Company or a
Guarantor.
The Company believes that the indebtedness represented by the Existing Notes
was incurred for proper purposes and in good faith, and that based on asset
valuations and other financial information, the Company was, at the time it
issued the Existing Notes, solvent, will have sufficient capital for carrying on
its business and will be able to pay its debts as they mature. Notwithstanding
the Company's belief, if a court of competent jurisdiction in a suit by an
unpaid creditor or a representative of creditors (such as a trustee in
bankruptcy or a debtor-in-possession) were to find that, at the time of the
incurrence of the indebtedness represented by the Existing Notes, either (i) the
Company incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors, or (ii) the Company received less than a reasonably
equivalent value or fair consideration for incurring such indebtedness and the
Company (a) was insolvent or rendered insolvent by reason of the incurrence of
such indebtedness, (b) was engaged in business or a transaction, or was about to
engage in business or a transaction, for which any property remaining with the
Company after giving effect to the incurrence of such indebtedness constituted
an
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unreasonably small amount of capital or (c) intended to incur, or believed that
it would incur, debts beyond its ability to pay as they matured, such court
could avoid the Company's obligations under the Notes and direct the repayment
of any amounts paid thereunder to a fund for the benefit of the Company's
creditors, or take other action detrimental to the holders of the Notes. Such
other action could include subordinating the Notes to claims of existing or
future creditors of the Company.
Similarly, indebtedness under the Guarantees also may be subject to review
under relevant federal and state fraudulent conveyance and similar laws in a
bankruptcy or reorganization of a Guarantor or in a lawsuit brought by or on
behalf of creditors of a Guarantor under the same standards described above.
Pursuant to the terms of the Guarantees, the liability of each Guarantor is
limited to the maximum amount of indebtedness permitted to be incurred in
compliance with fraudulent conveyance or similar laws. To the extent any
Guarantee was avoided as a fraudulent conveyance, limited as described above or
held unenforceable for any other reason, holders of the Notes would, to such
extent, cease to have a claim in respect to such Guarantee and, to such extent,
would be creditors solely of the Company and any Guarantor whose Guarantee was
not avoided, limited or held unenforceable. In such event, the claims of the
holders of the Notes with respect to an avoided, limited or unenforceable
Guarantee would be subject to the prior payment of all liabilities of such
Guarantor. There can be no assurance that, after providing for all prior claims,
there would be sufficient assets to satisfy the claims of the holders of Notes.
VOTING CONTROL OF THE COMPANY
Following consummation of the Transactions, the BRS Entities held
approximately 62.5% of the outstanding voting stock of the Company. Accordingly,
the BRS Entities have the ability to elect the entire Board of Directors of the
Company and, in general, to determine the outcome of any other matter submitted
to the stockholders for approval, including the power to determine the outcome
of all corporate transactions, such as mergers, consolidations and the sale of
all or substantially all of the assets of the Company. Circumstances may occur
in which the interests of the BRS Entities could be in conflict with the
interests of the holders of the Notes. For example, the BRS Entities may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of Notes. See "Ownership of
Capital Stock."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control (as
defined therein), the Company will be required to make an offer to purchase all
of the Notes issued and then outstanding under the Indenture at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages (if any) thereon to the date of purchase. Any Change of
Control under the Indenture would constitute a default under the New Credit
Facility and may result in a default under other indebtedness of the Company
that may be incurred in the future. Therefore, upon the occurrence of a Change
of Control, the lenders under the New Credit Facility would have the right to
accelerate the Company's obligations under the New Credit Facility and the
holders of the Notes would have the right to require the Company to purchase
their Notes. The New Credit Facility prohibits the purchase of outstanding Notes
prior to repayment of borrowings under the New Credit Facility and the exercise
by the holders of their right to require the Company to repurchase the Notes
will cause an Event of Default under the New Credit Facility. If a Change of
Control were to occur, it is unlikely that the Company would be able to repay
all of its obligations under the New Credit Facility and the Notes, unless it
could obtain alternate financing. There can be no assurance that the Company
would be able to obtain any such financing on commercially reasonable terms, or
at all, and consequently no assurance can be given that the Company would be
able to purchase any of the Notes tendered pursuant to such an offer.
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ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Existing Notes currently are eligible for trading in the PORTAL Market.
The New Notes are new securities for which there is currently no established
market. The Company does not intend to list the New Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes but that they are not obligated to do so and any such market
making may be discontinued at any time. There can be no assurance as to the
development of any market or the liquidity of any market that may develop for
the New Notes. If an active public market does not develop, the market, price
and liquidity of the New Notes may be adversely affected. Future trading prices
of the New Notes will depend on prevailing interest rates, the market for
similar securities and other factors, including general economic conditions and
the financial condition and performance of the Company. Holders of the New Notes
should be aware that they may be required to bear the financial risks of their
investment for an indefinite period of time. See "Description of the Notes."
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Penhall Group has
established an informal Year 2000 task force. The Penhall Group has a plan which
lists the milestones achieved and yet to be completed to become Year 2000 ready.
A checklist of potential failure sources has been compiled and includes both
information technology and embedded technology systems. The Penhall Group has
completed its assessment of its information technology and embedded technology
systems and is in the testing phase of their plan. The Penhall Group expects to
be Year 2000 ready by June 30, 1999. The Penhall Group does not believe it has a
material relationship with any one third party that would have a significant
impact to the Penhall Group if that third party was not Year 2000 ready.
The Penhall Group recently upgraded their information technology system,
both hardware and software, and feel those systems are Year 2000 ready. The
Penhall Group does not anticipate significant additional costs to become Year
2000 ready.
Delays in the implementation of the Year 2000 solutions or the failure of
any critical technology components to operate properly in the Year 2000 could
adversely affect the Penhall Group's operations. In addition, the Penhall Group
is uncertain as to the extent its customers may be affected by Year 2000 issues
that require commitment of significant resources and may cause disruptions in
its customers' businesses. Contingency plans have not been developed for all
mission critical information and embedded technologies in the event Year 2000
readiness is not met. The Penhall Group plans to have these contingency plans in
place by June 30, 1999.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation, statements containing the words "believes," anticipates," "intends,"
"expect," "should," "may," "will," "continue" and "estimate," and words of
similar import, constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
domestic and foreign; industry and market capacity; demographic changes;
existing government regulations and changes in, or the failure to comply with,
government regulations; liability and other claims asserted against the Company;
competition; the loss of any significant customers; changes in operating
strategy or development plans; the ability to attract and retain qualified
personnel; the significant indebtedness of the Company after the Transactions;
the availability
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and terms of capital to fund the expansion of the Company's business; and other
factors referenced in this Prospectus. Certain of these factors are discussed in
more detail elsewhere in this Prospectus, including, without limitation, under
the captions "Summary," "Risk Factors," "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
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THE TRANSACTIONS
PII is a California corporation which, prior to the consummation of the
Transactions, conducted all its operations through the Company and PenCo. As of
June 30, 1998, PII, the stockholders of PII, the Company, BRS and the Issuer
entered into the Merger Agreement, pursuant to which the following transactions
(among others) were consummated: (i) PII and the Company amended their charters
to authorize various new classes of capital stock necessary for the consummation
of the Mergers; (ii) the stockholders of PII exchanged their common equity in
PII for shares of the newly-authorized classes of common equity of PII; (iii)
the Company formed Phoenix Merger Sub; (iv) Phoenix Merger Sub was merged with
and into PII pursuant to the Reorganization Merger, with the result that (A) PII
continued as the surviving corporation, (B) each stockholder of PII had his or
her common equity in PII converted into common equity in the Company, (C) PII
received common equity in the Company approximately equal in value to the value
of its common equity in the Company immediately prior to the consummation of the
Reorganization Merger and (D) the Company received common equity in PII such
that the Company became the corporate parent of and obtained ownership of all
the outstanding capital stock of PII (which continued to hold all the
outstanding capital stock of PenCo); and (v) the Issuer was merged with and into
the Company pursuant to the Recapitalization Merger, with the Company continuing
as the Surviving Corporation.
Prior to or simultaneously with the consummation of the Recapitalization
Merger, the Issuer entered into the New Credit Facility providing for $20.0
million of Term Loans (as defined) and up to $30.0 million of Revolving Loans
(as defined), and all indebtedness of the Penhall Group except $4.7 million of
notes payable was repaid pursuant to the Refinancing. Following the consummation
of the Mergers, the Company changed its corporate name to "Penhall International
Corp." and PII changed its corporate name to "Penhall Rental Corp."
The Merger Consideration paid upon consummation of the Recapitalization
Merger was approximately $136.2 million. Pursuant to the Merger Agreement, (i)
the Existing Management Stockholders converted a portion of the common equity in
the Company received by them pursuant to the Reorganization Merger into $8.7
million of common and preferred equity of the Surviving Corporation pursuant to
the Equity Rollover, (ii) the Foundation received $10.0 million of preferred
equity of the Surviving Corporation in lieu of $10.0 million of cash Merger
Consideration otherwise payable to it in the Recapitalization Merger and (iii)
the BRS Entities and the New Management Stockholders purchased $21.1 million and
$0.2 million, respectively, of common and preferred equity of the Surviving
Corporation pursuant to the Equity Contribution for an aggregate of $21.3
million. Following the consummation of the Recapitalization, the BRS Entities
held approximately 62.5% of the Common Stock, 100.0% of the Series A Preferred
Stock and 43.3% of the Series B Preferred Stock; the Management Stockholders
held approximately 37.5% of the Common Stock and 38.6% of the Series B Preferred
Stock; the Foundation held 100% of the Senior Exchangeable Preferred Stock; and
PII held approximately 18.1% of the Series B Preferred Stock.
PII was obligated to make approximately $3 million of tax gross-up payments
to certain members of Management on or before September 15, 1998. The Company
made such payments out of working capital on September 15, 1998. The Penhall
Group expects that it will realize tax benefits of approximately $3 million in
the form of reduced tax payment obligations or refunds of tax overpayments as a
result of deductions for certain of such tax gross-up payments and deductions
with respect to employee stock options. The Penhall Group has realized or
anticipates it will realize these tax benefits during a four-month period that
began June 15, 1998.
In addition, the Company will be obligated to pay approximately $2.2 million
to the current stockholders of PII within ten days following the first
anniversary of the HSI Acquisition in the event that certain performance
criteria concerning the business of HSI acquired by PenCo is satisfied.
23
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
following table sets forth the sources and uses of funds in connection with the
Recapitalization. To reflect the conversion by the Existing Management
Stockholders of a portion of the common equity in the Company received by them
pursuant to the Reorganization Merger into $8.7 million of common and preferred
equity of the Surviving Corporation and the receipt by the Foundation of $10.0
million of Senior Exchangeable Preferred Stock in lieu of $10.0 million of cash
Merger Consideration otherwise payable to it in the Recapitalization Merger, the
table includes each of the Equity Rollover and the issuance of Senior
Exchangeable Preferred Stock as both a source and a use of funds.
<TABLE>
<CAPTION>
AMOUNT
(IN
MILLIONS)
-----------
<S> <C>
SOURCES OF FUNDS:
Term Loans(1).................................................................... $ 20.0
Senior Notes..................................................................... 100.0
Equity Rollover.................................................................. 8.7
Senior Exchangeable Preferred Stock.............................................. 10.0
Equity Contribution.............................................................. 21.3
Working capital.................................................................. 1.0
-----------
Total sources.............................................................. $ 161.0
-----------
-----------
USES OF FUNDS:
Cash portion of Merger Consideration(2).......................................... $ 117.5
Equity Rollover.................................................................. 8.7
Senior Exchangeable Preferred Stock.............................................. 10.0
Refinancing of existing indebtedness(3).......................................... 14.5
Fees and expenses................................................................ 10.3
-----------
Total uses................................................................. $ 161.0
-----------
-----------
</TABLE>
- ------------------------
(1) The New Credit Facility entered into in connection with the
Recapitalization provides for $20.0 million of Term Loans and up to $30.0
million of Revolving Loans. See "Description of Certain Indebtedness--New
Credit Facility." Term Loans in an aggegate principal amount of $20.0
million were drawn on the closing date of the New Credit Facility in
connection with the Recapitalization.
(2) The $117.5 million cash portion of the Merger Consideration is net of the
$8.7 million Equity Rollover and the issuance of $10.0 million of Senior
Exchangeable Preferred Stock. See "The Transactions."
(3) The outstanding indebtedness which was repaid pursuant to the Refinancing
consisted of $14.5 million of revolving loans (including approximately $6.3
million of revolving loans used to finance the HSI Acquisition and repay
certain notes payable assumed in connection with the HSI Acquisition) that
were to mature on October 31, 1998. At June 30, 1998, the weighted average
interest rate with respect to such indebtedness was approximately 7.55%.
24
<PAGE>
CAPITALIZATION
The following table sets forth, at June 30, 1998, the actual capitalization
of PII and the pro forma capitalization of the Company after giving effect to
the HSI Acquisition and the Transactions. The information set forth below should
be read in conjunction with "Unaudited Pro Forma Condensed Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------
<S> <C> <C>
ACTUAL PRO FORMA
--------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion:
Existing Credit Facility (as defined).................................................... $ 13,860 $ --
Notes payable............................................................................ 4,704 4,704
Term Loans............................................................................... -- 20,000
Senior Notes............................................................................. -- 100,000
--------- -----------
Total long-term debt................................................................... 18,564 124,704
--------- -----------
Mandatorily redeemable preferred stock:
Senior Exchangeable Preferred Stock...................................................... -- 10,000
Series A Preferred Stock................................................................. -- 10,428
Stockholders' equity (deficit)............................................................. 43,606 (74,048)
--------- -----------
Total capitalization..................................................................... $ 62,170 $ 71,084
--------- -----------
--------- -----------
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements of the Company present pro forma information giving effect to the HSI
Acquisition and the Transactions which are described in the accompanying notes
to the unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of June 30,
1998 assumes that the Transactions occurred on June 30, 1998. The unaudited pro
forma condensed consolidated statement of earnings for the year ended June 30,
1998 assumes that the HSI Acquisition and the Transactions occurred on July 1,
1997.
The unaudited pro forma condensed consolidated financial statements are
presented for informational purposes only, are not necessarily indicative of the
financial position or results of operations of the Company had the HSI
Acquisition and the Transactions actually occurred on the indicated dates or
been in effect for the periods presented and do not purport to be indicative of
the financial position or results of operations of the Company as of any future
date or for any future period. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the consolidated
financial statements of PII and the financial statements of HSI, including the
related notes thereto, included elsewhere herein.
The pro forma adjustments are based on available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL TRANSACTION
PII ADJUSTMENTS PRO FORMA
---------- -------------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Assets:
Current assets:
Cash............................................................................... $ 234 $ (234)(a) $ --
Net receivables.................................................................... 29,312 29,312
Other current assets............................................................... 3,995 3,548(d) 7,543
---------- -------------- ---------
Total current assets............................................................. 33,541 3,314 36,855
Net property, plant and equipment.................................................. 45,007 45,007
Goodwill, net...................................................................... 8,649 8,649
Other assets....................................................................... 1,126 5,538(b) 6,664
---------- -------------- ---------
Total assets..................................................................... $88,323 $ 8,852 $ 97,175
---------- -------------- ---------
---------- -------------- ---------
Liabilities and Stockholders' Equity:
Current liabilities:
Current installments of long-term debt............................................. $ 2,617 $ (583)(c) $ 2,034
Current installments of notes payable to stockholders.............................. 131 131
Accounts payable and other current liabilities..................................... 8,197 14(a) 8,211
Accrued liabilities................................................................ 9,041 (350)(b) 7,791
(900)(e)
---------- -------------- ---------
Total current liabilities........................................................ 19,986 (1,819) 18,167
Long-term debt, net of current portion............................................. 15,542 6,723(c) 22,265
Notes payable to stockholders...................................................... 274 274
Senior Notes....................................................................... -- 100,000(a) 100,000
Deferred tax liability............................................................. 3,609 3,609
Accrued compensation............................................................... 5,306 1,174(d) 6,480
Senior Exchangeable
Preferred Stock.................................................................. -- 10,000(e) 10,000
Series A Preferred Stock........................................................... -- 10,428(e) 10,428
Stockholders' equity (deficit)..................................................... 43,606 (117,654)(e) (74,048)
---------- -------------- ---------
Total liabilities and stockholders' equity (deficit)............................... $88,323 $ 8,852 $ 97,175
---------- -------------- ---------
---------- -------------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Represents the New Credit Facility, Notes and Senior Exchangeable Preferred
Stock used to fund the Recapitalization and repay existing indebtedness
other than a promissory note. See "Use of Proceeds."
Components of pro forma adjustment are as follows:
<TABLE>
<S> <C>
New Credit Facility and Notes.............................................. $ 120,000
Equity Contribution and Equity Rollover.................................... 30,000
Senior Exchangeable Preferred Stock........................................ 10,000
Consideration in Recapitalization (including fees and expenses)(i)......... (140,500)
Repayment of debt.......................................................... (13,860)
Financing fees(i).......................................................... (5,888)
---------
Reduction in working capital............................................... $ (248)
---------
---------
</TABLE>
- ------------------
<TABLE>
<S> <C>
(i) Fees and expenses exclude amounts that were paid as of June 30, 1998.
</TABLE>
Components of the reduction in working capital are as follows:
<TABLE>
<S> <C>
Reduction in working capital.................................................. 248
Amount paid with available cash............................................... (234)
---------
Increase to accounts payable.................................................. 14
---------
---------
</TABLE>
(b) Represents financing fees incurred in connection with the incurrence of the
New Credit Facility, and the issuance of the Existing Notes and the New
Notes.
Components of the pro forma adjustment are as follows:
<TABLE>
<S> <C>
Financing fees................................................................ 5,888
Financing fees previously accrued............................................. (350)
---------
5,538
---------
---------
</TABLE>
(c) Reflects the repayment of debt with proceeds from the Transactions.
<TABLE>
<S> <C>
Current installments of long-term debt....................................... $ 583
Long term debt............................................................... 13,277(i)
---------
Repayment of debt............................................................ $ 13,860
---------
---------
</TABLE>
- ------------------
<TABLE>
<S> <C>
(i) Components of pro forma adjustment to long-term debt are as follows:
</TABLE>
<TABLE>
<S> <C>
New Credit Facility.......................................................... $ 20,000
Repayment of long-term debt.................................................. (13,277)
---------
Adjustment to long-term debt................................................. $ 6,723
---------
---------
</TABLE>
(d) Reflects stock-based compensation expense and the related deferred tax asset
that is triggered by the Transactions.
<TABLE>
<S> <C>
Accrued compensation......................................................... $ (8,870) (i)
Deferred tax asset........................................................... 3,548
---------
Effect on stockholders' equity (deficit)..................................... $ (5,322)
---------
---------
</TABLE>
- ------------------
<TABLE>
<S> <C>
(i) Components of pro forma adjustment to accrued compensation:
Additional accrued compensation........................................... $ 8,870
Consideration in recapitalization related to stock-based accrued
compensation............................................................ (7,696)
---------
Net pro forma adjustment.................................................. $ 1,174
---------
---------
</TABLE>
28
<PAGE>
(e) Components of pro forma adjustments to stockholders' equity (deficit) are as
follows:
<TABLE>
<S> <C>
Equity Contribution........................................................ $ 21,300
Equity Rollover............................................................ 8,700
Senior Exchangeable Preferred Stock........................................ 10,000
---------
Subtotal................................................................. 40,000
Less:
Amount attributable to Senior Exchangeable Preferred Stock............... 10,000
Amount attributable to Series A Preferred Stock.......................... 10,428
Adjustment related to stock-based compensation........................... 5,322
Consideration in Recapitalization (including fees and expenses)(ii)...... 132,804(i)
Less: Fees and expenses accrued (but unpaid) as of June 30, 1998......... (900)
---------
Net pro forma adjustment............................................ $(117,654)
---------
---------
</TABLE>
------------------------
<TABLE>
<S> <C>
(i) Consideration in Recapitalization includes:
Consideration in Recapitalization affecting stockholders' equity
(deficit)............................................................. $ 128,504
Fees and expenses (excluding financing fees)............................ 4,300
---------
Subtotal.............................................................. 132,804
Consideration attributable to stock-based accrued compensation.......... 7,696
---------
Total consideration................................................... $ 140,500
---------
---------
(ii) Fees and expenses exclude amounts that were paid as of June 30, 1998.
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------
HSI
HISTORICAL HISTORICAL ACQUISITION TRANSACTION
PII(A) HSI(A) ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 101,170 $ 13,536 $ 114,706
Cost of Revenues.................................... 72,395 9,785 82,180
------------ ----------- ----------- ----------- ------------
Gross profit...................................... 28,775 3,751 32,526
General and administrative expense.................. 19,880 2,164 $ 461(b) $ (2,056)(b) 20,449
Other compensation.................................. 3,271 -- -- (3,271)(c) --
Other operating income.............................. 644 -- 644
------------ ----------- ----------- ----------- ------------
Earnings before interest expense and income
taxes........................................... 6,268 1,587 (461) 5,327 12,721
Interest expense.................................... 1,036 21 169(f) 12,747(d) 13,973
------------ ----------- ----------- ----------- ------------
Earnings (loss) before income taxes............... 5,232 1,566 (630) (7,420) (1,252)
Income tax expense (benefit)........................ 2,531 -- (3,032)(e) (501)
------------ ----------- ----------- ----------- ------------
Net earnings (loss)............................... 2,701 1,566 (630) (4,388) (751)
Accretion of preferred stock to redemption value.... -- -- -- 2,406(g) 2,406
------------ ----------- ----------- ----------- ------------
Net earnings (loss) available to common
stockholders.................................... $ 2,701 $ 1,566 $ (630) $ (6,794) $ (3,157)
------------ ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ------------
Earnings (loss) per share(j):
Basic............................................. $ 6.67 -- -- -- (5.57)
Diluted........................................... $ 6.55 -- -- -- (5.57)
Weighted average number of shares outstanding:
Basic............................................. 405,103 -- -- -- 1,000,000
Diluted........................................... 412,434 -- -- -- 1,000,000
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
30
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS)
(a) Historical PII includes twelve months of PII results of operations and HSI
results of operations from April 30, 1998 through June 30, 1998. Historical
HSI includes HSI results of operations for the period July 1, 1997 through
April 29, 1998.
(b) Pro forma adjustment to reflect general and administrative expenses is as
follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
HSI Acquisition--Goodwill amortization (i)...................................................... $ 461
-------------
-------------
Compensation expense for certain employee salaries
and bonuses (ii).............................................................................. $ (1,180)
Inclusion of the Company in the BRS and Co. Portfolio Insurance Program (iii)................... (814)
Nonrecurring Transactions related expenses incurred during the year ended June 30, 1998......... (1,200)
Sponsor management fee (iv)..................................................................... 300
Pro forma amortization of financing fees (v).................................................... 838
-------------
Net pro forma general and administrative transaction adjustment............................... $ (2,056)
-------------
-------------
</TABLE>
----------------------------
(i) Reflects ten months of goodwill amortization related to the HSI Acquisition
which is being amortized on a straight line basis over 15 years.
(ii) As a result of the Recapitalization these functions will no longer be
performed or will be performed by other personnel of the Company or by the
Sponsor.
(iii) Reflects the difference between the Company's actual insurance costs and
the insurance costs which have been contracted for as a result of the
Company's inclusion in the BRS Portfolio Company Insurance Program.
(iv) Under the terms of the Management Agreement, the Sponsor will receive an
annual management fee in consideration for financial and strategic
advisory services. See "Certain Relationships and Related Transactions."
(v) Adjustment to reflect amortization of financing fees related to the
Revolving Credit Facility, Term Loan Facility and the Notes is as follows:
<TABLE>
<CAPTION>
PRO FORMA
AMORTIZATION
ASSUMED FOR THE YEAR
FINANCING MATURITY ENDED
ASSUMED NEW DEBT FEES (IN YEARS) JUNE 30, 1998
- ----------------------------------------------------------------------- ----------- --------------- ---------------
<S> <C> <C> <C>
Revolving Credit Facility.............................................. $ 600 6 $ 100
Term Loan Facility..................................................... 600 6 100
Notes.................................................................. 5,100 8 638
----------- -----
Total $ 6,300 $ 838
----------- -----
----------- -----
</TABLE>
31
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) The pro forma adjustment is to eliminate nonrecurirng other compensation
expense incurred in connection with the Transactions.
(d) Pro forma adjustment to record interest expense related to the Revolving
Credit Facility, Term Loan Facility and the Notes, net of a decrease in
interest expense from the assumed repayment of existing debt, is as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Pro forma interest expense on new debt (i)...................................................... $ 13,600
Fee for unused portion of Revolving Credit Facility (ii)........................................ 150
Decrease from repayment of actual interest expense on existing debt............................. (1,003)
-------------
Net pro forma interest expense adjustment..................................................... $ 12,747
-------------
-------------
</TABLE>
(i) Pro forma adjustment to record interest expense on new debt is as follows:
<TABLE>
<CAPTION>
PRO FORMA
INTEREST
ASSUMED ASSUMED EXPENSE FOR
INTEREST OUTSTANDING YEAR ENDED
ASSUMED NEW DEBT RATE BALANCE JUNE 30, 1998
- ---------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Revolving Credit Facility............................................. 8.0%(1) -- --
Term Loan Facility.................................................... 8.0%(2) $ 20,000 $ 1,600
Notes................................................................. 12.0% 100,000 12,000
-------------
Total pro forma interest expense on new debt........................ $ 13,600
-------------
-------------
</TABLE>
------------------------------
(1) Interest on the Revolving Credit Facility is based on 2.25% in excess of
LIBOR (LIBOR assumed to be 5.75%). See "Description of Certain
Indebtedness--New Credit Facility".
(2) Interest on the Term Loan Facility is based on 2.25% in excess of LIBOR
(LIBOR assumed to be 5.75%). See "Description of Certain Indebtedness--New
Credit Facility".
If interest rates for the Term Loan Facility and the Revolving Credit
Facility were to increase (decrease) by 1/8 of 1%, net income would decrease
(increase) by less than $0.1 million for the year ended June 30, 1998.
(ii) Represents the commitment fee equal to 1/2 of 1% per annum on the undrawn
portion of the available commitment under the Revolving Credit Facility.
See "Description of Certain Indebtedness--New Credit Facility".
(e) The pro forma income tax adjustment has been computed to result in a pro
forma income tax expense (benefit) that is at a 40% effective rate.
(f) Reflects ten months of interest expense related to the promissory note due
to the seller of HSI that will remain outstanding after the Transactions.
The note bears interest at a rate of 5.51% per annum.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Interest expense related to promissory note..................................................... $ 169
</TABLE>
32
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
(DOLLARS IN THOUSANDS)
(g) Reflects the accretion of preferred stock to the mandatory redemption price.
Increase represents the cumulative dividends which accrue at a 13% and a
10.5% per annum rate for the Series A Preferred Stock and the Senior
Exchangeable Preferred Stock, respectively.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Accretion of Senior Exchangeable Preferred Stock to redemption value............................ $ 1,050
Accretion of Series A Preferred Stock to redemption value....................................... 1,356
------
$ 2,406
------
------
</TABLE>
(h) Pro forma EBITDA is calculated as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Earnings before interest expense and income taxes............................................... $ 12,721
Depreciation and amortization................................................................... 10,699
Stock-based compensation expense................................................................ 1,315
-------------
Pro Forma EBITDA............................................................................ $ 24,735
-------------
-------------
</TABLE>
(i) The stock-based compensation expense of $9,578 and related income tax
benefit of $3,831 that is triggered by the Transactions is not reflected in
the unaudited pro forma condensed consolidated statements of earnings as
this will be a material nonrecurring charge.
(j) Calculation of pro forma net loss available to common stockholders:
<TABLE>
<S> <C>
Pro forma net loss available to common stockholders..................................... (3,157)
Non-accretive cumulative dividends on Series B Preferred Stock.......................... 2,414
---------
Adjusted pro forma net loss available to common stockholders............................ (5,571)
---------
---------
</TABLE>
33
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of PII for the five fiscal years ended June 30, 1998. The consolidated
statement of earnings data for the three years ended June 30, 1998 and the
consolidated balance sheet data as of June 30, 1997 and 1998 was derived from
the audited consolidated financial statements of PII included elsewhere herein.
The consolidated statement of earnings data for the two years ended June 30,
1995 and the consolidated balance sheet data as of June 30, 1994, 1995 and 1996
was derived from audited consolidated financial statements of PII. The other
data presented below was derived from PII prepared schedules. This table is
qualified in its entirety by reference to, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements of PII, including the
related notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Revenues.......................................................... $ 69,808 $ 70,839 $ 74,895 $ 95,298 $ 101,170
Cost of revenues.................................................. 50,799 50,142 51,200 68,541 72,395
Gross profit...................................................... 19,009 20,697 23,695 26,757 28,775
General and administrative expenses............................... 12,659 12,989 15,156 16,953 19,880
Other compensation................................................ -- -- -- -- 3,271
Other operating income, net....................................... 502 1,025 867 871 644
Earnings before interest expense and income taxes................. 6,852 8,733 9,406 10,675 6,268
Interest expense.................................................. 205 418 783 811 1,036
Earnings before income taxes...................................... 6,647 8,315 8,623 9,864 5,232
Income taxes...................................................... 2,849 3,455 3,538 4,407 2,531
--------- --------- --------- --------- ---------
Net earnings...................................................... $ 3,798 $ 4,860 $ 5,085 $ 5,457 $ 2,701
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS PER SHARE:
Basic........................................................... 9.84 12.64 13.24 13.61 6.67
Diluted......................................................... 9.78 12.51 13.05 13.38 6.55
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic........................................................... 386,099 384,464 383,958 400,813 405,103
Diluted......................................................... 388,315 388,618 389,621 407,728 412,434
OTHER DATA:
EBITDA(1)......................................................... $ 10,709 $ 13,638 $ 15,644 $ 19,565 $ 20,931
EBITDA margin(2).................................................. 15.3% 19.3% 20.9% 20.5% 20.7%
Depreciation and amortization..................................... $ 3,303 $ 4,168 $ 5,417 $ 6,878 $ 8,870
Capital expenditures.............................................. $ 5,809 $ 11,834 $ 11,511 $ 16,089 $ 13,816
Units of operated equipment rentals at end of period.............. 298 335 369 420 497
Number of locations at end of period.............................. 15 15 16 21 22
Ratio of earnings to fixed charges(3)............................. 17.6x 14.3x 10.4x 11.4x 5.3x
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Total assets...................................................... $ 39,376 $ 45,473 $ 53,378 $ 69,833 $ 88,323
Long-term obligations, including current maturities............... 6,200 6,781 8,981 14,111 18,564
Stockholders' equity.............................................. 22,363 26,912 32,032 39,253 43,606
</TABLE>
- ------------------------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, and excludes stock-related compensation
expense, reorganization costs and other compensation. Stock related
compensation expense was $0.6 million, $0.7 million, $0.8 million, $2.0
million and $1.3 million for fiscal 1994 through fiscal 1998, respectively
(for discussion of stock-related compensation expense and reorganization
costs and other compensation, see notes 8 and 14, respectively, to
consolidated financial statements). EBITDA is presented because Management
believes it provides useful information regarding a company's ability to
incur and/or service debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows, or other consolidated income or
cash flow data prepared in accordance with GAAP or as a measure of a
company's profitability or liquidity.
(2) EBITDA margin is defined as EBITDA divided by total revenues.
(3) For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consists of earnings before income taxes and fixed charges.
"Fixed Charges" consist of interest expense, which includes amortization of
debt issue costs and the interest portion of the Company's rent expense.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE PENHALL GROUP SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF PII, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The Penhall Group was founded in 1957 in Anaheim, California with one piece
of equipment, and today is one of the largest Operated Equipment Rental Services
companies in the United States. The Penhall Group differentiates itself from
other equipment rental companies by providing specialized services in connection
with infrastructure projects through renting equipment along with skilled
operators to serve customers in the construction, industrial, manufacturing,
governmental and residential markets. In addition, the Penhall Group complements
its Operated Equipment Rental Services with fixed-price contracts, which serve
to market its Operated Equipment Rental Services business and increase
utilization of its operated equipment rental fleet. The Penhall Group provides
its services from 22 locations in nine states, with a presence in some of the
fastest growing states in terms of construction spending and population growth.
From fiscal year 1993 to fiscal year 1998, revenue and EBITDA have grown at
a CAGR of 15.0% and 25.7% respectively, due primarily to Management's successful
implementation of a strategy focused on (i) maximizing high-margin Operated
Equipment Rental Services revenues through increased equipment rental fleet
utilization, (ii) controlling overhead and (iii) successfully integrating the
Penhall Group's acquisitions and start-up locations.
The Operated Equipment Rental Industry is a specialized niche of the highly
fragmented United States equipment rental industry, in which there are
approximately 17,000 companies. The Penhall Group has taken advantage of
consolidation opportunities by acquiring small companies in targeted markets as
well as by establishing new offices in those markets. Since 1994, the Penhall
Group has effected four strategic acquisitions, including Concrete Coring
Company, an Austin-based company acquired in 1995, Zig Zag Company, a
Denver-based firm acquired in 1996, Metro Concrete Cutting, an Atlanta-based
company acquired in 1996, and HSI, a Minnesota-based firm acquired in 1998.
During the same period, the Penhall Group established operations in four new
markets by opening offices in Las Vegas, Salt Lake City, Portland and Dallas.
The Penhall Group derives its revenues primarily from services provided for
infrastructure related jobs. The Penhall Group's Operated Equipment Rental
Services are complemented by long-term fixed-price contracts. Approximately 53%
of the Penhall Group's revenues are derived from highway-related projects,
approximately 29% of revenues are generated from building-related projects and
the remainder of revenues are generated from airport, residential and other
projects. The following table shows the breakdown of the components of revenue
for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
----------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
% OF % OF % OF
$ TOTAL $ TOTAL $ TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Operated Equipment Rental Services............................ $ 59,759 79.8% $ 69,510 72.9% $ 77,445 76.5%
Contract Services(1).......................................... 15,136 20.2 25,788 27.1 23,725 23.5
--------- --------- --------- --------- --------- ---------
Total Revenues.............................................. $ 74,895 100.0% $ 95,298 100.0% $ 101,170 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Contract services revenues excludes services performed by the operated
equipment rental divisions on long-term contracts.
35
<PAGE>
Revenue growth is influenced by infrastructure change, including new
construction, modification, and regulatory changes. The Penhall Group's revenues
are also impacted positively after the occurrence of natural disasters, such as
the 1989 and 1994 earthquakes in Northern and Southern California. Other factors
that influence the Penhall Group's operations are demand for operated rental
equipment, the amount and quality of equipment available for rent, rental rates
and general economic conditions. Historically, revenues have been seasonal, as
weather conditions in the spring and summer months result in stronger
performance in the first and fourth fiscal quarters than in the second and third
fiscal quarters.
The principal components of the Penhall Group's operating costs include the
cost of labor, equipment rental fleet maintenance costs including parts and
service, equipment rental fleet depreciation, insurance and other direct
operating costs. Given the varied, and in some cases specialized, nature of its
rental equipment, the Penhall Group utilizes a range of periods over which it
depreciates its equipment on a straight line basis. On average, the Penhall
Group depreciates its equipment over an estimated useful life of six years with
a 10% residual value.
The Penhall Group invests in and maintains a large and versatile fleet of
rental equipment ranging from relatively small items such as diamond abrasive
saws and coring units to larger equipment, including backhoes, excavators, water
trucks and concrete grinders. Used equipment is sometimes sold in the ordinary
course of business, and gains on sales of assets are recognized in "Other
Operating Income" in PII's consolidated statements of earnings. In fiscal 1996,
1997 and 1998, gains on sales of assets from such equipment sales were $331,000,
$258,000 and $203,000, respectively.
The following table shows the number of units in the Penhall Group's
operated equipment rental fleet for the following periods:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30,
-------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Beginning of Period.......................................................................... 335 369 420
# Units Purchased............................................................................ 70 75 99
# Units Disposed............................................................................. 36 24 22
--- --- ---
End of Period................................................................................ 369 420 497
--- --- ---
--- --- ---
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
REVENUES. Revenues for fiscal 1998 were $101.2 milion, an increase of $5.9
million, or 6.2%, over fiscal 1997 revenues. The increase was primarily
attributable to the acquisition of HSI in April 1998, the opening of new
locations in Dallas, Portland and Salt Lake City late in fiscal 1997 and general
strength in the construction markets which the Company serves. These
improvements were partially offset by the impact of the unusual amount of rain
experienced during the winter of 1998 in all of California as well as the
Southeast.
The Penhall Group operated through 22 locations in nine states at June 30,
1998, compared to 21 locations in eight states at June 30, 1997. The Penhall
Group also expanded the size of its operated equipment rental fleet during this
time period from 420 units to 497 units, or 18.3%.
GROSS PROFIT. Gross profit totaled $28.8 million in fiscal 1998, an
increase of $2.0 million, or 7.5%, from fiscal 1997. Gross profit as a
percentage of revenues increased from 28.1% for 1997, to 28.4% for 1998. This
increase in gross profit as a percentage of revenues was primarily attributable
to a lower proportion of the Company's revenues being derived from contract
revenues in fiscal 1998. Gross margins for contract services are generally lower
than for Operated Equipment Rental Services revenues.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for fiscal 1998 were $19.9 million, an increase of $2.9 million, or 17.3%, over
fiscal 1997. General and administrative expenses as a percentage of revenues
increased from 17.8% for fiscal 1997, to 19.7% for fiscal 1998. This increase in
general and administrative expenses as a percentage of revenues was primarily
attributable to costs associated with the Recapitalization Mergers and increases
in payroll and payroll related expenses, offset by a reduction in stock
compensation expense.
EARNINGS BEFORE INTEREST AND INCOME TAXES. Earnings before interest and
income taxes decreased $4.4 million, or 41.1%, to $6.3 million for fiscal 1998
as compared to $10.7 million during fiscal 1997. Earnings before interest and
income taxes as a percentage of revenues decreased from 11.2% in 1997, to 6.2%
in fiscal 1998. The decrease in earnings before interest and income taxes, and
decrease in earnings before interest and income taxes as a percentage of
revenues, during fiscal 1998 was primarily attributable to $1.2 million in costs
associated with the Recapitalization Mergers and other compensation expense of
$3.3 million for tax gross-up payments to certain members of management
associated with the Recapitalization Mergers.
INTEREST EXPENSE. Interest expense was slightly higher in fiscal 1998 at
$1.0 million as a result of higher average outstanding debt balances during
fiscal 1998 as compared with fiscal 1997.
INCOME TAXES. The effective income tax rate increased from 45% of earnings
before income taxes for fiscal 1997 to 48% for fiscal 1998. The increase was
attributable to an increase in the non-deductible portion of stock based
compensation, state income tax expense and permanent differences as a percentage
of total income tax expense.
NET EARNINGS. Net earnings were $2.7 million in fiscal 1998 compared to net
earnings of $5.5 million in fiscal 1997. This decrease of $2.8 million, or
50.5%, was attributable to improved results from operations offset by costs
associated with the Recapitalization Mergers.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
REVENUES. Revenues for fiscal 1997 were $95.3 million, an increase of $20.4
million, or 27.2%, over fiscal 1996 revenues. This increase was primarily
attributable to an improvement in the Southern California construction market, a
large contract in Northern California and the impact of the acquisition of Zig
Zag Company, a Denver-based firm, during fiscal 1996, which contributed to
revenues in fiscal 1997.
The Penhall Group operated through 21 locations in eight states at June 30,
1997, compared to 16 locations in five states at June 30, 1996. The Penhall
Group also expanded the size of its operated equipment rental fleet during this
time period, increasing units from 369 to 420, or 13.8%.
GROSS PROFIT. Gross profit totaled $26.8 million in fiscal 1997, an
increase of $3.1 million, or 12.9%, from fiscal 1996. Gross profit as a
percentage of revenues decreased from 31.6% for 1996, to 28.1% for 1997. This
decrease in gross profit as a percentage of revenues was primarily attributable
to a higher proportion of the Company's revenues being derived from contract
revenues in fiscal 1997. Gross margins for contract services are generally lower
than for Operated Equipment Rental Services revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for fiscal 1997 were $17.0 million, an increase of $1.8 million, or 11.9%, over
fiscal 1996. General and administrative expenses as a percentage of revenues
decreased from 20.2% for fiscal 1996, to 17.8% for fiscal 1997. This decrease in
general and administrative expenses as a percentage of revenues was primarily
attributable to the Penhall Group's ability to expand its operations and grow
without a proportionate increase in overhead cost offset by an increase of $1.2
million in stock related compensation expense for the year ended June 30, 1997
as compared to 1996.
37
<PAGE>
EARNINGS BEFORE INTEREST AND INCOME TAXES. Earnings before interest and
income taxes increased $1.3 million, or 13.5%, to $10.7 million for fiscal 1997
as compared to $9.4 million during fiscal 1996. Earnings before interest and
income taxes as a percentage of revenues decreased slightly from 12.6% in 1996,
to 11.2% in fiscal 1997. The increase in earnings before interest and income
taxes, and decrease in earnings before interest and income taxes as a percentage
of revenues, during fiscal 1997 was primarily attributable to substantially
higher revenues partially offset by lower gross margins and increases in general
and administrative expenses.
INTEREST EXPENSE. Interest expense was relatively unchanged in fiscal 1997
at $0.8 million as a result of similar average outstanding debt balances during
fiscal 1997 as compared with fiscal 1996.
INCOME TAXES. The effective income tax rate increased from 41% of earnings
before income taxes for fiscal 1996 to 45% for fiscal 1997. The increase was
attributable to an increase in the non-deductible portion of stock based
compensation related to the vesting and increase in repurchase value of PII's
common stock under certain buy-out agreements.
NET EARNINGS. Net earnings were $5.5 million in fiscal 1997 compared to net
earnings of $5.1 million in fiscal 1996. This increase of $0.4 million, or 7.3%,
was attributable to an improvement in earnings before interest and income taxes
partially offset by the increase in the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during fiscal 1996, 1997 and 1998 was
$10.7 million, $8.6 million and $16.6 million, respectively. In fiscal 1998,
higher depreciation, deferred taxes and higher accrued liabilities due to the
Recapitalization Mergers accounted for the improved cash from operations. In
fiscal 1997, accounts receivable increased due to an increase in average days
sales outstanding and strong fourth quarter 1997 revenues. Offsetting this was
higher depreciation costs resulting from growth in the Penhall Group's equipment
rental fleet and an increase in trade accounts payable.
Management estimates that the Penhall Group's annual capital expenditures
will be approximately $11.0 million to $12.0 million for fiscal 1999, including
replacement and maintenance of equipment, purchases of new equipment and
acquisitions.
Net cash used in investing activities during fiscal 1996, 1997 and 1998 was
$10.5 million, $15.1 million and $17.0 million, respectively. Such cash was
primarily used for capital expenditures of $11.5 million in fiscal 1996, $16.1
million in fiscal 1997, and $12.3 million in fiscal 1998. Also, in 1998 cash
used in investing activities includes $5.9 million related to the HSI
acquisition.
Net cash provided by (used in) financing activities during fiscal 1996, 1997
and 1998 was $0.7 million, $6.3 million and $(0.2) million, respectively.
Financing activities of the Penhall Group are primarily borrowings and
repayments of long-term debt.
Historically, the Penhall Group has funded its working capital requirements,
capital expenditures and other needs principally from operating cash flows.
Following consummation of the Transactions, however, the Company has substantial
indebtedness and debt service obligations. See "Description of Certain
Indebtedness--New Credit Facility" and "Description of the Notes." As of June
30, 1998, on a Pro Forma Basis, the Company and its subsidiaries would have had
approximately $124.7 million of total indebtedness outstanding (including the
Notes) and a stockholders' deficit of approximately $74.0 million. On a Pro
Forma Basis, the Company's ratio of earnings to fixed charges was 0.9x for the
latest twelve months ended June 30, 1998.
It is anticipated that the Company's principal uses of liquidity will be to
fund working capital, meet debt service requirements and finance the Company's
strategy of pursuing strategic acquisitions and expanding through internal
growth. The Company's principal sources of liquidity are expected to be cash
flow from operations and borrowings under the New Credit Facility. The New
Credit Facility consists of
38
<PAGE>
two facilities: (i) a six-year senior secured term loan facility in an aggregate
principal amount equal to $20.0 million (the "Term Loan Facility"); and (ii) a
six-year revolving credit facility in an aggregate principal amount not to
exceed $30.0 million (the "Revolving Credit Facility"). The Company drew $20.0
million of loans under the Term Loan Facility ("Term Loans") on the closing date
of the New Credit Facility in connection with the Recapitalization, and $30.0
million of additional borrowings are available under the Revolving Credit
Facility. The Term Loans amortize on a quarterly basis commencing in September
2000 and are payable in installments under a schedule set forth in the New
Credit Facility. Advances made under the Revolving Credit Facility ("Revolving
Loans") are due and payable in full at maturity. The Term Loans and the
Revolving Loans are subject to mandatory prepayments and reductions in the event
of certain extraordinary transactions or issuances of debt and equity by the
Company or any subsidiary of the Company that guarantees amounts under the New
Credit Facility. Such loans are also required to be prepaid with 75% of the the
Excess Cash Flow (as such term is defined in the New Credit Facility) of the
Company or, if the Company's Leverage Ratio (as such term is defined in the New
Credit Facility) is less than 4.75 to 1.0, 50% of such Excess Cash Flow.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate or other purposes
may be impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on
indebtedness; (iii) the agreements governing the Company's long-term
indebtedness will contain restrictive financial and operating covenants that
could limit the Company's ability to compete and expand; (iv) the Company's
leverage may make it more vulnerable to industry-related or general economic
downturns and may limit its ability to withstand competitive pressures; and (v)
certain of the Company's borrowings are and will continue to be at variable
rates of interest, which exposes the Company to the risk of increased interest
rates.
RECENT DEVELOPMENTS
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued two new
pronouncements: SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and its
components; and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which establishes new standards for reporting information
about operating segments in interim and annual financial statements.
Implementation of these statements are effective for fiscal years beginning
after December 15, 1997, although SFAS No. 131 does not need to be implemented
for interim periods. In the initial year of application, comparative information
for earlier years is to be restated. The Company does not expect that adoption
of these standards will have a material effect on its financial position or
results of operations.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Penhall Group has
established an informal Year 2000 task force. The Penhall Group has a plan which
lists the milestones achieved and yet to be completed to become Year 2000 ready.
A checklist of potential failure sources has been compiled and includes both
information technology and embedded technology systems. The Penhall Group has
completed its assessment of its information technology and embedded technology
systems and is in the testing phase of their plan. The Penhall Group expects to
be Year 2000 ready by June 30, 1999. The Penhall Group does not believe it has a
material relationship with any one third party that would have a significant
impact to the Penhall Group if that third party was not Year 2000 ready.
39
<PAGE>
The Penhall Group recently upgraded their information technology system,
both hardware and software, and feel those systems are Year 2000 ready. The
Penhall Group does not anticipate significant additional costs to become Year
2000 ready.
Delays in the implementation of the Year 2000 solutions or the failure of
any critical technology components to operate properly in the Year 2000 could
adversely affect the Penhall Group's operations. In addition, the Penhall Group
is uncertain as to the extent its customers may be affected by Year 2000 issues
that require commitment of significant resources and may cause disruptions in
its customers' businesses. Contingency plans have not been developed for all
mission critical information and embedded technologies in the event Year 2000
readiness is not met. The Penhall Group plans to have these contingency plans in
place by June 30, 1999.
40
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING EXISTING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Existing Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 199 ; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Existing Notes are outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1998 to all holders
of Existing Notes known to the Company. The Company's obligation to accept
Existing Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "--Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes, by giving
notice of such extension to the holders thereof. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Existing Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Existing Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Company will give notice of any extension, amendment, non-acceptance
or termination to the holders of the Existing Notes as promptly as practicable,
such notice in the case of any extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters' rights
under the Arizona Business Corporation Act in connection with the Exchange
Offer.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Existing Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to United States Trust Company
of New York at one of the addresses set forth below under "Exchange Agent" on or
prior to the Expiration Date. In addition, either (i) certificates for such
Existing Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Existing Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedure described below. THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
41
<PAGE>
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR EXISTING NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instruction" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by, the registered holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder of Existing Notes will represent to the Company
that, among other things, the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the holder is not a broker-dealer, the holder must represent that it is not
engaged in nor does it intend to engage in a distribution of the New Notes.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note. For purposes of the
42
<PAGE>
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Existing Notes for exchange when, as and if the Company has given oral and
written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Existing Notes or a timely
Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Existing
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Existing Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Existing Notes will be returned without expense to the tendering holder thereof
(or, in the case of Existing Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Existing Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Existing Notes desires to tender such Existing
Notes and the Existing Notes are not immediately available, or time will not
permit such holder's Existing Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Existing Notes and the amount of
Existing Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Existing Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "Exchange Agent." Any such notice of withdrawal must specify
the
43
<PAGE>
name of the person having tendered the Existing Notes to be withdrawn, identify
the Existing Notes to be withdrawn (including the principal amount of such
Existing Notes), and (where certificates for Existing Notes have been
transmitted) specify the name in which such Existing Notes are registered, if
different from that of the withdrawing holder. If certificates for Existing
Notes have been delivered or otherwise identified to the Exchange Agent then,
prior to the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Existing Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Existing
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Existing Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Existing Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Existing Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Existing Notes will
be credited to an account maintained with such Book-Entry Transfer Facility for
the Existing Notes) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Existing Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Existing Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Existing Notes for exchange or the exchange of New
Notes for such Existing Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). In any such event the Company is
required to use every reasonable effort to obtain the withdrawal of any stop
order at the earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
44
<PAGE>
BY MAIL, OVERNIGHT COURIER OR HAND:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
BY FACSIMILE:
(212) 852-1626
CONFIRM BY TELEPHONE:
(212) 852-1600
Delivery other than as set forth above will not constitute a valid delivery.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Existing
Notes, which is the principal amount as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The debt issuance costs will be capitalized for
accounting purposes.
TRANSFER TAXES
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
accrue interest at 12% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of Existing Notes do not have any appraisal
or dissenters' rights under the Arizona Business Corporation Act in connection
with the Exchange Offer. In general, the Existing Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Existing Notes under the Securities Act. However, (i) if the
Initial Purchasers so request with respect to Existing Notes not eligible to be
exchanged for New Notes in the
45
<PAGE>
Exchange Offer and held by them following consummation of the Exchange Offer or
(ii) if any holder of Existing Notes is not eligible to participate in the
Exchange Offer or, in the case of any holder of Existing Notes that participates
in the Exchange Offer, does not receive freely tradable New Notes in exchange
for Existing Notes, the Company is obligated to file a registration statement on
the appropriate form under the Securities Act relating to the Existing Notes
held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
46
<PAGE>
INDUSTRY OVERVIEW
The United States equipment rental industry serves a wide variety of
construction, industrial, manufacturing, governmental and residential markets
and benefits from the trend among businesses to outsource non-core operations.
Outsourcing reduces capital investment, converts costs from fixed to variable
and allows customers to focus on core operations and to minimize the downtime,
maintenance, repair and storage associated with equipment ownership. Customers
are increasingly using rental companies to provide a comprehensive supply of
equipment, ranging from construction and industrial equipment to general tools
and homeowner equipment. According to industry sources, the United States
equipment rental industry grew from approximately $600 million in 1982 to an
estimated $18 billion in 1997, resulting in a CAGR of 23.7%. The industry is
highly fragmented, with an estimated 17,000 equipment rental companies in the
United States, 85% of which operate four or fewer locations. The top 100
equipment rental firms account for only approximately 17% of industry revenue.
The Operated Equipment Rental Industry is a specialized niche of the United
States equipment rental industry and is characterized by heavy equipment which
is rented along with skilled operators to provide demolition, rehabilitation and
construction services in connection with infrastructure projects. Like the
overall equipment rental industry, the Operated Equipment Rental Industry is
highly fragmented and primarily consists of many relatively small, independent
businesses typically serving discrete local markets within 30 to 50 miles of the
equipment rental location, with few multi-location regional or national
operators. Traditionally, large Operated Equipment Rental Services companies
have focused their operations on providing a broad array of services to
relatively large customers, primarily in medium to large metropolitan markets,
while generally serving smaller markets through delivery from distant major
markets. The basis of competition in the Operated Equipment Rental Industry is
typically the breadth of product lines, the availability of equipment and
skilled operators, the condition of equipment, service, name recognition,
proximity to customers and price.
Management does not believe that the Penhall Group faces any significant
competitor on a national scale, as the Operated Equipment Rental Services niche
of the United States equipment rental industry is characterized primarily by
local providers offering a limited array of services. The Penhall Group believes
that there are substantial consolidation opportunities for large Operated
Equipment Rental Services providers such as itself.
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<PAGE>
BUSINESS
GENERAL
The Penhall Group, founded in 1957, is one of the largest operated equipment
rental providers in the United States. The Penhall Group differentiates itself
from other equipment rental companies by providing specialized services in
connection with infrastructure projects through renting equipment along with
skilled operators on an hourly or fixed-price quote basis ("Operated Equipment
Rental Services") to serve construction, industrial, manufacturing, governmental
and residential customers. In addition, the Penhall Group complements its
Operated Equipment Rental Services by providing services on a fixed-price
contract basis for long-term projects. The Penhall Group employs over 510
skilled operators and has approximately 497 units in its diverse operated
equipment rental fleet, which includes a broad selection of equipment ranging
from smaller items such as diamond abrasive saws and coring units, to large
equipment such as backhoes, excavators, water trucks and concrete grinders. The
Penhall Group provides its services from 21 locations in nine states, with a
presence in some of the fastest growing states in terms of construction spending
and population growth, including its primary market, California, as well as
other strategic markets including Arizona, Colorado, Nevada, Texas, Georgia and
Utah. The Penhall Group has a diverse base of over 6,800 customers, and other
than projects for federal, state and municipal agencies, no one customer has
accounted for more than 5% of its total revenue in any of the past five fiscal
years. The Penhall Group has a reputation for high quality service which results
in a high degree of customer loyalty and, based on the last fiscal quarter,
Management believes that on average in excess of 95% of its revenues are derived
through repeat business from existing customers. The Penhall Group has increased
its EBITDA margin from 13.2% in fiscal 1993 to 20.7% in fiscal 1998 due to
Management's focus on (i) maximizing high-margin Operated Equipment Rental
Services revenues through increased equipment rental fleet utilization, (ii)
controlling overhead and (iii) successfully integrating acquisitions and
start-up locations. During that same period, revenue and EBITDA grew at a CAGR
of 15.0% and 25.7%, respectively. During fiscal 1998, on a Pro Forma Basis, the
Penhall Group generated revenues and EBITDA of approximately $114.7 million and
$24.7 million, respectively.
Through its skilled operators and equipment rental fleet, the Penhall Group
performs new construction, rehabilitation and demolition services in connection
with infrastructure projects. For short duration assignments, typically lasting
from several hours to a few weeks, the Penhall Group generally provides Operated
Equipment Rental Services on an hourly or fixed-price quote basis. Services
provided in this manner include specialized work such as highway and airport
runway grooving and asphalt cutting, as well as demolition work such as concrete
breaking, removal and recycling. Operated Equipment Rental Services represented
approximately three quarters of total revenues for fiscal 1998. For longer
duration projects, which may last from a few days to several years, the Penhall
Group provides services on a fixed-price contractual basis. Services provided in
this manner include work for highway, airport and building general contractors,
federal, state and municipal agencies and for property owners. A majority of
fixed-price contract revenues are derived from long-term highway projects which
have an average contract length of approximately ten months. The Penhall Group
strives to maximize utilization of its operated equipment rental fleet and uses
its fixed-price contract services to (i) market its Operated Equipment Rental
Services, (ii) increase utilization of its operated equipment rental fleet and
(iii) differentiate it from other equipment rental competitors. As part of a
fixed-price contract project, the Penhall Group is responsible for completion of
an entire job or project, and typically employs its Operated Equipment Rental
Services. On average, approximately 20% to 30% of Operated Equipment Rental
Services revenues are generated from fixed-price contracts. Revenues generated
by Penhall's contract divisions, excluding services performed by the equipment
rental divisions on long-term contracts, represent approximately 23.5% of the
total revenues for fiscal 1998.
The Operated Equipment Rental Industry is a specialized niche segment of the
highly fragmented United States equipment rental industry. There are an
estimated 17,000 equipment rental companies in the United States, and no single
company represented more than 2% of total market revenues in 1996. According to
industry sources, the United States equipment rental industry grew from
approximately $600
48
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million in revenues in 1982 to an estimated $18 billion in 1997, representing a
CAGR of 23.7%. Management believes that the Operated Equipment Rental Industry
has grown at a similar rate during this period. This growth has been driven
primarily by construction spending and continued outsourcing of equipment needs
by construction and industrial companies. While customers traditionally have
rented equipment for specific purposes such as supplementing capacity during
peak periods and in connection with special projects, customers are increasingly
looking to rental operators to provide an ongoing, comprehensive supply of
equipment, enabling such customers to benefit from the economic advantages and
convenience of rental. Also, according to industry sources, for the six months
ended January 31, 1998, construction spending in the Penhall Group's Markets
grew by an average of 12.3%, significantly outperforming the 8% growth of United
States construction spending, primarily due to strong regional economies,
favorable demographics and growing levels of construction activity present in
these Markets. In addition, Management believes the Operated Equipment Rental
Industry will continue to grow significantly as, according to the United States
Department of Transportation, 59% of the nation's major roads are in poor or
mediocre condition and 31% of the nation's bridges are structurally deficient
and/or functionally obsolete. Also, the Transportation Bill recently approved by
the President of the United States calls for approximately a 44% increase in
national spending on highways and mass transit from current levels over the next
six years and approximately a 58% increase in the Penhall Group's Markets
overall on a non-weighted average basis.
COMPETITIVE STRENGTHS
Management believes that the following strengths will provide the Penhall
Group with significant competitive advantages and the opportunity to achieve
continued growth and increased profitability:
DIVERSIFIED REVENUE BASE. The Penhall Group has a diverse revenue base
resulting from (i) a broad base of over 6,800 customers, (ii) serving a broad
array of end-user markets, and (iii) offering a variety of services. Management
believes that the Penhall Group's diverse revenue base, along with the portion
of its business derived from customers that have fixed spending budgets, help
insulate it from economic downturns. The Penhall Group derives its revenues from
a diverse group of customers consisting of highway, airport and building general
contractors, and federal, state and municipal agencies in various construction,
industrial, manufacturing, governmental and residential markets. Other than
projects for federal, state and municipal agencies, no one customer has
accounted for more than 5% of the Penhall Group's total revenue in any of the
past five fiscal years. A significant portion of the Penhall Group's revenues
are generated from federal, state and municipal agencies, which typically invest
in infrastructure projects based on a fixed budget for a certain time period, as
opposed to discretionary spending tied to economic cycles. The Penhall Group
also offers a broad array of services ranging from the rental of a single unit
to contracting for an entire job, and its specialized services are concentrated
in both new construction as well as rehabilitation and maintenance of existing
infrastructure, which serves to mitigate the effects of cycles within the
construction industry. Within its array of services, the Penhall Group's
fixed-price contracts complement its Operated Equipment Rental Services and
serve to diversify the Penhall Group's revenue base, increase utilization of its
operated equipment rental fleet, and differentiate it from other equipment
rental competitors.
BROAD, MODERN OPERATED EQUIPMENT RENTAL FLEET. Management believes that the
Penhall Group has one of the most modern, diversified and well-maintained
operated equipment rental fleets in the United States and believes that the
quality and breadth of its fleet differentiates the Penhall Group from other
local operators. The Penhall Group has invested over $59.1 million in new
equipment over the past five fiscal years, during which period the Penhall
Group's operated equipment rental fleet grew from 298 to approximately 497 units
of equipment. The units in the Penhall Group's operated equipment rental fleet
have an average age of approximately four and a half years and an average useful
life of approximately nine years. The Penhall Group conducts a preventative
maintenance program which increases fleet utilization, extends the useful life
of the equipment and generally results in higher resale values.
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<PAGE>
WELL-POSITIONED FOR GROWTH. Management believes that the Penhall Group is
well-positioned for continued growth, primarily due to (i) its presence in
high-growth Markets, (ii) its leadership position in the growing Operated
Equipment Rental Industry, especially with respect to services for highway
projects, and (iii) acquisition opportunities resulting from the fragmented
nature of the Operated Equipment Rental Industry. In fiscal 1998, construction
spending in the Penhall Group's Markets significantly outperformed the national
growth rate of 8%. Management expects construction growth in the Markets to
continue to outpace national growth due to strong local economies, favorable
demographics and increased spending under the new Transportation Bill. In
addition, Management believes that based on the number of grinder units in its
operated equipment rental fleet, the Penhall Group is the largest provider of
grinding services in the United States, maintaining a market share of over 40%
of the national grinding market and approximately 80% of the grinding market in
California. As a market leader, the Penhall Group is well-positioned to benefit
from highway spending, which will increase from current levels by approximately
44% nationally, and approximately 58% in the Penhall Group's Markets overall on
a non-weighted average basis, under the new Transportation Bill. Finally,
Management believes that the financial resources available to the Penhall Group
following consummation of the Transactions, along with the fragmented nature of
the Operated Equipment Rental Industry, will enable the Penhall Group to take
advantage of strategic acquisition opportunities in both existing and new
markets.
The Penhall Group has benefited from having the majority of its operations
located in some of the fastest growing states in terms of construction spending
and population growth. The following table shows construction spending and
population growth statistics, two widely used indicators of activity in the
Operated Equipment Rental Industry, in the Penhall Group's Markets as compared
to national levels:
<TABLE>
<CAPTION>
INCREASE IN
% OF 1998 PENHALL CONSTRUCTION POPULATION PROJECTED INCREASE IN
MARKETS GROUP REVENUES SPENDING(1) GROWTH(2) HIGHWAY SPENDING(3)
- ----------------------------------------------- ------------------- --------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Arizona........................................ 8.7% 10.1% 2.7% 59.5%
California..................................... 70.8 19.5 1.3 45.6
Colorado....................................... 3.4 4.0 2.0 52.3
Georgia........................................ 2.9 5.3 2.0 69.7
Nevada......................................... 4.3 19.5 4.8 61.8
Texas.......................................... 3.8 19.4 2.0 60.7
Utah........................................... 1.6 8.6 2.1 57.8
Other.......................................... 4.5
Non-weighted average for the Markets....... 12.3% 2.4% 58.2%
National average........................... 8.0% 0.9% 44.1%
</TABLE>
- ------------------------------
(1) Year-over-year growth for six months ended January 31, 1998.
(2) Year-over-year growth for year ended December 31, 1997.
(3) Represents the projected percentage increase in aggregate highway spending
under the Transportation Bill for the period between 1998-2003 as compared
to the aggregate highway spending for the period 1992-1997.
STRONG REPUTATION AND SUPERIOR CUSTOMER SERVICE. Over its 40-year history,
the Penhall Group has built a reputation for high quality service, encompassing
(i) responsiveness to customer requirements, (ii) quality and availability of
equipment, (iii) experienced operators, and (iv) reliability of service. As a
result of its focus on customer service, the Penhall Group has developed many
long-term relationships, and based on the last fiscal quarter, Management
believes that on average in excess of 95% of its revenues are derived through
repeat business from existing customers. In addition, the Penhall Group's
skilled operators contribute to its superior customer service as they are
trained to specialize in the operation of particular types of equipment and
provide effective and efficient on-site services to complement the Penhall
Group's modern equipment rental fleet.
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EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY STAKE. Management has an
average of approximately 19 years of industry experience and 17 years of
experience with the Penhall Group. The Penhall Group's senior and regional
managers have successfully developed and implemented equipment rental fleet
management and financial strategies which have enabled the Penhall Group to
become one of the largest operators in its Markets. Upon consummation of the
Transactions, the Management Stockholders held approximately 37.5% of the common
equity of the Company.
GROWTH STRATEGY
Management has implemented a business strategy which is designed to enhance
the Penhall Group's position as one of the leading Operated Equipment Rental
Services companies in its Markets and to capitalize on opportunities to enter
new markets through a combination of acquisitions and start-up operations. The
Penhall Group has increased its EBITDA margin from 13.2% in fiscal 1993 to 20.7%
in fiscal 1998, and during the same period revenues and EBITDA grew at a CAGR of
15.0% and 25.7%, respectively. The Penhall Group believes that the following key
elements of its on-going strategy will provide it with the opportunity to
continue to achieve growth and increased profitability:
EXPAND GEOGRAPHIC PRESENCE. Management intends to continue to expand the
Penhall Group's geographic presence through both acquisitions and start-up
operations. Since 1994, the Penhall Group has effected four strategic
acquisitions and plans to continue to opportunistically target acquisition
candidates that (i) have a strong local market share and participate in a
high-growth market, and (ii) are led by an experienced management team that will
continue to manage the acquired business. Acquisitions enable the Penhall Group
to (i) enter new markets and increase geographic diversity, (ii) realize
synergies by leveraging its expertise in operated equipment rental fleet
management, and (iii) expand its operated equipment rental fleet and range of
services. Management believes that the equipment rental industry offers
substantial consolidation opportunities for large equipment rental providers
such as the Penhall Group. Relative to smaller companies with only one or two
rental locations, multi-regional operators such as the Penhall Group benefit
from a number of competitive advantages, including access to capital, the
ability to offer a broader range of modern, high-quality equipment, standardized
management information systems, volume purchasing discounts and the ability to
service larger, multi-regional accounts. Management also plans to selectively
enter new markets which have favorable growth dynamics through start-up
operations. The Penhall Group's decision to open a start-up location is based
upon its review of demographic information, business growth projections and the
level of existing competition. The Penhall Group opened three start-up locations
in fiscal 1997, the benefits of which have not yet been fully realized. Based on
the Penhall Group's historical experience, a new location tends to realize
significant increases in revenues, cash flow and profitability during the first
two years of operation as the Penhall Group builds a diverse operated equipment
rental fleet and contributes skilled management.
EXPAND OPERATED EQUIPMENT RENTAL FLEET AND INCREASE RANGE OF SERVICES
OFFERED. Management intends to continue to grow the Penhall Group's business in
both new and existing markets through further expansion of its operated
equipment rental fleet and services provided to its customers. Management plans
to expand the Penhall Group's operated equipment rental fleet by (i) adding new
units to existing equipment lines as utilization increases, and (ii) expanding
into new equipment lines which complement an existing Penhall Group service. In
addition, Management intends to further increase utilization through the
introduction of new services. To that end, the Penhall Group has recently
started offering Bare Equipment Rentals to its customers in Southern California
and expects to introduce this service to other markets. Management believes that
this strategy will help continue to increase profitability and enable the
Penhall Group to attract new business as a single source supplier for its
customers.
EQUIPMENT RENTAL FLEET
The Penhall Group owns and operates a well-maintained fleet of approximately
497 units of operated equipment, including excavators, stompers, backhoes,
compressors, "bobcats," crushing equipment, saws, drills and grinding and
grooving equipment. The Penhall Group also carries state-of-the-art manually-
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operated and remote-controlled breakers, which provide access to contaminated,
hazardous or limited access areas and which have been used for hazardous
projects such as the demolition of decommissioned nuclear power plants. The
following table is a summary of the Penhall Group's operated equipment rental
fleet and skilled operators, giving pro forma effect to the HSI Acquisition:
<TABLE>
<CAPTION>
NUMBER OF
SKILLED
DESCRIPTION QUANTITY OPERATORS
- ----------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Diamonds............................................................... 203 204
Compressors............................................................ 80 81
Excavators............................................................. 30 32
Grinders............................................................... 28 30
Backhoes............................................................... 37 38
Bobcats................................................................ 41 42
Tankers................................................................ 34 37
Stompers............................................................... 8 8
Loaders................................................................ 5 7
Miscellaneous.......................................................... 31 31
--- ---
Total Units.......................................................... 497 510
--- ---
--- ---
</TABLE>
Management believes that the size of the Penhall Group's operated equipment
rental fleet, combined with its inventory of specialty equipment, enables it to
compete more effectively by ensuring the availability of equipment at a
favorable cost.
Management estimates the average utilization of the Penhall Group's operated
equipment rental fleet to be approximately 71%. The average age of the operated
equipment rental fleet is approximately four and a half years, and the average
useful life of the fleet is approximately nine years.
In addition to its 497 unit operated equipment rental fleet, the Penhall
Group maintains an inventory of approximately 340 Bare Equipment Rentals which
are rented out on an hourly, daily, weekly or monthly basis without skilled
operators. Bare Equipment Rentals include personnel lifts, forklifts, front-end
loaders and light towers, and revenue generated by such units was not
significant for fiscal 1998.
The Penhall Group protects its investments in its equipment rental fleet
with an emphasis on proper operation and regular maintenance of the equipment.
Each Penhall Group location has its own shop, repair and maintenance staff that
routinely maintains and repairs the equipment rental fleet. The Penhall Group
believes that its maintenance program helps ensure maximum economic life of the
equipment and improves its ultimate resale value upon disposition. This
maintenance program also improves the availability of the equipment for use,
which in turn results in higher utilization rates.
SERVICES
The Penhall Group, through its operated equipment rental fleet and skilled
operators, serves its customer base in a wide variety of infrastructure
projects, including new construction, rehabilitation and demolition projects,
and provides specialized services such as highway and airport runway grooving,
asphalt cutting, concrete coring and demolition work. These services are
available singly but are more commonly provided by the Penhall Group in
conjunction with other services necessary to their application to a particular
project, including breaking, excavating, removing and recycling of construction
materials. The Penhall Group also provides services in connection with
earthquake retrofit projects, particularly in California, which include
retrofitting of highways, buildings, bridges and tunnels in order to bring them
in compliance with more stringent earthquake safety laws. Moreover, as a result
of the HSI Acquisition, the Company is the largest provider of grinding services
in the United States.
SPECIALTY SERVICES:
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- CUTTING. Cutting is the use of diamond abrasive saws to cut concrete and
asphalt. This service is frequently utilized in new construction to
provide rectangular openings in walls or floors, and is generally more
efficient than framing and forming the opening while the concrete is being
poured. Flat sawing also is commonly used in modifying existing structures
and road rehabilitation.
- CORING. Coring is the use of rotary drills to create holes ranging from
less than one inch to 42 inches in diameter. This service is most
frequently utilized both in new construction and in retrofit of existing
facilities to create spaces needed for installation of ventilation ducts,
conduits, electrical and other cables, and mechanical passageways. Coring
is also used in the Company's earthquake retrofit projects.
- GRINDING. Grinding is the use of diamond abrasive grinders to mill away
excess material as necessary to attain a uniform, level finish on flat
surfaces, such as highways, airport runways and industrial floors.
Grinding is also utilized as a maintenance process to extend the useful
life of highways by evening the wear patterns caused by years of heavy
traffic, to prevent cracking and subsequent failure of the surface.
- GROOVING. Grooving is the use of diamond abrasive groove cutting machines
to provide safety grooving of flat services. This service is commonly
provided in connection with the construction or modification of highways
and airport runways and provides for better tire traction on these
surfaces.
- SAWING AND SEALING. Sawing and sealing is the cutting of concrete and the
introduction of high-strength epoxy cement and sealant into cracks or
spaces to avoid water intrusion into the surface and to provide additional
structural strength.
OTHER SERVICES:
- BREAKING. Breaking is the use of manually-operated or, in hostile
environments, remotely-controlled high-energy hydraulic breaking equipment
to remove concrete. This service was most visibly utilized by the Penhall
Group in the removal of large sections of the Nimitz Freeway in Oakland,
California, following the 1989 earthquake, and in the removal of damaged
freeway bridges and overpasses in southern California following the 1994
earthquake. Breaking equipment is more commonly used in less dramatic
settings, such as interior renovation of industrial buildings to adapt
them to a new use, and in removal of existing structures in preparation
for redevelopment of the real estate. The Penhall Group has designed and
used remotely-controlled breakers for modification and removal of
facilities contaminated with radioactive material, such as nuclear power
stations and development laboratories. The Penhall Group is currently
providing breaking services in connection with a large-scale project in
Salt Lake City which calls for the breaking and removal of approximately
115 highway overpasses on U.S. Interstate 15 in order to widen the
Interstate in preparation for the 2002 Olympic Games.
- CLEARING AND REMOVAL. Clearing and removal is the use of excavators and
other heavy-duty equipment to remove broken concrete and other material
from a site to a point of recycling or disposal.
- CRUSHING AND RECYCLING. Crushing and recycling is the use of specialized
equipment to reduce the size of the material to a consistent
specification, separating out the steel reinforcing material for sale as
scrap, and providing an aggregate material suitable for use as
construction fill material and roadbase material. Such recycling provides
a valuable environmental benefit by conserving solid waste landfill space,
and converting a waste into a usable product.
- COMPACTION. Compaction is the preparation of subsoil base and fill
materials to a specification suitable for new construction on the site.
Compaction services typically are provided together with removal services
in the site preparation process for new construction or redevelopment.
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<PAGE>
OPERATIONS
The Penhall Group provides its services through (i) Operated Equipment
Rental Services, performed on an hourly as well as a fixed-price quote basis,
and (ii) fixed-price contracts, in which the Penhall Group is responsible for
the completion of a particular project.
The Penhall Group's Operated Equipment Rental Services involve short
duration assignments lasting from several hours to a few weeks and typically
generate revenues of less than $7,500. Services provided on this basis include
specialized work such as highway and airport runway grooving, asphalt cutting,
and demolition work such as concrete breaking, removal, and recycling. Although
all lines of equipment are rented for these types of projects, a given project
will typically use only one piece of equipment. Operated Equipment Rental
Services are typically provided on an hourly basis or for a project with
pre-determined specifications, and the Penhall Group quotes a fixed-price to bid
on, perform, and invoice the customer for the project. In fiscal 1998, the
Penhall Group generated 76.5% of its revenues from Operated Equipment Rental
Services.
The Penhall Group's services are made available to customers through its 21
regional locations. The Penhall Group maintains a basic equipment rental fleet
and operators at each of its 21 locations. If necessary, equipment can be
shipped from any of the Penhall Group's locations to projects at remote sites.
Rental fees for the Penhall Group's equipment range from $90 to $400 per hour
and encompass both the equipment and the operator's time. The Penhall Group
guarantees the availability of its equipment and operators for a committed job
with an "on-time guarantee," and will provide the first hour of work free if the
Penhall Group's operators fail to arrive for work at an appointed time. The
Penhall Group has not experienced any significant amount of lost revenues
through its "on-time guarantee" policy.
The Penhall Group solicits and receives business over the telephone, by
facsimile, by written purchase order or through Penhall Group salesmen. Each day
the Penhall Group's dispatcher at each location is responsible for the
allocation of resources to meet the customer's service and timing requirements.
The dispatcher matches all of the work requests for that day to available
equipment and operators. Each of the Penhall Group's skilled operators has an
expertise with a particular piece of equipment. Depending on the requirements
for that day, an operator may be assigned from one to four jobs on a given day.
An operator's time is allocated by job through job tickets, which generate both
payroll and customer billing data.
Historically, the Penhall Group has rented its equipment only in conjunction
with the services of a Penhall Group employee as the operator. Recently,
however, the Penhall Group has started operating rental yards and offering Bare
Equipment Rentals, or renting equipment without operators. To date, such Bare
Equipment Rentals have not constituted a material part of the Penhall Group's
revenues; however, the Penhall Group regards equipment only rentals as a
potential source of growth going forward.
Contract pricing involves longer duration assignments lasting from a few
days to several years and normally generates revenues of between $7,500 and
$10,000,000. Services provided on this basis include work for highway, airport
and building general contractors, federal, state and municipal agencies and for
property owners. Fixed-price contract projects typically use multiple types of
equipment concurrently and require a Penhall Group supervisor to coordinate the
safe and efficient function of the Penhall Group's workmen and equipment. For
fixed-price contract projects, the Penhall Group typically employs the use of
its Operated Equipment Rental Services as well as outside rental equipment and
sub-contractors. Although the Penhall Group has obtained contractor's licenses
in approximately 15 states (not including 16 states which do not require
licensing), it typically provides its services in the capacity of a
subcontractor under prime or general contracts in approximately half of its
fixed-price contract projects. On average, approximately 20% to 30% of Operated
Equipment Rental Services revenues are generated from fixed-price contracts.
Revenues generated by Penhall's contract divisions, excluding services performed
by the equipment rental divisions on long-term contracts, represent
approximately 23.5% of the total revenues for fiscal 1998.
The majority of the Penhall Group's fixed-price contracts are obtained
through competitive bidding for general contractors. The Penhall Group
determines whether to bid on a project primarily on the basis
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of the type of work involved. Other factors, including the time of the project,
the Penhall Group's ongoing project schedule and any particular risks involved
also affect the Penhall Group's determination whether to bid on a project. In
preparing a bid, the Penhall Group's estimators analyze material, labor and all
other cost components of the proposed project. The Penhall Group also will make
its own determination of the quantity of items needed for the project and assess
any special risks involved. The Penhall Group must specify in its bid a
fixed-price per unit within the range of the estimated quantity to be provided
under the contract. Generally, within this range, no adjustments in unit prices
are made and the Penhall Group is committed to provide the items at the fixed
unit prices specified in its bid, and any unforeseen increase in the cost of the
items over the prices bid is borne by the Penhall Group. The Penhall Group has
not borne a significant amount of cost increases in connection with its
fixed-price contracting services.
The Penhall Group sometimes contracts directly with federal, state or local
governments or agencies, and in addition some of its work performed for general
contractors may relate to a general or prime contract with a governmental
entity. Generally the contracting agency reserves the right to terminate the
contract with the general contractor, without cause, for its own convenience. In
that event, the Penhall Group generally is entitled to be paid its costs for the
work performed to the date of termination. The Penhall Group has not experienced
any material contract cancellations in the past.
SALES AND MARKETING
The Penhall Group maintains a sales and estimating force of approximately 64
people, with at least two salespersons based at each of the Penhall Group's
operating locations calling on both new and existing customers. These
salespeople provide estimates and prepare bids for projects. Management believes
that its fixed-price contract services serve as a unique marketing tool for its
Operated Equipment Rental Services and help to increase the utilization of the
Penhall Group's operated equipment rental fleet.
Each of the Penhall Group's offices also maintains a sales and marketing
staff of approximately five people, which receives and schedules orders for
equipment rentals. The Penhall Group also regularly participates in industry
trade shows and conferences, and advertises in trade journals.
PURCHASING AND SUPPLIERS
The Penhall Group's size, status in the industry and relationships enable it
to purchase equipment directly from manufacturers at prices and on terms that
the Penhall Group believes to be more favorable than are available to its
smaller competitors. The Penhall Group's procurement of equipment for its rental
fleet is generally coordinated through its headquarters in Anaheim, California,
while smaller inventory items are typically purchased at the divisional level.
The Penhall Group's suppliers must meet specified standards of quality and
experience, and include well-known equipment manufacturers such as Caterpillar,
John Deere, Ingersoll-Rand, Kenworth, General Motors Company and Ford Motor
Company. The favorable pricing, service, training and information that the
Penhall Group receives from its suppliers represent what the Penhall Group
believes to be a significant competitive advantage. Management continually
analyzes the effectiveness, quality and profitability of the Penhall Group's
equipment and addresses equipment procurement issues. The Penhall Group
maintains no long-term supply or purchasing contracts and believes that it could
readily replace any of its existing suppliers if it were no longer advantageous
to purchase equipment from such suppliers.
CUSTOMERS
Most of the Penhall Group's customers consist of highway, airport and
building general contractors and subcontractors, and federal, state and
municipal agencies in various construction, industrial, manufacturing,
governmental and residential markets. Some of the Penhall Group's major
customers include the California Department of Transportation, Wasatch
Constructors, Turner Construction, San Diego Gas & Electric, Morrison Knudsen
and Koll Construction Company. During fiscal 1998, the Penhall Group served
approximately 6,800 customers and, other than projects for federal, state and
municipal agencies, no one customer has accounted for more than 5% of the
Penhall Group's revenues in any of the past five
55
<PAGE>
fiscal years. Based on the last fiscal quarter, Management believes that on
average, in excess of 95% of the Penhall Group's revenues represented repeat
business from existing customers. The capture rate for contracts on which the
Penhall Group bids is greater than 25% based on volume.
COMPETITION
The Operated Equipment Rental Industry is a specialized niche of the overall
equipment rental industry and is highly competitive. The Penhall Group's
competitors include large national rental companies, regional companies, smaller
independent businesses and equipment vendors which sell and rent equipment to
customers. The industry is also highly fragmented, and primarily consists of
many relatively small, independent businesses typically serving discrete local
markets within 30 to 50 miles of the equipment rental location, with few
multi-location regional or national operators. Traditionally, large Operated
Equipment Rental Services companies have focused their operations on providing a
broad array of services to relatively large customers, primarily in medium to
large metropolitan markets, while generally serving smaller markets through
delivery from distant major markets.
Competitive factors in the Operated Equipment Rental Industry include
breadth of product lines, the availability of equipment and skilled operators,
the condition of equipment, service, name recognition, proximity to customers
and price. The Penhall Group believes that it is able to successfully compete in
the markets that it serves because of its reputation and large fleet of
equipment. In addition, certain of the services provided by the Penhall Group,
such as diamond saw cutting services, are highly specialized and therefore not
widely available; the market for these services therefore tends to be somewhat
less competitive. Management does not believe that the Penhall Group faces any
significant competitor on a national scale, as the Operated Equipment Rental
Industry is characterized primarily by local providers offering a limited array
of services.
Management believes the Operated Equipment Rental Industry benefits from the
trend among businesses to outsource non-core operations to reduce capital
investment, convert costs from fixed to variable and minimize the downtime,
maintenance, repair and storage associated with equipment ownership. Customers
are increasingly using Operated Equipment Rental Services companies to provide a
comprehensive supply of equipment and operators.
The Penhall Group's fixed-price contract projects are obtained through
competitive bidding. In many cases, a performance bond is required by a customer
before a contract is awarded. The Penhall Group believes that its bonding
capacity is a competitive advantage over smaller, less financially stable
competitors. Moreover, the Penhall Group believes that it is able to compete
effectively for fixed-price contract jobs because of its extensive resources and
relationships with general contractors. See "Risk Factors-- Competition."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Penhall Group currently holds a United States trademark and service mark
with respect to the "Penhall" name and logo, which it believes are of particular
importance to the Penhall Group's business. Except with respect to the "Penhall"
name and logo, the Penhall Group is not dependent on any intellectual property
rights.
MANAGEMENT INFORMATION SYSTEM
The Penhall Group utilizes a state-of-the-art management information system,
which was implemented at the beginning of fiscal 1997 and gives Management the
ability to analyze divisional results by line of equipment. This information
network is used to make decisions with respect to investments in new equipment
as well as certain other competitive decisions. In addition, the system provides
information with respect to contract work in progress, which is used by project
managers and contract division management to monitor the status of jobs in
progress. The Penhall Group continues to invest in state-of-the-art network
56
<PAGE>
and communications equipment in order to provide more timely information to the
outlying locations and to ensure on-line access to the information needed to run
their operations.
RADIO COMMUNICATIONS
The Penhall Group licenses from Motorola and, in one case, from an
individual, the right to operate and install certain radio repeater equipment at
a number of sites in the State of California. This equipment allows the Penhall
Group and its operators in the field to communicate with each other by radio.
In connection with the radio communications referred to above, the Penhall
Group holds several licenses from the Federal Communications Commission ("FCC")
that allow it to broadcast over certain designated radio frequencies. These
licenses may not be assigned without the FCC's consent. The Penhall Group
believes that the Mergers constituted an assignment for purposes of the FCC
licenses and has applied for the necessary FCC consent. The Penhall Group
expects to receive the FCC's consent by the end of August 1998, if not sooner,
and has applied for temporary authorization to continue to use the FCC licenses
during the pendency of its application for such consent.
LABOR RELATIONS
The Penhall Group has approximately 950 full-time employees, including
approximately 510 skilled workers and approximately 76 management and
supervisory employees who have been employed with the Penhall Group for an
average of 11 years. The Penhall Group also hires hourly equipment operators on
a project basis and when the number of jobs in progress necessitates additional
operators.
While none of the employees at the Company are represented by a labor union,
approximately 376 employees at PenCo are represented by various labor unions.
The Penhall Group's unionized workforce is divided into approximately 16
certified or lawfully recognized bargaining units, several of which are
represented by the same local union. Approximately 319 of the Penhall Group's
employees fall into six bargaining units; the remaining ten bargaining units are
quite small, consisting in some cases of only one or two employees. As is common
in the industry, most of the collective bargaining agreements covering these
bargaining units are multi-employer agreements negotiated by various employer
associations.
One of the agreements expired in May 1998, and the Penhall Group and the
union have agreed to abide by the terms of the expired agreement on a
month-to-month basis while the multi-employer association attempts to negotiate
a successor agreement. The Penhall Group cannot provide assurances that a
successor agreement will be reached or that work stoppages will not occur in
connection with the negotiation of a successor agreement. Another master
agreement covering three bargaining units in Southern California (consisting of
approximately 76 employees) expired on June 30, 1998. A successor agreement
proposed by the multi-employer bargaining association has been accepted by the
unions (and ratified by their members), and it is anticipated that the
multi-employer association will sign the agreement shortly. A third
multi-employer agreement covering a bargaining unit of 31 employees in Nevada
also expired on June 30, 1998, and a successor agreement has recently been
entered into with the union. Of the remaining collective bargaining agreements,
one expires in October 1998; one in May 1999; two in June 1999; three in June
2000; three in April 2001; and one in May 2001.
There are currently no unfair labor practice charges pending against the
Penhall Group either before the National Labor Relations Board or the courts.
However, Local 12 of the Operating Engineers, which represents workers at three
of the bargaining units, claims that its master agreement covers certain Penhall
Group employees whom the Penhall Group has not recognized as covered by the
agreement. Local 12 claims, in particular, that the Penhall Group is required to
contribute to a certain union benefit fund on behalf of these employees; the
claimed delinquency payments owed to the fund were, as of the fund's last audit
in 1994, approximately $392,074. Local 12 has not, however, filed any legal
proceedings or grievances arising from this dispute, even though the dispute is
long-standing. In addition to this dispute with Local 12, the Penhall Group is
party to two union grievances, neither of which is likely have any material
adverse effect on the Penhall Group's operations or financial condition
regardless of their resolution.
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PROPERTIES
The Penhall Group is headquartered in Anaheim, California, and currently
owns or leases 21 additional facilities (one of which is currently vacant and
for sale) which are used for equipment yards and accompanying office space.
The following table sets forth the location and square footage of each of
the Penhall Group's facilities.
<TABLE>
<CAPTION>
LOCATION APPROX. SQUARE FEET
- -------------------------------------------------------------------------- -------------------
<S> <C>
Anaheim, California....................................................... 18,300
Gardena, California....................................................... 3,850
Camarillo, California..................................................... 3,600
San Leandro, California................................................... 6,000
Sacramento, California.................................................... 8,000
San Diego, California..................................................... 5,600
San Diego, California(1).................................................. 3,750
Rialto, California(2)..................................................... 6,000
Santa Clara, California(2)................................................ 9,950
Irvine, California(2)..................................................... 3,600
Irvine, California(2)..................................................... 9,500
Bakersfield, California(2)................................................ 4,000
Burbank, California....................................................... 6,200
Phoenix, Arizona.......................................................... 12,900
Austin, Texas............................................................. 6,100
Grapevine, Texas(2)....................................................... 11,000
Denver, Colorado.......................................................... 15,100
Austell, Georgia(2)....................................................... 8,000
Las Vegas, Nevada(2)...................................................... 4,000
Portland, Oregon(2)(3).................................................... 24,000
Salt Lake City, Utah(2)................................................... 10,500
Rogers, Minnesota(2)...................................................... 11,000
</TABLE>
- ------------------------
(1) Property is currently vacant and for sale.
(2) Leased property.
(3) 12,000 square feet of this property is sub-leased to a sub-tenant.
The Penhall Group presently leases eleven sites in seven states
(collectively, the "Leased Sites"). The average remaining term of the leases
under which the Leased Sites are held (collectively, the "Real Property Leases")
is 5.6 years (assuming the exercise of all option periods). The Real Property
Leases for the following four Leased Sites have remaining terms of less than
three years: (i) Las Vegas, Nevada-- monthly tenancy; (ii) Irvine California
(16332 Construction Circle West)--monthly tenancy; (iii) Bakersfield,
California--May 30, 2000; and (iv) Austell, Georgia--January 31, 2001.
The Penhall Group acquired a property in Las Vegas, Nevada, on or about July
30, 1998, upon which it intends to construct a new facility. The lease term for
the Las Vegas facility which the Penhall Group currently occupies has expired
and the Penhall Group is leasing the property on a month-to-month basis. Once it
constructs the new facility, the Penhall Group's operations in Las Vegas will be
transferred and the current month-to-month lease will be terminated.
The lease for one of the two facilities that the Penhall Group has in
Irvine, California (located at 16332 Construction Circle West) has expired and
the Penhall Group is occupying the property on a month to month basis. The
Penhall Group is currently negotiating a renewal of the expired Irvine,
California lease and does not foresee any difficulties in finalizing the
renewal.
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Based on the rental rates in effect on July 1, 1998, aggregate annual base
rent payable under all of the Real Property Leases totals approximately $596,000
and the average annual base rent payable under each of the Real Property Leases
is approximately $54,000 exclusive of common area maintenance charges and other
items of additional rent. Several of the Real Property Leases provide for
increases in the base rent during the remaining term thereof (including option
periods). In some cases, the amounts of the increases are fixed, while in
others, the increases are tied to the Consumer Price Index.
The Penhall Group believes that its facilities are suitable for its current
operations and provide sufficient capacity to meet present needs. However, if
the Penhall Group expands its geographic base of operations it may have to
obtain additional facilities.
GOVERNMENTAL REGULATION
The operations of the Penhall Group are subject to certain federal, state
and local laws and regulations concerning labor relations, wage rates, equal
opportunity employment and affirmative action. While compliance with such laws
and regulations has not adversely affected the Penhall Group's operations in the
past, there can be no assurance that these requirements will not change or that
future compliance will not adversely affect the Penhall Group's operations.
The Penhall Group's facilities and operations are also subject to certain
federal, state and local laws and regulations relating to environmental
protection and occupational health and safety, including those governing
wastewater discharges, the treatment, storage and disposal of solid and
hazardous wastes and materials, and the remediation of contamination associated
with the release of hazardous substances. The Penhall Group believes that it is
in material compliance with such requirements and does not currently anticipate
any material capital expenditures for environmental compliance or remediation
for the current or the immediately succeeding fiscal year. The Penhall Group
operates at a number of locations at which petroleum products are stored in
underground tanks. The Penhall Group is currently in the process of complying
with up-coming regulatory obligations to upgrade or close underground storage
tanks under the Resource Conservation and Recovery Act of 1980, as amended
("RCRA"), including all applicable requirements of state regulatory agencies,
which must be met by December 22, 1998. The Penhall Group believes that the
costs associated with the storage tank upgrades or closures (including the cost
to address any associated contamination) would not reasonably be expected to
exceed $170,000.
Certain of the Penhall Group's present and former facilities and operations
at off-site construction sites have used substances and generated or disposed of
wastes which may include material which is or may be considered hazardous or are
otherwise regulated by environmental laws, and the Penhall Group may incur
liability in connection therewith. Moreover, there can be no assurance that
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. Such future changes or
interpretations, or the identification of adverse environmental conditions
currently unknown to the Penhall Group, could result in additional environmental
compliance or remediation costs to the Penhall Group. Such compliance and
remediation costs could be material to the Penhall Group's financial condition
or results of operations. See "Risk Factors--Governmental Regulation."
LEGAL PROCEEDINGS
The Penhall Group is from time to time involved in various legal proceedings
and claims arising in the ordinary course of business. The Penhall Group
believes that there is no outstanding litigation which could have a material
impact on its operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company. Directors of the Company hold
their offices for a term of one year or until their successors are elected and
qualified; executive officers of the Company serve at the discretion of the
Board of Directors. For information concerning certain arrangements with respect
to the election of directors, see "Ownership of Capital Stock -- Stockholders
Agreement."
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John T. Sawyer....................................... 53 Chairman of the Board of Directors, President and
Chief Executive Officer
Clark George Bush.................................... 43 Vice President and Regional Manager, Southern
California Region
M. Bruce Repchinuck.................................. 49 Vice President and Regional Manager, Northwest Region
Bruce F. Varney...................................... 46 Vice President and Regional Manager, Southwest Region
Martin W. Houge...................................... 40 Vice President-Finance and Chief Financial Officer
David S. Neal........................................ 36 Regional Manager, Southern Region
Gary Aamold.......................................... 48 Vice President and Regional Manager,
Highway Services Division
Bruce C. Bruckmann................................... 44 Director
Harold O. Rosser II.................................. 49 Director
</TABLE>
JOHN T. SAWYER, CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, joined PII in 1978 as the Estimating Manager of the Anaheim
Division. In 1980, Mr. Sawyer was appointed Manager of PII's National
Contracting Division, and in 1984, he assumed the position of Vice President and
became responsible for managing all construction services divisions. Mr. Sawyer
has been President of PenCo since 1989.
CLARK GEORGE BUSH, VICE PRESIDENT AND REGIONAL MANAGER, SOUTHERN CALIFORNIA
REGION, joined PII in 1980 as an Estimator and Jobsite Manager and became a
Division Manager in 1984. Mr. Bush was promoted to Regional Manager of Southern
California in 1986. In 1990, Mr. Bush was appointed as President of the Company,
where he served until his recent appointment as Vice President of PII with
responsibility for the Southern California region.
M. BRUCE REPCHINUCK, VICE PRESIDENT AND REGIONAL MANAGER, NORTHWEST REGION,
began his career with PII in 1975 and served in several capacities before being
named as Manager of the Oakland Division in 1980. In 1987, Mr. Repchinuck was
promoted to Regional Manager and in 1989 was named as Vice President. Mr.
Repchinuck currently serves as Regional Manager of the Northwest region.
BRUCE F. VARNEY, VICE PRESIDENT AND REGIONAL MANAGER, SOUTHWEST REGION,
began his employment with PII in 1977, and in 1981 was named Manager of the San
Diego Division. From 1991 to 1993, Mr. Varney served as Regional Manager for
Southern California, and in 1993 he was appointed as Southwest Regional Manager.
In April 1998, Mr. Varney was promoted to Vice President.
MARTIN W. HOUGE, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER, joined
PII in 1996 as Chief Financial Officer. From 1989 to 1996, Mr. Houge served in
various financial positions with the Furon Company, including Director of
Accounting, Division Controller and Director of Internal Audit. From 1979 to
1989, he was in public accounting with Arthur Young and Company. Mr. Houge is a
certified public accountant.
DAVID S. NEAL, REGIONAL MANAGER, SOUTHERN REGION, joined PII in 1990. Mr.
Neal served as an estimator and division manager prior to being named Regional
Manager in April 1998. Prior to joining PII, Mr. Neal held several project
management positions in the highway contracting industry.
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GARY AAMOLD, VICE PRESIDENT AND REGIONAL MANAGER, HIGHWAY SERVICES DIVISION,
joined PII as a result of the HSI Acquisition in April 1998. Since 1989, Mr.
Aamold has served in various managerial capacities for HSI.
BRUCE C. BRUCKMANN, DIRECTOR, is a Managing Director of Bruckmann, Rosser,
Sherrill & Co., Inc. (the "Sponsor"). He was an officer of Citicorp Venture
Capital Ltd. from 1983 through 1994. Previously, he was an associate at the New
York law firm of Patterson, Belknap, Webb & Tyler. Mr. Bruckmann is a director
of AmeriSource Health Corporation, Anvil Knitwear, Inc., California Pizza
Kitchen, Inc., Chromecraft Revington Corporation, Cort Furniture Rental Corp.,
Jitney-Jungle Stores of America, Inc., MEDIQ Incorporated, Mohawk Industries,
Inc. and Town Sports International, Inc.
HAROLD O. ROSSER II, DIRECTOR, is a Managing Director of the Sponsor. He was
an officer of Citicorp Venture Capital Ltd. from 1987 through 1994. Previously,
he spent twelve years with Citicorp/Citibank in various management and corporate
finance positions. Mr. Rosser is a director of American Paper Group, Inc., B&G
Foods, Inc., California Pizza Kitchen, Inc., Jitney-Jungle Stores of America,
Inc. and Acapulco Restaurants, Inc.
For information concerning certain arrangements with respect to the
composition of the Board of Directors of the Company, see "Ownership of Capital
Stock -- Stockholders Agreement."
DIRECTOR COMPENSATION AND ARRANGEMENTS
Following consummation of the Transactions, each non-employee director of
the Company will be paid an annual retainer of $12,000 plus fees of $1,000 for
each board meeting attended and $500 for each committee meeting attended.
Directors who are employees of the Company will not receive additional
compensation as directors.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for fiscal
1998 to the Chief Executive Officer of PII and to each of the four other most
highly compensated executive officers of the Penhall Group. Upon consummation of
the Transactions, Roger C. Stull retired as Chief Executive Officer of PII.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) COMPENSATION(3)
- -------------------------------------------------------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Roger C. Stull.......................................... $ 402,412 $ 500,000 $ 8,856 $ 79,109(4)
Chief Executive Officer-PII
John T. Sawyer.......................................... $ 254,676 $ 155,000 $ 8,856 $ 3,452(5)
Vice President-PII and President-PenCo
C. George Bush.......................................... $ 142,607 $ 90,000 $ 8,856 $ 3,262(6)
Vice President-PII
M. Bruce Repchinuck..................................... $ 137,340 $ 120,000 $ 8,856 $ 3,373(7)
Vice President-PII
Bruce F. Varney......................................... $ 128,091 $ 100,000 $ 8,856 $ 3,452(8)
Vice President-PII
</TABLE>
- ------------------------------
(1) Includes amounts contributed as salary deferral contributions in fiscal
1998 under the Penhall International, Inc. and Affiliated Companies
Employees' Profit Sharing (401(k)) Plan (the "Plan"), as follows: $9,204 for
Mr. Stull; $9,046 for Mr. Sawyer; $9,024 for Mr. Bush; $9,840 for Mr.
Repchinuck; and $10,400 for Mr. Varney.
(2) Includes the amount attributable to the use of an automobile furnished by
PII.
(3) Includes PII matching contributions under the Plan, premiums for group term
and split-dollar life insurance, premiums for health care insurance and
long-term disability insurance premiums.
(4) Includes $910 of PII matching contributions under the Plan, approximately
$444 of premiums for group term life insurance, approximately $1,763 of
premiums for health care insurance, approximately $430 for long-term
disability insurance premiums and approximately $75,562 of premiums, in the
aggregate, for life insurance policies on the lives of Mr. Stull and his
wife, Ann R.
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Stull, maintained by PII under a split-dollar insurance arrangement. In
fiscal 1998, all of the premiums for the split-dollar insurance were paid
directly, or by borrowing against the policies, by PII.
(5) Includes $910 of PII matching contributions under the Plan, approximately
$444 of premiums for group term life insurance, approximately $1,668 of
premiums for health care insurance and approximately $430 for long-term
disability insurance premiums.
(6) Includes $910 of PII matching contributions under the Plan, approximately
$331 of premiums for group term life insurance, approximately $1,591 of
premiums for health care insurance and approximately $430 for long-term
disability insurance premiums.
(7) Includes $910 of PII matching contributions under the Plan, approximately
$444 of premiums for group term life insurance, approximately $1,589 of
premiums for health care insurance and approximately $430 for long-term
disability insurance premiums.
(8) Includes $910 of PII matching contributions under the Plan, approximately
$444 of premiums for group term life insurance, approximately $1,668 of
premiums for health care insurance and approximately $430 for long-term
disability insurance premiums.
EMPLOYMENT AGREEMENTS
Upon consummation of the Transactions, the Company entered into a five-year
employment agreement with John T. Sawyer pursuant to which Mr. Sawyer is
employed as President and Chief Executive Officer of the Company; the Company
also entered into three-year employment agreements with Messrs. Bush and Varney
pursuant to which each of such executives is employed as a Vice President of the
Company. The agreements provide for a base salary (approximately $246,000 for
Mr. Sawyer, $134,000 for C. George Bush and $119,000 for Bruce F. Varney), which
will be subject to annual merit increases, and an annual performance bonus. In
addition, the agreements provide for the receipt by the executives of standard
company benefits. The agreements are terminable by the Company with or without
cause. In the event an agreement is terminated without cause, the executive will
be entitled to continue to receive his base salary and, for certain executives,
bonus, and certain other benefits, for specified periods. Following any
termination of employment of an executive, it is expected that the executive
will be subject to a non-competition covenant with a duration of two years
pursuant to the terms of the Stockholders Agreement (as defined).
401(K) PLAN
PII sponsors the Penhall International, Inc. and Affiliated Companies
Employees' Profit Sharing (401(k)) Plan (the "Plan"), which is intended to
satisfy the tax qualification requirements of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). Subject to certain terms and
conditions of the Plan, substantially all of the Penhall Group's non-union
employees are eligible to participate in the Plan. Eligible employees may
contribute between 1% and 15% of their compensation to the Plan on a pre-tax
basis.
PII may, but is not required, to make matching contributions to the Plan
each year. Any matching contributions will be allocated to each participant's
account under the Plan proportionate to the amount that he or she has
contributed to the Plan during the applicable Plan year. All PII and employee
contributions to the Plan are allocated to a participant's individual account.
$161,000 was charged to general and administrative expense by PII related to
contributions to and expenses of the Plan for the year ended June 30, 1998.
All PII and employee contributions to the Plan plus the earnings thereon are
100% vested. Employees may direct the investment of their accounts to various
investment funds. The Plan provides for hardship withdrawals and loans to
participants.
STOCK OPTION PLAN
In March 1993, PII adopted a stock option plan pursuant to which certain key
employees of PII were granted options to purchase up to 13,750 shares of PII's
common stock at an exercise price equal to $51.49 per share. All stock options
had ten-year terms, and vested and became fully exercisable five years following
the date of grant. In connection with the provisions of the Merger Agreement, on
June 30, 1998 each holder of an option exercised all options held by such holder
and delivered a promissory note to PII in payment of the exercise price
therefor. Upon consummation of the Transactions, PII forgave all but
approximately $129,000 of the indebtedness represented by such promissory notes.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information with respect to (i) the
beneficial ownership of the Common Stock and the Senior Exchangeable Preferred
Stock, Series A Preferred Stock and Series B Preferred Stock of the Company by
each person or entity who owns five percent or more thereof and (ii) the
beneficial ownership of each class of equity securities of the Company by each
director of the Company who is a shareholder, the Chief Executive Officer of the
Company and the other executive officers named in the "Summary Compensation
Table" above who are shareholders, and all directors and officers of the Company
as a group. Unless otherwise specified, all shares are directly held.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
--------------------------------------------------------------------
SERIES A SERIES B
COMMON SENIOR EXCHANGEABLE PREFERRED PREFERRED
NAME OF BENEFICIAL OWNER STOCK(1) PREFERRED STOCK STOCK STOCK
- ------------------------------------------ --------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
Bruckmann, Rosser, Sherrill & Co., 582,312/58.52% --/-- 9,717/93.18% 9,333/50.25%
L.P.(2).................................
Two Greenwich Plaza
Suite 100
Greenwich, CT 06830
The Foundation............................ --/-- 10,000/100.0% --/-- --/--
PII....................................... --/-- --/-- --/-- 4,000/21.54%
John T. Sawyer............................ 110,113/11.07% --/-- --/-- 2,645/13.27%
C. George Bush............................ 40,380/4.06% --/-- --/-- 873/4.70%
M. Bruce Repchinuck(3).................... 27,843/2.80% --/-- --/-- 487/2.62%
Bruce F. Varney........................... 36,504/3.67% --/-- --/-- 754/4.06%
Bruce C. Bruckmann(4)..................... 624,915/62.81% --/-- 10,428/100.0% 10,016/53.93%
Harold O. Rosser II(4).................... 624,915/62.81% --/-- 10,428/100.0% 10,016/53.93%
All directors and officers as a group
(9 persons)............................. 878,978/88.34% --/-- 10,428/100.0% 15,433/83.10%
</TABLE>
- ------------------------
(1) The Company expects to grant options to acquire Common Stock to certain
employees to be designated. The shares of Common Stock issuable upon the
exercise of such options would equal, in the aggregate, up to an additional
5.0% of the Common Stock on a fully-diluted basis. The table does not
include any such shares. See "Certain Relationships and Related
Transactions--Stock Options."
(2) BRS is a limited partnership, the sole general partner of which is BRS
Partners, Limited Partnership ("BRS Partners") and the manager of which is
the Sponsor. The sole general partner of BRS Partners is BRSE Associates,
Inc. ("BRSE Associates"). Bruce C. Bruckmann, Harold O. Rosser II, Stephen
C. Sherrill and Stephen F. Edwards are the only stockholders of the Sponsor
and BRSE Associates and may be deemed to share beneficial ownership of the
shares shown as beneficially owned by BRS. Such individuals disclaim
beneficial ownership of any such shares.
(3) All such shares are held in the name of the Michael Bruce Repchinuck
Revocable Trust.
(4) Includes shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock which are owned by BRS and certain other entities and
individuals affiliated with BRS. Although Messrs. Bruckmann and Rosser may
be deemed to share beneficial ownership of such shares, such individuals
disclaim beneficial ownership thereof. See Note 2 above.
COMMON STOCK
The Company is authorized to issue up to 5,000,000 shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all matters
submitted for action by the stockholders. There is no provision for cumulative
voting with respect to the election of directors. Accordingly, the holders of
more than 50% of the shares of Common Stock will be able to elect all of the
directors. In such event, the holders of the remaining shares of Common Stock
will not be able to elect any directors.
Subject to the rights of any holders of outstanding preferred stock of the
Company, all shares of Common Stock are entitled to share in such dividends as
the Board of Directors of the Company may from time to time declare from sources
legally available therefor. Subject to the rights of any holders of outstanding
preferred stock of the Company, upon liquidation or dissolution of the Company,
whether
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voluntary or involuntary, all shares of Common Stock are entitled to share
equally in the assets available for distribution to stockholders after payment
of all prior obligations of the Company.
SENIOR EXCHANGEABLE PREFERRED STOCK
The Company is authorized to issue up to 250,000 shares of preferred stock,
par value $.01 per share ("Preferred Stock"), of which 10,000 shares have been
designated as Senior Exchangeable Preferred Stock. With respect to dividend
rights and rights on liquidation, winding up and dissolution of the Company, the
Senior Exchangeable Preferred Stock ranks senior to the Common Stock, the Series
A Preferred Stock and the Series B Preferred Stock. Holders of Senior
Exchangeable Preferred Stock are entitled to receive, when as and if declared by
the Board of Directors of the Company, out of funds legally available for
payment thereof, cash dividends on each share of Senior Exchangeable Preferred
Stock at a rate PER ANNUM equal to 10.5% of the Senior Exchangeable Preferred
Liquidation Preference (as defined below) of such share before any dividends are
declared and paid, or set apart for payment, on any shares of capital stock
junior to the Senior Exchangeable Preferred Stock ("Senior Exchangeable Junior
Stock") with respect to the same dividend period. All dividends shall be
cumulative without interest, whether or not earned or declared. "Senior
Exchangeable Preferred Liquidation Preference" means, on any specific date, with
respect to each share of Senior Exchangeable Preferred Stock, the sum of (i)
$1,000 per share plus (ii) the accumulated unpaid dividends with respect to such
share. The New Credit Facility and the Indenture restrict, and any future credit
agreements or indentures to which the Company becomes a party may restrict, the
ability of the Company to pay cash dividends.
The Company may, at its option, redeem at any time, from any source of funds
legally available therefor, in whole or in part, any or all of the shares of
Senior Exchangeable Preferred Stock, at a redemption price per share equal to
100% of the then effective Senior Exchangeable Preferred Liquidation Preference
per share, plus an amount equal to a prorated dividend for the period from the
dividend payment date immediately prior to the redemption date to the redemption
date. On February 1, 2007, the Company shall redeem, from any source of funds
legally available therefor, all of the then outstanding shares of Senior
Exchangeable Preferred Stock at a redemption price per share equal to 100% of
the then effective Senior Exchangeable Preferred Liquidation Preference per
share, plus an amount equal to a prorated dividend for the period from the
dividend payment date immediately prior to the redemption date to the redemption
date.
The Senior Exchangeable Preferred Stock is exchangeable by the Company at
any time and from time to time for junior subordinated notes (the "Junior
Subordinated Notes") in an amount equal to the Senior Exchangeable Preferred
Liquidation Preference plus an amount equal to a prorated dividend for the
period from the dividend payment date immediately prior to the exchange date to
the exchange date. The Junior Subordinated Notes will pay interest from the date
of exchange at the rate of 10.5% per annum in cash; provided, however, that the
Company shall be prohibited from paying interest on the Junior Subordinated
Notes in cash for so long as the Notes shall remain outstanding. In such event,
interest shall be deemed to be paid by such amount being added to the
outstanding principal amount of the Junior Subordinated Notes and shall accrue
interest as a portion of the principal amount of the Junior Subordinated Notes
to the maximum extent permitted by law. If issued, the Junior Subordinated Notes
will mature on February 1, 2007. The New Credit Facility and the Indenture
restrict, and any future credit agreements or indentures to which the Company
becomes a party may restrict, the ability of the Company to exchange the Senior
Exchangeable Preferred Stock for the Junior Subordinated Notes and redeem or
repurchase the Junior Subordinated Notes.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of Senior Exchangeable Preferred Stock shall
be entitled to be paid out of the assets of the Company available for
distribution to its stockholders an amount in cash equal to the Senior
Exchangeable Preferred Liquidation Preference per share, plus an amount equal to
a prorated dividend from the last dividend payment date to the date fixed for
liquidation, dissolution or winding up, before any distribution
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<PAGE>
is made on any shares of Senior Exchangeable Junior Stock. If such available
assets are insufficient to pay the holders of the outstanding shares of Senior
Exchangeable Preferred Stock in full, such assets, or the proceeds thereof,
shall be distributed ratably among such holders. Except as otherwise required by
law, the holders of Senior Exchangeable Preferred Stock have no voting rights
and are not be entitled to any notice of meeting of stockholders.
SERIES A PREFERRED STOCK
The Company has designated 25,000 shares of Preferred Stock as Series A
Preferred Stock. With respect to dividend rights and rights on liquidation,
winding up and dissolution of the Company, the Series A Preferred Stock ranks
senior to the Common Stock and on a parity with the Series B Preferred Stock.
Holders of Series A Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available for payment thereof, cash dividends on each share of Series A
Preferred Stock at a rate PER ANNUM equal to 13% of the Liquidation Preference
(as defined below) of such share before any dividends are declared and paid, or
set apart for payment, on any shares of capital stock junior to the Series A
Preferred Stock ("Junior Stock") with respect to the same dividend period. All
dividends shall be cumulative without interest, whether or not earned or
declared. "Liquidation Preference" means, on any specific date, with respect to
each share of Series A Preferred Stock, the sum of (i) $1,000 per share plus
(ii) the accumulated dividends with respect to such share. The New Credit
Facility and the Indenture restrict, and any future credit agreements or
indentures to which the Company becomes a party may restrict, the ability of the
Company to pay cash dividends.
The Company may, at its option, redeem at any time, from any source of funds
legally available therefor, in whole or in part, any or all of the shares of
Series A Preferred Stock, at a redemption price per share equal to 100% of the
then effective Liquidation Preference per share, plus an amount equal to a
prorated dividend for the period from the dividend payment date immediately
prior to the redemption date to the redemption date. On August 1, 2007, the
Company shall redeem, from any source of funds legally available therefor, all
of the then outstanding shares of Series A Preferred Stock at a redemption price
per share equal to 100% of the then effective Liquidation Preference per share,
plus an amount equal to a prorated dividend for the period from the dividend
payment date immediately prior to the redemption date to the redemption date.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, holders of Series A Preferred Stock shall be entitled
to be paid out of the assets of the Company available for distribution to its
stockholders an amount in cash equal to the Liquidation Preference per share,
plus an amount equal to a prorated dividend from the last dividend payment date
to the date fixed for liquidation, dissolution or winding up, before any
distribution is made on any shares of Junior Stock. If such available assets are
insufficient to pay the holders of the outstanding shares of Series A Preferred
Stock in full, such assets, or the proceeds thereof, shall be distributed
ratably among such holders. Except as otherwise required by law, the holders of
Series A Preferred Stock have no voting rights and are not be entitled to any
notice of meeting of stockholders.
SERIES B PREFERRED STOCK
The Company has designated 50,000 shares of Preferred Stock as Series B
Preferred Stock. The preferences and relative, participating, optional and other
special rights and qualifications, limitations and restrictions (including,
without limitation, dividend rights and rights on liquidation, winding up and
dissolution of the Company) of the Series B Preferred Stock are identical to
those of the Series A Preferred Stock, except that the Series B Preferred Stock
is not be subject to any mandatory or optional redemption by the Company.
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STOCKHOLDERS AGREEMENT
Upon consummation of the Transactions, the BRS Entities, the Management
Stockholders and the Company entered into a Securities Holders Agreement (the
"Stockholders Agreement") containing certain agreements among such stockholders
with respect to the capital stock and corporate governance of the Company and
its subsidiaries. The following is a summary description of the principal terms
of the Stockholders Agreement, a copy of which is available upon request to the
Company.
Pursuant to the Stockholders Agreement, the Board of Directors of the
Company shall be comprised of no less than three and no more than seven persons
(with the exact number to be determined by BRS from time to time). If the Board
of Directors is composed of three or four persons, then one individual shall be
designated by the Management Stockholders holding a majority of the Common Stock
owned by the Management Stockholders and the remainder shall be designated by
BRS. If the Board of Directors is composed of five or more persons, then two
individuals shall be designated by the Management Stockholders holding a
majority of the Common Stock owned by the Management Stockholders (who shall be
Management Stockholders and officers of the Company during the term of their
directorship) and the remainder shall be designated by BRS. The initial
designees of BRS will be Bruce C. Bruckmann and Harold O. Rosser II. Subject to
certain rights of removal, John T. Sawyer shall be the designee of the
Management Stockholders.
The Stockholders Agreement contains certain provisions which, with certain
exceptions, restrict the ability of the Management Stockholders from
transferring any Common Stock or Series B Preferred Stock except pursuant to the
terms of the Stockholders Agreement. If the Board of Directors of the Company
and holders of at least a majority of the Common Stock of the Company then
outstanding shall approve the sale of the Company or any of its subsidiaries to
an unaffiliated third person (an "Approved Sale"), each stockholder of the
Company shall consent to, vote for and raise no objections against, and waive
dissenters and appraisal rights (if any) with respect to, the Approved Sale and,
if such sale shall include the sale of capital stock, each stockholder shall
sell such stockholder's capital stock on the terms and conditions approved by
the Board of Directors of the Company and the holders of a majority of the
Common Stock of the Company then outstanding. The Stockholders Agreement also
provides for certain additional restrictions on transfer of the Company's Common
Stock and Series B Preferred Stock by the Management Stockholders, including the
right of the Company to purchase certain Common Stock and Series B Preferred
Stock of the Company held by a Management Stockholder upon termination of such
Management Stockholder's employment on or prior to the later of the fifth
anniversary of the consummation of the Transactions and the 180th day following
an Initial Public Offering (as defined below), at a formula price, and the grant
of a right of first refusal in favor of the Company in the event a Management
Stockholder elects to transfer such Common Stock or Series B Preferred Stock.
Under the Stockholders Agreement, a Management Stockholder has the right,
subject to the restrictions set forth in the Indenture, the New Credit Facility
and other agreements relating to indebtedness of the Company, to require the
Company to purchase certain Common Stock and Series B Preferred Stock of the
Company held by such Management Stockholder upon termination of such Management
Stockholder's employment on or prior to the later of the fifth anniversary of
the consummation of the Transactions and the 180th day following an Initial
Public Offering, at a formula price. "Initial Public Offering" means the sale by
the Company in an underwritten public offering made pursuant to an effective
registration statement under the Securities Act of Common Stock for gross
offering proceeds of at least $30 million.
REGISTRATION RIGHTS AGREEMENT
Upon consummation of the Transactions, the BRS Entities, the Management
Stockholders and the Company entered into a Registration Rights Agreement (the
"Company Registration Rights Agreement") pursuant to which the Company granted
certain registration rights to the stockholders of the Company with respect to
the Company's Common Stock. Under the Company Registration Rights Agreement, the
Company granted to the BRS Entities demand registration rights with respect to
the shares of Common
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Stock held by the BRS Entities. All of the stockholders party to the Company
Registration Rights Agreement have the right to participate, or "piggyback," in
certain registrations initiated by the Company.
STOCK OPTIONS
It is expected that certain employees of the Company to be designated will
be provided with an opportunity to receive non-qualified options (the "New
Options") to purchase shares of Common Stock representing approximately 5% of
the outstanding Common Stock on a fully diluted basis. Such persons will have
the opportunity to acquire one-fifth of the New Options during each year of the
five-year period beginning with the consummation of the Transactions. For each
such year, the opportunity to receive any New Option will be subject to the
Company's achievement of certain financial performance goals. In certain
circumstances, such persons will have the right to immediately receive any
unissued or unvested New Options regardless of whether such performance goals
have been met.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NOTE PAYABLE TO ROGER STULL
In December 1995, PII purchased from Roger Stull certain facilities
previously leased to PII for $2.2 million, consisting of $700,000 in cash and a
$1.5 million promissory note bearing interest at the prime rate plus 0.25%. The
promissory note was secured by a deed of trust and was paid in equal quarterly
installments of $375,000, the last of which was made on October 1, 1997.
CERTAIN FEES PAYABLE TO BRS; BRS MANAGEMENT AGREEMENT
Upon consummation of the Transactions, the Company paid the Sponsor a
closing fee of $2.0 million (the "Closing Fee"). In addition, the Company
entered into a management services agreement (the "Management Agreement") with
the Sponsor pursuant to which the Sponsor will be paid $300,000 per year for
certain management, business and organizational strategy, and merchant and
investment banking services rendered to the Company. The amount of the annual
management fee may be increased under certain circumstances based upon
performance or other criteria to be established by the Board of Directors of the
Company.
SPLIT-DOLLAR INSURANCE POLICIES
In addition to group term life insurance, PII maintains and pays the
premiums on five split-dollar whole life insurance policies on the lives of Mr.
Roger C. Stull and his wife, Ann R. Stull. Mr. Stull is the beneficiary under
three of the policies and Mrs. Stull is the beneficiary under two of the
policies. The split-dollar insurance provides death benefits equal to, in the
aggregate, $1,762,216 for Mr. Stull and $1,530,789 for Mrs. Stull. Since July 1,
1997, PII has paid premiums on the policies in the aggregate amount of $20,173,
net of premiums which were paid by borrowing against the policies. As of July
13, 1998, PII had borrowed a total of $1,432,236 against the policies and the
aggregate net cash surrender value of the policies as of such date was $301,269.
Upon consummation of the Transactions, (i) PII and the Stulls terminated
their split-dollar insurance arrangement, (ii) PII relinquished any and all
claims against the Stulls for reimbursement of premiums paid by PII on the
policies, (iii) the Stulls relinquished any and all claims against PII arising
out of borrowings by PII against the policies, and (iv) the Stulls obtained
ownership of the policies free and clear of any claims by PII.
TAX GROSS-UP PAYMENTS
Pursuant to the terms of a certain Compensation, Tax Consistency and
Indemnification Agreement executed on June 30, 1998, by and among PII and
certain members of Management (the "Compensation Agreement"), PII was obligated
to make approximately $3.0 million of tax gross-up payments on or before
September 15, 1998. John T. Sawyer, Vice President of PII and President of
PenCo, C. George Bush, Vice President of PII, M. Bruce Repchinuck, Vice
President of PII and Bruce F. Varney, Vice President of PII, received
approximately $1,007,511, $444,184, $322,443 and $312,411, respectively,
pursuant to the Compensation Agreement.
On September 15, 1998, PII made such payments out of working capital. The
Penhall Group expects that it will realize tax benefits of approximately $3.0
million in the form of reduced tax payment obligations or refunds of tax
overpayments as a result of deductions for certain of such tax gross-up payments
and deductions with respect to employee stock options. The Penhall Group has
realized or anticipates it will realize these tax benefits during a four-month
period that began on June 15, 1998.
INDEBTEDNESS OF MANAGEMENT
On or about April 15, 1998, PII advanced approximately $205,862 to John T.
Sawyer, Vice President of PII and President of PenCo, to pay income taxes
resulting from compensation income recognized by Mr. Sawyer in calendar year
1997. Pursuant to the Compensation Agreement, the amount advanced to Mr. Sawyer
was offset against certain supplemental cash compensation payments that PII made
to to Mr. Sawyer on September 15, 1998.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the New Credit Facility and other
loan documents, such descriptions do not purport to be complete and are
qualified in their entirety by reference to such documents, which are available
upon request from the Company.
NEW CREDIT FACILITY
In order to finance a portion of the cash consideration to be paid pursuant
to the Merger, the Company's existing credit facility (the "Existing Credit
Facility") was replaced by the $50.0 million New Credit Facility with Bankers
Trust Company ("BTCo") as administrative agent (the "Administrative Agent"),
Credit Suisse First Boston ("CSFB") as syndication agent (the "Syndication
Agent") and a syndicate of banks formed by BTCo (the "Senior Lenders").
The New Credit Facility consists of two facilities: (i) a six-year senior
secured Term Loan Facility in an aggregate principal amount equal to $20.0
million; and (ii) a six-year Revolving Credit Facility in an aggregate principal
amount not to exceed $30.0 million.
Term Loans in an aggregate principal amount of $20.0 million were drawn on
the closing date of the New Credit Facility in connection with the
Recapitalization. Subject to compliance with customary conditions precedent,
Revolving Loans will be available at any time prior to the final maturity of the
Revolving Credit Facility. Amounts repaid under the Revolving Credit Facility
may be reborrowed prior to the final maturity of the Revolving Credit Facility,
provided that availability requirements are met. Standby letters of credit will
be available at any time and will have an expiry date occurring no later than
one year after issuance and, in any case, no later than one business day prior
to the final maturity of the Revolving Credit Facility. Trade letters of credit
will be available at any time and will have an expiry date occurring no later
than 180 days after issuance and, in any case, no later than the thirtieth
business day prior to the final maturity of the Revolving Credit Facility.
All obligations of the Company under the New Credit Facility are
unconditionally guaranteed (the "Facility Guaranties") by each existing and each
subsequently acquired or organized domestic and, to the extent no adverse tax
consequences would result, foreign subsidiary of the Company (the "Facility
Guarantors"). The New Credit Facility and the related guarantees are secured by
substantially all the assets of the Company and each Facility Guarantor,
including but not limited to (i) a first priority pledge of all the capital
stock and notes owned by the Company and each Facility Guarantor and (ii)
perfected first priority security interests in substantially all tangible and
intangible assets of the Company and each Facility Guarantor.
Borrowings under the New Credit Facility bear interest at a floating rate
based upon, at the Company's option, (i) the Applicable Margin plus the Base
Rate (as such terms will be defined in the New Credit Facility) in effect from
time to time, or (ii) the Applicable Margin plus the Eurodollar Rate (as such
term will be defined in the New Credit Facility), adjusted for maximum reserves.
The Company may elect interest periods of one, two, three or six months for
Eurodollar borrowings. Interest shall be payable at the end of each interest
period and, in any event, at least every three months, at the time of repayment
of any Loans, and at maturity. In addition to paying interest on outstanding
principal under the New Credit Facility, the Company is required to pay a
commitment fee to the Senior Lenders equal to 0.5% per annum of the undrawn
portion of the commitments in respect of the Revolving Credit Facility, payable
quarterly in arrears and upon the termination of the Revolving Credit Facility,
in each case for the actual number of days elapsed in a 360-day year. The New
Credit Facility contains provisions under which commitment fees and margins on
interest rates under the facilities will be adjusted in increments to be agreed
upon based on performance goals to be agreed upon.
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The Term Loans amortize on a quarterly basis commencing in September 2000
and are payable in installments under a schedule set forth in the New Credit
Facility. Advances made under the Revolving Credit Facility are due and payable
in full at maturity. The Term Loans and the Revolving Loans are subject to
mandatory prepayments and reductions in the event of certain extraordinary
transactions or issuances of debt and equity by the Company or any Facility
Guarantor. Such loans are also required to be prepaid with 75% of the Excess
Cash Flow (as such term is defined in the New Credit Facility) of the Company
or, if the Company's Leverage Ratio (as such term is defined in the New Credit
Facility) is less than 4.75 to 1.0, 50% of such Excess Cash Flow.
The New Credit Facility contains representations and warranties, covenants,
events of default and other provisions customary for credit facilities of this
type. The Company will pay the Senior Lenders certain syndication and
administration fees, reimburse certain expenses and provide certain indemnities,
in each case which are customary for credit facilities of this type.
NOTE PAYABLE TO HSI
In April 1998, PenCo purchased substantially all of the assets of HSI for
approximately $9.7 million plus the assumption of approximately $1.3 million of
liabilities. PenCo paid approximately $6.0 million of the purchase price in
cash, with the remainder payable in equal installments in April 1999 and 2000
pursuant to a $3.7 million secured promissory note which bears interest at 5.51%
per annum.
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DESCRIPTION OF THE NOTES
The Existing Notes were issued under an indenture (the "Indenture"), dated
as of August 1, 1998, between the Issuer and United States Trust Company of New
York, as trustee (the "Trustee"). Upon consummation of the Recapitalization
Merger, the Company assumed all of the Issuer's obligations under the Existing
Notes and the Indenture and the Guarantors became parties to the Indenture and
executed the Guarantees. The terms of the Indenture apply to the Existing Notes
and to the New Notes to be issued in exchange therefor pursuant to the Exchange
Offer (all such Notes being referred to herein collectively as the "Notes"). The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. A copy of the Indenture may be obtained
from the Company or either of the Initial Purchasers. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions." For purposes of this section, references to the "Company"
include only the Company and not its Subsidiaries.
The Notes will be senior unsecured obligations of the Company, ranking PARI
PASSU in right of payment to all senior unsecured obligations of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as paying agent and registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any paying agent and registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150,000,000, of
which $100,000,000 were issued in connection with the Transactions. The Notes
will mature on August 1, 2006. Additional amounts may be issued in one or more
series from time to time subject to the limitations set forth under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness" and
restrictions contained in the New Credit Facility. Interest on the Notes will
accrue at the rate of 12% per annum and will be payable semiannually in arrears
on each February 1 and August 1, commencing on February 1, 1999, to the persons
who are registered Holders at the close of business on the January 15 and July
15, respectively, immediately preceding the applicable interest payment date.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after August 1, 2003,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if
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redeemed during the twelve-month period commencing on August 1 of the years set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 106.000%
2004.............................................................................. 104.000%
2005.............................................................................. 102.000%
</TABLE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to August 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to 30% of the sum of (i) the initial aggregate principal amount of
Notes issued in connection with the Transactions and (ii) the respective initial
aggregate principal amounts of Notes issued under the Indenture after the Issue
Date, at a redemption price equal to 112.0% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of redemption; PROVIDED
that at least 70% of the sum of (i) the initial aggregate principal amount of
Notes issued in connection with the Transactions and (ii) the respective initial
aggregate principal amounts of Notes issued under the Indenture after the Issue
Date remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 120 days after the
consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which such Notes are listed or, if such Notes are not then listed on a national
securities exchange, on a PRO RATA basis, by lot or by such method as the
Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; PROVIDED, FURTHER,
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as
is practicable (subject to DTC procedures or the procedures of any other
depositary), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption as long
as the Company has deposited with the paying agent funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
RANKING
The Notes will be general unsecured senior obligations of the Company. The
Notes will rank on a parity in right of payment with all existing and future
unsubordinated Indebtedness of the Company and senior in right of payment to all
existing and future subordinated Indebtedness of the Company.
The Notes will be effectively subordinated to all secured Indebtedness of
the Company (including all Indebtedness outstanding under the New Credit
Facility) to the extent of the value of the assets securing such Indebtedness
and to all Indebtedness of any other Subsidiaries of the Company (other than the
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Guarantors). The Guarantees will be effectively subordinated to all existing and
future secured Indebtedness of the related Guarantor (including all Indebtedness
outstanding under the New Credit Facility and guaranteed by the Guarantors) to
the extent of the value of the assets securing such Indebtedness. All of the
outstanding Indebtedness under the New Credit Facility will be guaranteed by the
Guarantors on a secured basis. See "Description of Certain Indebtedness -- New
Credit Facility."
As of June 30, 1998, on a Pro Forma Basis, the Company would have had
approximately $120.6 million of indebtedness outstanding (exclusive of $30.0
million of unused commitments under the New Credit Facility), $20.0 million of
which would have been secured, and the Guarantors would have had approximately
$4.1 million of indebtedness outstanding (exclusive of guarantees by the
Guarantors of the Company's obligations under the Notes and the New Credit
Facility), all of which would have been secured.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be secured. Although the Indenture limits the incurrence of Indebtedness and
the issuance of preferred stock of certain of the Company's subsidiaries, such
limitation is subject to a number of significant qualifications. Moreover, the
Indenture does not impose any limitation on the incurrence by such subsidiaries
of liabilities that are not considered Indebtedness under the Indenture. See
"--Certain Covenants--Limitation on Incurrence of Additional Indebtedness."
GUARANTEES
Each Guarantor will unconditionally guarantee, on a senior basis, jointly
and severally, to each Holder and the Trustee, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of and interest on the Notes. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Restricted Subsidiary of the Company
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "Certain Covenants -- Merger, Consolidation and Sale
of Assets." In the event all of the Capital Stock of a Guarantor is sold by the
Company and the sale complies with the provisions set forth in "--Certain
Covenants -- Limitation on Asset Sales," the Guarantor's Guarantee will be
released. Each Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Guarantee and related
obligations set forth in the Indenture for so long as it remains an Unrestricted
Subsidiary.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a portion
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date for
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the Notes, which must be no earlier than 30 days nor later than 60 days from the
date such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third business day prior to the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance the Company
will have available funds sufficient to pay the Change of Control purchase price
for all the Notes that might be delivered by Holders seeking to accept the
Change of Control Offer. In the event the Company is required to purchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Notes protection in all circumstances from the adverse aspects of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations or any applicable exchange
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations and
exchange regulations and shall not be deemed to have breached its obligations
under the "Change of Control" provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any of its Restricted
Subsidiaries may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than (i) 2.0 to 1.0, if the Indebtedness is to
be incurred prior to August 1, 2000, (ii) 2.25 to 1.0, if the Indebtedness is to
be incurred on or after August 1, 2000 and prior to August 1, 2002, or (iii)
2.50 to 1.0, if the Indebtedness is to be incurred on or after August 1, 2002;
PROVIDED, FURTHER, HOWEVER, that the Company shall not be permitted to exchange
any of its Senior Exchangeable Preferred
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Stock for Junior Subordinated Notes or any other instrument of Indebtedness
unless, after giving effect to the exchange thereof, the Consolidated Fixed
Charge Coverage Ratio of the Company is greater than 2.75 to 1.0.
For purposes of determining compliance with this covenant, (i) in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, the Company in its sole discretion will
classify such item of Indebtedness and will only be required to include the
amount and type of each class of Indebtedness in the test specified in the first
paragraph of this covenant or in one of the clauses of the definition of the
term "Permitted Indebtedness," (ii) the amount of Indebtedness issued at a price
which is less than the principal amount thereof shall be equal to the amount of
liability in respect thereof determined in accordance with GAAP, (iii)
Indebtedness incurred in connection with, or in contemplation of, any
transaction described in the definition of the term "Acquired Indebtedness"
shall be deemed to have been incurred by the Company or one of its Restricted
Subsidiaries, as the case may be, at the time an acquired Person becomes such a
Restricted Subsidiary (or is merged into the Company or such a Restricted
Subsidiary) or at the time of the acquisition of assets, as the case may be, and
(iv) guarantees or Liens supporting Indebtedness permitted to be incurred under
this covenant may be issued or granted if otherwise issued or granted in
accordance with the terms of the Indenture.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock (other than purchases, redemptions,
acquisitions or retirements of Capital Stock of the Company otherwise allowed
pursuant to the definition of Permitted Investments), (c) make any principal
payment on, purchase, defease, redeem, prepay or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company or a Guarantor that is
subordinate or junior in right of payment to the Notes or a Guarantee, as the
case may be, or (d) make any Investment (other than Permitted Investments) (each
of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by the
Board of Directors of the Company) shall exceed the sum of the following amounts
(without duplication): (1) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company accrued on a cumulative basis during the period beginning on the
first day of the fiscal quarter immediately following the Issue Date and ending
on the last day of the last fiscal quarter preceding the date the Restricted
Payment occurs (the "Reference Date") (treating such period as a single
accounting period); plus (2) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company or any options, warrants or other
rights to acquire Qualified Capital Stock of the Company; plus (3) 100% of the
aggregate net cash proceeds received subsequent to the Issue Date by the Company
from any Person (other than a Subsidiary of the Company) from the issuance or
sale of debt securities or shares of Disqualified Capital Stock that have been
converted into or exchanged for Qualified Capital Stock, together with the
aggregate cash received by the Company at the time of such conversion or
exchange; plus (4) 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's
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Qualified Capital Stock subsequent to the Issue Date; plus (5) an amount equal
to the net reduction in Investments in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary
(except to the extent any such payment is otherwise included in the calculation
of Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries, valued in each case as provided in the definition of
"Investments," not to exceed, in the case of an Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition, redemption, repurchase
or retirement of any shares of Capital Stock of the Company, either (i) solely
in exchange for shares of Qualified Capital Stock of the Company or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Restricted Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company; (3) if no Default or Event of Default shall have
occurred and be continuing, the acquisition of any Indebtedness of the Company
or a Guarantor that is subordinate or junior in right of payment to the Notes or
the Guarantees, as applicable, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the
Company or (B) Refinancing Indebtedness; (4) repurchases by the Company of
Capital Stock of the Company from employees, officers or directors of the
Company or any of its Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees, officers or
directors, or as otherwise required by existing employment agreements, in an
aggregate amount not to exceed $1,000,000 in any calendar year (including any
cash payments made during such calendar year pursuant to Indebtedness incurred
in order to repurchase Capital Stock of the Company from employees, officers or
directors of the Company) and $5,000,000 in the aggregate during the term of the
Notes, in each case plus (i) the aggregate cash proceeds actually received from
any reissuance during such calendar year of Capital Stock by the Company to
employees, officers or directors of the Company and its Subsidiaries and (ii)
the aggregate cash proceeds actually received in such calendar year from any
payments on life insurance policies in which the Company or any of its
Subsidiaries is the beneficiary with respect to any employees, officers or
directors of the Company and its Subsidiaries which proceeds are used to
purchase the Capital Stock of the Company held by any such employees, officers
or directors; PROVIDED, HOWEVER, that the Company shall not be permitted to
repurchase Capital Stock pursuant to this clause (4), if (x) any Default or
Event of Default shall have occurred and be continuing or (y) on the date of any
such repurchase the Company could not incur at least $1.00 of Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (5) repurchases of Capital
Stock deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; and (6) the exchange of
Senior Exchangeable Preferred Stock for Junior Subordinated Notes; PROVIDED,
that after giving effect to the exchange thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than 2.75 to 1.0. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with clause (iii) of the immediately preceding paragraph, amounts
expended pursuant to clauses (1), (2)(ii), (3)(ii)(A), and (4) shall be included
in such calculation.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors); (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at
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the time of such disposition; PROVIDED, HOWEVER, that the amount of (A) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or the notes thereto) of the Company or any Restricted
Subsidiary that are assumed by the transferee in such Asset Sale and from which
the Company or such Restricted Subsidiary is released and (B) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash
Equivalents received) shall be deemed to be cash for the purposes of this
covenant; and (iii) upon the consummation of an Asset Sale, the Company shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 360 days of receipt thereof either (A) to
repay any Indebtedness ranking at least PARI PASSU with the Notes (including
amounts under Bank Credit Facilities), (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("Replacement Assets"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), an amount equal
to such aggregate amount of Net Cash Proceeds which have not been applied on or
before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company or such Restricted Subsidiary to make
an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds
Offer Payment Date") not less than 45 nor more than 60 days following the
applicable Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA
basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus accrued
and unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER,
that if at any time any consideration other than cash or Cash Equivalents
received by the Company or any Restricted Subsidiary of the Company, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. A transfer of assets by the Company to
a Wholly Owned Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to a Wholly Owned Restricted Subsidiary will not be deemed to be an
Asset Sale. A transaction that is subject to and made in compliance with the
"Merger, Consolidation and Sale of Assets" covenant shall not be subject to the
application of this covenant. The Company may defer the Net Proceeds Offer until
there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess
of $5,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$5,000,000, shall be applied as required pursuant to this paragraph).
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraph to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes
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of tendering Holders will be purchased on a PRO RATA basis (based on amounts
tendered) unless otherwise required by law or any applicable exchange
regulations. A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations or any applicable exchange
regulations conflict with the "Asset Sale" provisions of the Indenture, the
Company shall comply with the applicable securities laws and regulations and
exchange regulations and shall not be deemed to have breached its obligations
under the "Asset Sale" provisions of the Indenture by virtue thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture, the Notes and the Guarantees;
(3) customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired (and such
Person's direct and indirect Subsidiaries); (5) agreements existing on the Issue
Date to the extent and in the manner such agreements are in effect on the Issue
Date; (6) a Bank Credit Facility; (7) an agreement governing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement referred to in clause (2), (4), (5) or (6) above; PROVIDED,
HOWEVER, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company or the
relevant Restricted Subsidiary of the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4), (5) or (6); (8) any
restriction or encumbrance contained in contracts for sale of assets permitted
by the Indenture in respect of the assets being sold pursuant to such contracts
pending the close of such sale, which encumbrance or restriction is not
applicable to any asset other than the assets being sold pursuant to such
contracts; (9) Purchase Money Obligations incurred in accordance with the terms
of the Indenture for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (c) above on the property
so acquired; or (10) restrictions of the nature described in clause (c) above on
the transfer of assets subject to any Lien permitted under the Indenture imposed
by the holder of such Lien.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company unless at the time of such issuance such
Restricted Subsidiary would be entitled to create, incur or assume Indebtedness
pursuant to the covenant described under "-- Limitation on Incurrence of
Additional Indebtedness" in the aggregate amount equal to the aggregate
liquidation value, plus any accrued and unpaid dividends, of the Preferred Stock
to be issued. Notwithstanding the foregoing, nothing contained in such covenant
will prohibit the ownership of Preferred Stock issued by a Person prior to the
time (a) such Person becomes a Restricted Subsidiary of the Company, (b) such
Person merges with or into a Restricted Subsidiary of the Company or (c) a
Restricted Subsidiary of the Company merges with or into
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such Person; PROVIDED that such Preferred Stock was not issued by such Person in
anticipation of a transaction contemplated by any of clauses (a), (b) or (c)
above.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes or any Guarantee, the
Notes and such Guarantee, as the case may be, are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes and the Guarantees are equally and ratably
secured, except for (A) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date; (B) Liens securing
Indebtedness incurred pursuant to Bank Credit Facilities; (C) Liens securing the
Notes and the Guarantees; (D) Liens in favor of the Company or a Restricted
Subsidiary of the Company on assets of any Subsidiary of the Company; (E) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
PROVIDED, HOWEVER, that such Liens (a) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (b) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
and be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing in which the Company is not the continuing
corporation, the Surviving Entity formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under, and the Company shall be discharged from its obligations
under, the Indenture, the Notes and the Registration Rights Agreement with the
same effect as if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "-- Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; and (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing.
Any merger or consolidation of a Restricted Subsidiary with and into the
Company (with the Company being the Surviving Entity) or any Guarantor need only
comply with clause (iv) of the first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $2,500,000 shall be
approved by a majority of non-interested directors of the Board of Directors of
the Company or such Restricted Subsidiary, as the case may be, such approval to
be evidenced by a Board Resolution stating that such majority of non-interested
directors of the Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Company or any Restricted
Subsidiary of the Company enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5,000,000, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain an opinion stating that such transaction or series of related
transactions are fair to the Company or the relevant Restricted Subsidiary, as
the case may be, from a financial point of view, from an Independent Financial
Advisor and file the same with the Trustee.
(b) The restrictions set forth in paragraph (a) above shall not apply to (i)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors, employees, agents or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions exclusively
between or among
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the Company and any of its Restricted Subsidiaries or exclusively between or
among such Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; (iii) any agreement (including the Management
Agreement and the payment of all fees and expenses contemplated thereunder;
PROVIDED, that no payment of management fees or expenses (other than the Closing
Fee) contemplated under the Management Agreement shall be made unless (i) the
Consolidated Fixed Charge Coverage Ratio during the four full fiscal quarters
ending on or prior to the date of any such payment is greater than or equal to
1.75 to 1.0 and (ii) the Consolidated Fixed Charge Coverage Ratio calculated
solely for the one full fiscal quarter ending on or prior to the date of any
such payment is greater than or equal to 1.75 to 1.0) as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Company or its Restricted Subsidiaries, as the case may
be, in any material respect than the original agreement as in effect on the
Issue Date; (iv) Restricted Payments permitted by the Indenture; (v) any
issuance of securities or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans of the Company entered into in the ordinary
course of business and approved by the Board of Directors; (vi) loans and
advances, or guarantees of loans of third parties, to employees and officers of
the Company and its Restricted Subsidiaries in the ordinary course of business
not in excess of $2.0 million at any one time outstanding; and (vii)
indemnification agreements provided for the benefit of the Company or any
Restricted Subsidiary of the Company from officers, directors or employees of
the Company or any Restricted Subsidiary.
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Restricted Subsidiary (other
than a Foreign Subsidiary) that is not a Guarantor, or if the Company or any of
its Restricted Subsidiaries shall organize, acquire or otherwise invest in
another Restricted Subsidiary (other than a Foreign Subsidiary), in each case
having total assets with a book value in excess of $500,000, then such
transferee or acquired or other Restricted Subsidiary (other than a Foreign
Subsidiary) shall (i) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (ii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary; PROVIDED that such opinion may contain
exceptions that are customary in opinions of that type. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
REPORTS TO HOLDERS. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will, beginning on the earlier of the date the Exchange Offer Registration
Statement becomes effective and 180 days after the Issue Date, file with the
Commission, to the extent permitted, and provide the Trustee and Holders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with
the other provisions of TIA Section 314(a).
NO RESTRICTIONS ON CONSUMMATION OF THE RECAPITALIZATION. The Indenture
provides that notwithstanding any provision contained therein to the contrary,
the consummation of the Recapitalization will not be prohibited.
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ADDITIONAL EQUITY CONTRIBUTIONS. The Indenture provides that if the
Company's Consolidated EBITDA for the quarter ended June 30, 1998 is less than
$5.6 million on a Pro Forma Basis, BRS or any other Principal will purchase,
with cash or Cash Equivalents, Qualified Capital Stock of the Company, in an
amount equal to the difference between (x) $5.6 million and (y) the amount of
the Company's Consolidated EBITDA for the quarter ended June 30, 1998. The
Indenture further provides that any purchase of Qualified Capital Stock required
pursuant to this covenant shall occur on or prior to September 30, 1998 and that
no other provision of the Indenture will prohibit the issuance of such Qualified
Capital Stock.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company,
which failure continues for a period of 20 days or more, or the acceleration
of the final stated maturity of any such Indebtedness (which acceleration is
not rescinded, annulled or otherwise cancelled within 20 days of receipt by
the Company or such Restricted Subsidiary of notice of any such
acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
(excluding judgments to the extent covered by insurance by one or more
reputable insurers and as to which such insurers have acknowledged coverage
for) shall have been rendered against the Company or any of its Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary is declared to
be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any Guarantor that is a Significant
Subsidiary denies its liability under its Guarantee (other than by reason of
release of a Guarantor in accordance with the terms of the Indenture);
PROVIDED, HOWEVER, that an Event of Default will also be deemed to occur
with respect to Subsidiaries that are not Significant Subsidiaries
("Insignificant Subsidiaries") if the Guarantees of such Insignificant
Subsidiaries cease to be in full force and effect or are declared null and
void and unenforceable or such Insignificant Subsidiaries deny their
liability under their Guarantees, if when aggregated and taken as a whole
the Insignificant Subsidiaries subject to this clause (vii) would meet the
definition of a Significant Subsidiary.
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If an Event of Default (other than an Event of Default specified in clause
(vi) above relating to the Company) shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same shall become immediately due and payable.
If an Event of Default specified in clause (vi) above relating to the Company
occurs and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall IPSO FACTO
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (vi) of the description above of Events of Default, the Trustee shall
have received an officers' certificate and an opinion of counsel that such Event
of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes or
except as otherwise prohibited by the TIA.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company
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may, at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "--Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the opinion
of counsel required by clauses (ii) and (iii) above need not be delivered if all
Notes not theretofore delivered to the Trustee for cancellation (x) have become
due and payable or (y) will become due and payable on the maturity date within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid
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to the Company or discharged from such trust) have been delivered to the Trustee
for cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any Notes; (iii) reduce the principal of or change or have the
effect of changing the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes; (v) make any change in provisions of the Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Note on or after the due date thereof or to bring suit to
enforce such payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default; (vi) after the Company's
obligation to purchase Notes arises thereunder, amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the ranking of the Notes or any Guarantee in a manner which adversely affects
the Holders; or (viii) release any Guarantor from any of its obligations under
its Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS OR DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Issuer, the
Company, the Guarantors or any other successor entity shall have any personal
liability in connection with the Indenture or the Notes solely by reason of his
or its status as such stockholder, employee, officer or director. Each holder of
Notes by accepting a Note waives and releases all such liability, and
acknowledges and consents to the transactions described under "The
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Transactions" for purposes of Section 506 of the California General Corporation
Law and Section 10-640
of the Arizona Business Corporation Act. The waiver and release are part of the
consideration for the issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or a
Subsidiary of the Company, to obtain payments of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in other
transactions; PROVIDED that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company, or shall be merged with or
into the Company or any Restricted Subsidiary of the Company, or (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any Person (other than a Restricted Subsidiary of the Company) which
constitute all or substantially all of the assets of such Person or comprise any
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of the Company of
(a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any
other property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; PROVIDED, HOWEVER, that
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Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $1,000,000, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under "Merger, Consolidation and Sale of
Assets," (iii) disposals or replacements of obsolete or outdated equipment in
the ordinary course of business and (iv) a disposition consisting of a Permitted
Investment or Restricted Payment permitted under "Limitation on Restricted
Payments."
"BANK CREDIT FACILITY" means the New Credit Facility and any other agreement
or agreements between the Company and/or one or more of the Guarantors and a
financial institution or institutions, providing for the making of loans, on a
term or revolving basis, the issuance of letters of credit and/or the creation
of bankers' acceptances.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"BORROWING BASE" means the sum of (i) 85% of the net book value of the
accounts receivable of the Company and the Restricted Subsidiaries of the
Company and (ii) 50% of the net book value of the inventory of the Company and
the Restricted Subsidiaries of the Company.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and including any warrants,
options or rights to acquire any of the foregoing and instruments convertible
into any of the foregoing, and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATIONS" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of
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the Exchange Act (a "Group"), together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture) (other than a
Person or Group controlled by a Permitted Holder); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares of Capital Stock of the Company
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; (iv) Permitted Holders
cease to beneficially own shares of Capital Stock of the Company representing
more than 35% of the aggregate ordinary voting power represented by the issued
and outstanding Capital Stock of the Company, and any Person or Group (other
than Permitted Holders), directly or indirectly, beneficially or of record owns
shares of Capital Stock having more of the aggregate ordinary voting power of
the Capital Stock of the Company than the aggregate ordinary voting power
represented by shares of Capital Stock of the Company owned by Permitted
Holders; or (v) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board of
Directors of the Company at the beginning of such period, and such replacement
shall not have been approved by a vote of at least a majority of the Board of
Directors of the Company then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "-- Change of
Control."
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "-- Change
of Control."
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of, such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense, (C)
Consolidated Non-cash Charges, less any non-cash items increasing Consolidated
Net Income for such period, (D) fees and expenses of the HSI Acquisition and the
Transactions, including but not limited to capitalization of costs and expenses
related thereto, and (E) non-recurring severance and transaction costs incurred
in connection with any acquisition, all as determined on a consolidated basis in
accordance with GAAP for such Person and its Restricted Subsidiaries.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for such Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis (including any pro forma expense and cost reductions calculated on a
basis consistent with Regulation S-X under the Securities Act) for the period of
such calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the
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case may be (and the application of the proceeds thereof), occurred on the first
day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness; PROVIDED, HOWEVER, that where such Person and one or
more of its Restricted Subsidiaries is, or two or more of such Person's
Restricted Subsidiaries are, liable for the same Indebtedness, whether as
principal or guarantor, the above sentence shall be calculated to avoid
duplication. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) to the extent not included in Consolidated Interest Expense, the product of
(x) the amount of all dividend payments actually paid in cash in such period on
any series of Preferred Stock of such Person or its Restricted Subsidiaries
(other than dividends paid by any Restricted Subsidiary to the Company or any
other Restricted Subsidiary) and (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP (excluding any
accrued and unpaid interest on the Junior Subordinated Notes; PROVIDED, that
such interest is not payable in cash prior to the maturity of the Notes),
including without limitation, (a) any amortization of debt discount and
amortization or write-off of deferred financing costs, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED, that aggregate net income (or loss) of such Person and its
Restricted Subsidiaries for such period shall be determined before any reduction
in respect of accrued and unpaid Preferred Stock dividends and before any
reduction for accrued and unpaid interest on the Junior
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Subordinated Notes that is not payable in cash prior to the maturity of the
Notes; and PROVIDED, FURTHER, that there shall be excluded from aggregate net
income (or loss) of such Person and its Restricted Subsidiaries for such period
(a) after-tax gains or losses from Asset Sales (less fees and expenses related
thereto) or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) for purposes of
the covenant entitled "-- Limitation on Restricted Payments," the net income (or
loss) of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, except to the extent
of cash dividends or distributions paid to the referent Person or to a
Restricted Subsidiary of the referent Person by such Restricted Subsidiary, (e)
the net income (or loss) of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or distributions
paid to the referent Person or to a Restricted Subsidiary of the referent Person
by such Person, (f) any restoration to income of any contingency reserve, except
to the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date, (g) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (h) for purposes of the covenant entitled "--
Limitations on Restricted Payments," in the case of a successor to the referent
Person by consolidation or merger or as a transferee of the referent Person's
assets, any earnings (or losses) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash charges or
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss or any such charge which
requires an accrual of or a reserve for cash charges for any future period).
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in each case on or prior
to the final maturity date of the Notes, other than Capital Stock of the Company
which certain management stockholders have the right to put to the Company
pursuant to the terms of the Stockholders' Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company.
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"FOREIGN SUBSIDIARY" means any Subsidiary of the Company which (i) is not
organized under the laws of the United States, any state thereof or the District
of Columbia and (ii) conducts substantially all of its business operations in a
country other than the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"GUARANTOR" means (i) each of the Subsidiaries of the Company on the Issue
Date and (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of the Indenture as a Guarantor; PROVIDED that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
of the Indenture. Notwithstanding the above, no direct or indirect Foreign
Subsidiary of the Company will be considered a Guarantor.
"HSI ACQUISITION" means the acquisition by Penhall Company of substantially
all of the assets of Highway Services Inc. prior to the Issue Date.
"HSI NOTE" means the $3.7 million secured promissory note incurred by
Penhall Company in connection with the HSI Acquisition.
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any Lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person, and (ix) all Disqualified Capital Stock issued by
such Person with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance on such date of all unconditional
Obligations as described above, and the maximum liability upon the occurrence of
the contingency giving rise to the Obligation, on any contingent Obligations at
such date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
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"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment (other than as
specified in clause (i) above) shall be the original cost of such Investment
plus the cost of all additional Investments by the Company or any of its
Restricted Subsidiaries, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment,
reduced by the payment of dividends, distributions, interest payments or
repayments of loans or advances in connection with such Investment or any other
amounts received in respect of such Investment; PROVIDED that no such payment of
dividends, distributions, interest payments or repayments of loans or advances
or receipt of any such other amounts shall reduce the amount of any Investment
if such payment of dividends, distributions, interest payments or repayments of
loans or advances or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, it ceases to be a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"JUNIOR SUBORDINATED NOTES" means the Company's 10.5% Junior Subordinated
Notes due 2007 which may be issued in exchange for Senior Exchangeable Preferred
Stock.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"MANAGEMENT AGREEMENT" means the Management Services Agreement that becomes
effective upon consummation of the Recapitalization Merger among Bruckmann,
Rosser, Sherrill & Co., Inc. and the Company, as in effect on the Issue Date.
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"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"NET PROCEEDS OFFER" has the meaning set forth under "-- Certain Covenants
- -- Limitation on Asset Sales."
"NET PROCEEDS OFFER AMOUNT" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales."
"NET PROCEEDS OFFER PAYMENT DATE" has the meaning set forth under "--
Certain Covenants -- Limitation on Asset Sales."
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth under "--
Certain Covenants -- Limitation on Asset Sales."
"NEW CREDIT FACILITY" means the Credit Agreement dated as of the Issue Date,
between the Issuer, the lenders party thereto in their capacities as lenders
thereunder and Bankers Trust Company, as Administrative Agent and Credit Suisse
First Boston, as Syndication Agent, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding or deleting Restricted Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, matured indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"PERMITTED HOLDERS" means the Principals and their Related Parties.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the Notes issued in connection with the
Transactions and the Guarantees thereof;
(ii) Indebtedness incurred pursuant to any Bank Credit Facility in an
aggregate principal amount at any time outstanding not to exceed an amount
equal to (x) $20.0 million plus (y) the greater of (i) $30.0 million, less
the amount of any required permanent repayments of Bank Credit Facilities in
accordance with the provisions set forth under "--Certain Covenants --
Limitation on Asset Sales" (which are accompanied by a corresponding
permanent commitment reduction thereunder) or (ii) the Borrowing Base;
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(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Restricted Subsidiary of the
Company, in each case subject to no Lien (other than a Lien in connection
with a Bank Credit Facility) held by a Person other than the Company or a
Restricted Subsidiary of the Company; PROVIDED that if as of any date any
Person other than the Company or a Restricted Subsidiary of the Company owns
or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness (other than a Lien in connection with a Bank Credit Facility),
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted Subsidiary
of the Company, in each case subject to no Lien (other than a Lien in
connection with the a Bank Credit Facility); PROVIDED that (a) any
Indebtedness of the Company to any Restricted Subsidiary of the Company is
unsecured and subordinated in right of payment, pursuant to a written
agreement, to the Company's obligations under the Indenture and the Notes
and (b) if as of any date any Person other than a Restricted Subsidiary of
the Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness (other than a Lien in connection with a Bank
Credit Facility), such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business; PROVIDED,
HOWEVER, that such Indebtedness is extinguished within five business days of
incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $5,000,000 at
any one time outstanding (which may, but need not, be incurred under a Bank
Credit Facility);
(xii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business, in
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accordance with customary industry practice, in amounts and for purposes
customary in the Company's industry;
(xiii) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for adjustment of purchase price, earn
out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Restricted
Subsidiary of the Company or any of its Restricted Subsidiaries, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition; PROVIDED that the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(xiv) Guarantees of Indebtedness permitted to be incurred under the
Indenture and guarantees of third-party loans to employees or officers of
the Company or its Restricted Subsidiaries permitted by clause (vii) of the
definition of "Permitted Investments;"
(xv) Capitalized Lease Obligations and Purchase Money Obligations of the
Company or any of its Restricted Subsidiaries in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding;
(xvi) Indebtedness of the Company or any of its Restricted Subsidiaries
that is subordinate to the Notes and is incurred in order to repurchase
Capital Stock of the Company from employees, officers or directors of the
Company or any of its Subsidiaries upon the death, disability or termination
of employment of such employees, officers or directors or as otherwise
required by existing employment agreements in an aggregate principal amount
not to exceed $1,000,000 in any calender year; and
(xvii) Indebtedness incurred as a result of accrued and unpaid interest
being added to the principal amount of the Junior Subordinated Notes in
accordance with the terms of such Junior Subordinated Notes; PROVIDED that
such interest is not payable in cash prior to the maturity of the Notes.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Restricted Subsidiary of the
Company, (ii) Investments in the Company by any Restricted Subsidiary of the
Company; PROVIDED that any Indebtedness evidencing such Investment is unsecured
and subordinated in right of payment, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture; (iii) Investments in
cash and Cash Equivalents; (iv) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (v) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vi) Investments
made by the Company or its Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with the
"Limitation on Asset Sales" covenant; (vii) loans and advances to, or guarantees
of third-party loans to, employees and officers of the Company and its
Restricted Subsidiaries for relocation expenses and purchasing Capital Stock of
the Company not in excess of $2.0 million at any one time outstanding; (viii)
Investments the payment for which consists exclusively of Qualified Capital
Stock of the Company; (ix) guarantees of Indebtedness permitted to be incurred
under the Indenture; and (x) additional Investments not to exceed $2.5 million
at any time outstanding.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
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(ii) statutory Liens of landlords or of mortgagees of landlords and
Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith, if
such reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation or
other property subject to a Permitted Lien held by the lienholder of such
Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets (including the
cost of construction) of the Company or any Restricted Subsidiary of the
Company acquired in the ordinary course of business; PROVIDED, HOWEVER, that
(A) the related purchase money Indebtedness shall not exceed the cost of
such property or assets (including the cost of construction) and shall not
be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired or
constructed and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition or construction;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods or
construction;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
not extend to or cover any property or assets of the
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Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company;
(xiv) Liens securing Indebtedness under any Bank Credit Facility;
(xv) Liens arising out of consignment or similar arrangements for the
sale of goods in the ordinary course of business;
(xvi) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xvii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xviii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(xix) Liens securing Indebtedness under the HSI Note; and
(xx) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that do
not exceed $2.5 million at any one time outstanding.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PRINCIPAL" means (i) Bruckmann, Rosser, Sherrill & Co., Inc., a Delaware
corporation, and any of its Affiliates, and (ii) Messrs. Bruckmann, Rosser,
Sherrill and Edwards, each of whom is a principal on the Issue Date of
Bruckmann, Rosser, Sherrill & Co., Inc.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person or any of its Subsidiaries to any seller or any other person incurred or
assumed in connection with the purchase, installation, construction or
improvement of real or personal property to be used in the business of such
Person or any of its Subsidiaries within 180 days of such purchase,
installation, construction or improvement.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xii), (xiii),
(xiv) or (xvi) of the definition of Permitted Indebtedness), in each case that
does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company in connection with such Refinancing) or (2) create Indebtedness
with (A) a Weighted Average Life to Maturity that is less than the Weighted
Average Life to Maturity of the Indebtedness being Refinanced or (B) a final
maturity earlier than the final maturity of the Indebtedness being Refinanced;
PROVIDED that (x) if such Indebtedness
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being Refinanced is Indebtedness solely of the Company, then such Refinancing
Indebtedness shall be Indebtedness solely of the Company and (y) if such
Indebtedness being Refinanced is subordinate or junior to the Notes, then such
Refinancing Indebtedness shall be subordinate to the Notes at least to the same
extent and in the same manner as the Indebtedness being Refinanced.
"RELATED PARTY" means, with respect to any Principal, (A) any spouse or
immediate family member (in the case of an individual) of such Principal or (B)
a trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners or Persons beneficially holding a 66 2/3% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; PROVIDED that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means one or more revolving credit facilities
under a Bank Credit Facility.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SENIOR EXCHANGEABLE PREFERRED STOCK" means the Company's 10.5% Senior
Exchangeable Preferred Stock, par value $.01 per share.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"STOCKHOLDERS' AGREEMENT" means that Securities Holders Agreement, dated the
Issue Date, among the Company and the stockholders of the Company.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any Restricted Subsidiary of the Company; PROVIDED that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving
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effect to such designation, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one registered note in global form without coupons (the "Global Note").
Upon issuance, the Global Note will be deposited with, or on behalf of, the
Depository Trust Company (the "Depository") and registered in the name of Cede &
Co., as nominee of the Depository.
If a holder tendering Existing Notes so requests, such holder's New Notes
will be issued as described below under "Certificated Securities" in registered
form without coupons (the "Certificated Securities").
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants who elect to exchange Existing Notes with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in the Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by the Global Note to pledge such
interest to persons or entities that do not participate in the Depository's
system, or to otherwise take action with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of holders or an owner of a beneficial interest
in the Global Note desires to take any action that the Depository, as the holder
of such Global Note, is entitled to take, the Depository would authorize the
Participants to take such action and the Participant would authorize persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such persons. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such New
Notes.
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Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by the Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the Depository of
its Global Note, Certificated Securities will be issued to each person that the
Depository identifies as the beneficial owner of the New Notes represented by
the Global Note. In addition, any person having a beneficial interest in the
Global Note or any holder of Existing Notes whose Existing Notes have been
accepted for exchange may, upon request to the Trustee or the Exchange Agent, as
the case may be, exchange such beneficial interest or Existing Notes for
Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of Existing Notes that
is an individual citizen or resident of the United States or a United States
corporation that purchased the Existing Notes pursuant to their original issue
(a "U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Existing Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to subsequent purchasers (persons who did not purchase the Existing
Notes pursuant to their original issue), or to categories of holders that are
subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE EXISTING
NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE EXISTING NOTES
FOR NEW NOTES.
THE EXCHANGE OFFER
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the New Notes are not materially different from the terms of the Existing
Notes. Accordingly, such exchange should not constitute a taxable event to U.S.
Holders and, therefore, (i) no gain or loss should be realized by a U.S. Holder
upon receipt of a New Note, (ii) the holding period of the New Note should
include the holding period of the Existing Note exchanged therefor and (iii) the
adjusted tax basis of the New Note should be the same as the adjusted tax basis
of the Existing Note exchanged therefor immediately before the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the difference between the amount realized on
the sale, exchange or retirement and the tax basis of the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note (excluding amounts
received in respect of accrued interest, which will be taxable as ordinary
interest income) generally will be capital gain or loss and will be long-term
capital gain or loss if the Note was held for more than one year.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof.
102
<PAGE>
This withholding generally applies if the U.S. Holder fails to furnish his or
her social security number or other taxpayer identification number in the
specified manner and in certain other circumstances. Any amount withheld from a
payment to a U.S. Holder under the backup withholding rules is allowable as a
credit against such U.S. Holder's federal income tax liability, provided that
the required information is furnished to the IRS. Corporations and certain other
entities described in the Code and Treasury regulations are exempt from backup
withholding if their exempt status is properly established.
PLAN OF DISTRIBUTION
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of New Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Exchange Offer Registration Statement
is declared effective, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1999 (90 days after the date of this Prospectus),
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
103
<PAGE>
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
104
<PAGE>
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Dechert Price & Rhoads, New York, New York.
EXPERTS
The consolidated financial statements of Penhall International, Inc. and
subsidiaries as of June 30, 1997 and 1998 and for each of the years in the
two-year period ended June 30, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
authority of said firm as experts in accounting and auditing. The consolidated
financial statements of PII for the year ended June 30, 1996, included in this
Prospectus, have been audited by Moss Adams LLP, independent auditors, as stated
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. The financial statements of Highway Services, Inc. for the year
ended December 31, 1997 included in this Prospectus, have been audited by John
A. Knutson & Co., PLLP, independent auditors, as stated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
Moss Adams L.L.P. was replaced in July 1997 by KPMG Peat Marwick LLP. The
decision to change auditors was approved by PII's Board of Directors. Moss Adams
LLP's report does not contain an adverse opinion or a disclaimer of opinion, nor
is it qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements between PII and Moss Adams LLP on any
matter or practices, financial statement disclosure, or auditing scope or
procedure.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PENHALL INTERNATIONAL, INC.
Independent Auditors' Report of KPMG Peat Marwick LLP ..................................................... F-2
Independent Auditors' Report of Moss Adams LLP ............................................................ F-3
Consolidated Balance Sheets as of June 30, 1997 and 1998................................................... F-4
Consolidated Statements of Earnings for the years ended June 30, 1996, 1997 and 1998....................... F-5
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996, 1997 and 1998........... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1997 and 1998..................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
HIGHWAY SERVICES, INC.
Independent Auditors' Report of John A. Knutson & Co., PLLP................................................ F-24
Statements of Income for the year ended December 31, 1997, and for the three month periods ended March 31,
1997 and 1998 (unaudited)................................................................................ F-25
Statements of Cash Flows for the year ended December 31, 1997, and for the three month periods ended March
31, 1997 and 1998 (unaudited)............................................................................ F-26
Notes to Financial Statements.............................................................................. F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Penhall International, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Penhall
International, Inc. and subsidiaries ("the Company") as of June 30, 1997 and
1998, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the two-year period ended June 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Penhall
International, Inc. and subsidiaries as of June 30, 1997 and 1998, the results
of their operations and their cash flows for each of the years in the two-year
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
September 25, 1998
Orange County, California
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of Penhall International, Inc. and
Subsidiaries for the year ended June 30, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Penhall International, Inc. and Subsidiaries for the year ended June 30, 1996,
in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
MOSS ADAMS LLP
Costa Mesa, California
September 26, 1996
F-3
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, JUNE 30, 1998
------------------------ (NOTE 14)
1997 1998 (UNAUDITED)
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 676,000 234,000 --
----------- ----------- -------------
Receivables:
Contract and trade receivables................................................. 20,896,000 23,454,000 23,454,000
Contract retentions, due upon completion and acceptance of work (note 2)....... 3,744,000 4,454,000 4,454,000
Income taxes receivable........................................................ 216,000 2,399,000 2,399,000
----------- ----------- -------------
24,856,000 30,307,000 30,307,000
Less allowance for doubtful receivables (note 2)............................... 1,110,000 995,000 995,000
----------- ----------- -------------
Net receivables............................................................ 23,746,000 29,312,000 29,312,000
----------- ----------- -------------
Costs and estimated earnings in excess of billings on uncompleted contracts (note
11)............................................................................ 668,000 976,000 976,000
Deferred tax assets (note 6)..................................................... 1,042,000 891,000 4,439,000
Inventories...................................................................... 1,066,000 1,458,000 1,458,000
Prepaid expenses and other current assets........................................ 615,000 670,000 670,000
----------- ----------- -------------
Total current assets....................................................... 27,813,000 33,541,000 36,855,000
----------- ----------- -------------
Property, plant and equipment, at cost:
Land............................................................................. 3,919,000 4,538,000 4,538,000
Buildings and leasehold improvements............................................. 6,962,000 7,715,000 7,715,000
Construction and other equipment................................................. 59,062,000 67,934,000 67,934,000
----------- ----------- -------------
69,943,000 80,187,000 80,187,000
Less accumulated depreciation and amortization................................... 29,282,000 35,180,000 35,180,000
----------- ----------- -------------
Net property, plant and equipment.......................................... 40,661,000 45,007,000 45,007,000
Goodwill, net of accumulated amortization of $199,000 and $471,000 at June 30, 1997
and 1998, respectively........................................................... 631,000 8,649,000 8,649,000
Other assets, net (note 3)......................................................... 728,000 1,126,000 6,664,000
----------- ----------- -------------
$69,833,000 $88,323,000 $97,175,000
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5).................................. $ 185,000 $ 2,617,000 $ 2,034,000
Current installments of notes payable to stockholders (note 10).................. 819,000 131,000 131,000
Trade accounts payable........................................................... 4,233,000 7,532,000 7,546,000
Accrued liabilities (note 4)..................................................... 4,924,000 9,041,000 7,791,000
Billings in excess of costs and estimated earnings on uncompleted contracts (note
11)............................................................................ 207,000 665,000 665,000
----------- ----------- -------------
Total current liabilities.................................................. 10,368,000 19,986,000 18,167,000
----------- ----------- -------------
Long-term debt, excluding current portion (note 5)................................. 12,756,000 15,542,000 22,265,000
Notes payable to stockholders, excluding current portion (note 10)................. 351,000 274,000 274,000
Senior Notes....................................................................... -- -- 100,000,000
Deferred tax liabilities (note 6).................................................. 2,479,000 3,609,000 3,609,000
Accrued compensation (note 8)...................................................... 4,626,000 5,306,000 6,480,000
Senior Exchangeable Preferred Stock, redemption value $10,000,000. Authorized,
issued and outstanding 10,000 shares............................................. -- -- 10,000,000
Series A Preferred Stock, redemption value $10,428,000. Authorized 25,000 shares;
issued and outstanding 10,428 shares............................................. -- -- 10,428,000
Stockholders' equity (deficit):
Series B Preferred Stock, par value $.01 per share. Authorized 50,000 shares;
issued and outstanding 18,572 shares, liquidation value $1,000 per share....... -- -- 18,572,000
Common stock, $.10 par value. Authorized 5,000,000 shares; issued and outstanding
405,392 and 421,616 shares in 1997 and 1998. On a pro forma basis par value
$.01 per share. Authorized 5,000,000 shares, issued and outstanding 1,000,000
shares......................................................................... 40,000 42,000 10,000
Additional paid-in capital....................................................... 12,848,000 14,498,000 990,000
Retained earnings (accumulated deficit).......................................... 26,365,000 29,066,000 (93,620,000)
----------- ----------- -------------
Total stockholders' equity (deficit)....................................... 39,253,000 43,606,000 (74,048,000)
Commitments and contingencies (notes 7, 8 and 9).................................
Subsequent events (note 14)......................................................
----------- ----------- -------------
$69,833,000 $88,323,000 $97,175,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JUNE 30
--------------------------------------------
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Revenues........................................................... $ 74,895,000 $ 95,298,000 $ 101,170,000
Cost of revenues................................................... 51,200,000 68,541,000 72,395,000
------------- ------------- --------------
Gross profit..................................................... 23,695,000 26,757,000 28,775,000
General and administrative expenses (notes 8 and 14)............... 15,156,000 16,953,000 19,880,000
Other compensation (note 14)....................................... -- -- 3,271,000
Other operating income, net........................................ 867,000 871,000 644,000
------------- ------------- --------------
Earnings before interest expense and income taxes................ 9,406,000 10,675,000 6,268,000
Interest expense................................................... 783,000 811,000 1,036,000
------------- ------------- --------------
Earnings before income taxes..................................... 8,623,000 9,864,000 5,232,000
Income taxes (note 6).............................................. 3,538,000 4,407,000 2,531,000
------------- ------------- --------------
Net earnings....................................................... $ 5,085,000 $ 5,457,000 $ 2,701,000
------------- ------------- --------------
------------- ------------- --------------
Earnings per share:
Basic............................................................ $ 13.24 $ 13.61 $ 6.67
Diluted.......................................................... $ 13.05 $ 13.38 $ 6.55
Weighted average number of shares outstanding:
Basic............................................................ 383,958 400,813 405,103
Diluted.......................................................... 389,621 407,728 412,434
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
SHARES PAID-IN RETAINED STOCKHOLDERS'
OUTSTANDING COMMON STOCK CAPITAL EARNINGS EQUITY
----------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1995............ 383,752 38,000 10,947,000 15,927,000 26,912,000
Issuance of shares................... 2,097 -- 224,000 -- 224,000
Repurchase of shares................. (1,361) -- (85,000) (104,000) (189,000)
Net earnings......................... -- -- -- 5,085,000 5,085,000
----------- ------- -------------- ------------- -------------
Balance at June 30, 1996............. 384,488 38,000 11,086,000 20,908,000 32,032,000
Issuance of shares................... 20,904 2,000 1,762,000 -- 1,764,000
Net earnings......................... -- -- -- 5,457,000 5,457,000
----------- ------- -------------- ------------- -------------
Balance at June 30, 1997............. 405,392 40,000 12,848,000 26,365,000 39,253,000
Issuance of shares................... 3,147 -- 1,000,000 -- 1,000,000
Exercise of stock options............ 13,750 2,000 706,000 -- 708,000
Repurchase of shares................. (673) -- (56,000) -- (56,000)
Net earnings......................... -- -- -- 2,701,000 2,701,000
----------- ------- -------------- ------------- -------------
Balance at June 30, 1998............. 421,616 $ 42,000 $ 14,498,000 $ 29,066,000 $ 43,606,000
----------- ------- -------------- ------------- -------------
----------- ------- -------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JUNE 30
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................................... $ 5,085,000 $ 5,457,000 $ 2,701,000
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 5,417,000 6,878,000 8,870,000
Provision for doubtful accounts...................................... 337,000 (94,000) (115,000)
Provision for deferred taxes......................................... 642,000 (332,000) 1,281,000
Compensation expense related to exercise of stock options............ -- -- 579,000
Gain on sale of assets............................................... (331,000) (258,000) (203,000)
(Increase) decrease in assets and increase (decrease) in liabilities:
Receivables........................................................ 914,000 (6,427,000) (4,710,000)
Inventories, prepaid expenses and other assets..................... (735,000) (662,000) 295,000
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ (717,000) 212,000 (308,000)
Trade accounts payable and accrued liabilities..................... (1,341,000) 2,248,000 7,100,000
Billings in excess of costs and estimated earnings on uncompleted
contracts........................................................ 594,000 (472,000) 458,000
Accrued compensation............................................... 821,000 2,012,000 680,000
----------- ----------- -----------
Net cash provided by operating activities........................ 10,686,000 8,562,000 16,628,000
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets........................................... 989,000 1,003,000 1,122,000
Capital expenditures................................................... (11,511,000) (16,089,000) (12,287,000)
Acquisition of Highway Services, Inc., net of cash acquired............ -- -- (5,882,000)
----------- ----------- -----------
Net cash used in investing activities............................ (10,522,000) (15,086,000) (17,047,000)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under long-term debt........................................ 700,000 31,744,000 30,341,000
Repayments of long-term debt........................................... -- (26,495,000) (29,824,000)
Paydown on notes payable to stockholders............................... (750,000) (765,000)
Proceeds from issuance of common stock................................. 224,000 1,764,000 1,000,000
Repurchase of common stock............................................. (189,000) -- (56,000)
Debt issuance costs.................................................... -- -- (719,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities.............. 735,000 6,263,000 (23,000)
Net increase (decrease) in cash.................................. 899,000 (261,000) (442,000)
Cash at beginning of year................................................ 38,000 937,000 676,000
----------- ----------- -----------
Cash at end of year...................................................... $ 937,000 $ 676,000 $ 234,000
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes......................................................... 2,825,000 4,390,000 2,730,000
Interest............................................................. $ 783,000 $ 746,000 $ 1,085,000
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of noncash investing and financing activities:
Borrowings related to the acquisition of assets........................ $ 1,500,000 $ 556,000 $ 3,692,000
----------- ----------- -----------
----------- ----------- -----------
Exercise of stock options.............................................. $ -- $ -- $ 708,000
----------- ----------- -----------
----------- ----------- -----------
The fair value of Highway Services, Inc. net assets at the date of
acquisition was $1,283,000. Goodwill of $8,291,000 was recorded in
connection with the acquisition.
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES AND OPERATING CYCLE
Penhall International, Inc. ("the Company") was founded in 1957 and was
incorporated in the state of California on April 19, 1988. The Company serves
customers in the industrial, construction, governmental, and residential
markets, primarily through the performance of new construction, rehabilitation,
and demolition services in connection with infrastructure projects. The
Company's revenues are generated through equipment rentals and construction
contracts. The length of the construction contracts varies, but typically range
from one to 12 months. In accordance with the operating cycle concept, the
Company classifies all contract-related assets and liabilities as current items.
The Company's base of operations include among others, the states of California,
Arizona, Colorado, Nevada, Texas, Georgia, and Utah. Additionally, through its
purchase in April of 1998 of Highway Services, Inc. (see note 13), the Company's
operations have been expanded to include the mid-western states of the United
States and Canada. The Company's operations are primarily conducted through its
wholly-owned subsidiaries, Penhall Company and Phoenix Concrete Cutting, Inc.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all subsidiaries. All significant intercompany transactions have been eliminated
in consolidation.
REVENUE RECOGNITION ON LONG-TERM CONSTRUCTION CONTRACTS
Income from construction operations is recorded using the
percentage-of-completion method of accounting. The Company has two types of
contracts. The first type of contract is fixed unit in which the percentage of
completion is determined based on the units completed as a percentage of
estimated total units. The second type of contract is lump sum in which
percentage of completion is determined based on costs to date as compared to
total estimated costs to complete. If estimated total costs on any contract
indicate a loss, the Company provides currently for the total loss anticipated
on the contract. For long-term contracts which extend beyond fiscal year ends,
revisions in cost and profit estimates during the course of the work are
reflected in the accounting period in which facts requiring the revision become
known. All remaining revenue and costs are recognized as work is performed.
Contract costs include all direct material, equipment rentals, labor and
subcontract costs and those indirect costs related to contract performance, such
as indirect labor, tools, supplies, repairs and depreciation cost. General and
administrative costs are charged to expense as incurred.
The asset "costs and estimated earnings in excess of billings on uncompleted
contracts" represents revenues recognized in excess of amounts billed. The
liability "billings in excess of costs and estimated earnings on uncompleted
contracts" represents billings in excess of revenues recognized.
Income from claims for additional contract compensation is recorded upon
settlement of the disputed amount.
F-8
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories, which consist of diamond cutting blades and blade fuel, are stated
at cost. Cost is determined using the purchase price of the assets and is
expensed based on usage.
PROPERTY, PLANT AND EQUIPMENT
The Company and its subsidiaries provide for depreciation of property, plant and
equipment based on the estimated useful lives of the assets, using the
straight-line method and a residual value of 10% as follows:
<TABLE>
<S> <C>
Buildings 15 to 39
years
Equipment 3 to 8 years
</TABLE>
Leasehold improvements are amortized over the lesser of the life of the lease or
useful life of the asset.
The cost and accumulated depreciation applicable to assets sold or otherwise
disposed of are eliminated from the asset and accumulated depreciation accounts.
Gain or loss on disposition is reflected in other operating income.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally 15 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. Amortization expense related to
goodwill amounted to $28,000, $171,000 and $272,000 for the years ended June 30,
1996, 1997 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the asset
to future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have an impact on the Company's
consolidated financial position, results of operations or liquidity.
F-9
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
ENVIRONMENTAL REMEDIATION COSTS
Losses associated with environmental remediation obligations are accrued for
when such losses are probable and reasonably estimable. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.
STOCK-BASED COMPENSATION
Prior to June 30, 1996, the Company accounted for its stock-based compensation
plans in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. In accordance with APB Opinion No. 25, compensation expense for
"fixed" stock compensation plans is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. For
"variable" stock compensation plans, compensation expense is recorded at the end
of each reporting period based on the difference between the purchase or
exercise price and the buy-out price or market value of the underlying security.
On July 1, 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and to
provide disclosures for employee stock-based compensation grants made in 1995
and future years as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
No stock options have been granted since 1993. As such, no pro forma disclosures
have been made.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period. Dilutive earnings per share is calculated by dividing net
earnings available to common stockholders plus the impact of assumed dilutive
potential securities. The Company has granted certain options which have been
treated as common share equivalents for purposes of calculating diluted earnings
per share.
F-10
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the calculation of diluted earnings per share for
each of the years in the three-year period ended June 30, 1998:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Diluted earings per share calculation
Net earnings...................................... $ 5,085,000 $ 5,457,000 $ 2,701,000
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares........................... 383,958 400,813 405,103
Plus-incremental shares from assumed conversion of
stock options................................... 5,663 6,915 7,331
------------ ------------ ------------
Dilutive potential shares......................... 389,621 407,728 412,434
------------ ------------ ------------
------------ ------------ ------------
Diluted earings per share........................... $ 13.05 $ 13.38 $ 6.55
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
effective for fiscal years ending after December 15, 1997. SFAS 128 introduces
and requires the presentation of "basic" earnings per share which represents net
earnings divided by the weighted average shares outstanding. Dual presentation
of "diluted" earnings per share, reflecting the effects of all potentially
dilutive securities, is also required. The Company adopted the provisions of
SFAS No. 128 on July 1, 1997. Earnings per share for all periods presented prior
to the Company's adoption of SFAS No. 128 have been restated to conform to the
provisions of SFAS No. 128. The adoption of SFAS No. 128 did not have a material
impact on the consolidated financial statements of the Company.
MANAGEMENT'S 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 the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' balances to conform to
the current presentation.
F-11
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(2) RECEIVABLES
Contract receivables represent those amounts which actually have been billed.
Contract retentions are collectible upon completion or other milestones of
contract performance. Based upon anticipated contract completion dates, these
retainages are expected to be collected as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
------------ ------------
<S> <C> <C>
Years ending June 30:
1998.............................................................. $ 1,872,000 --
1999.............................................................. 1,123,000 445,000
2000.............................................................. 749,000 1,782,000
2001.............................................................. -- 1,336,000
2002.............................................................. -- 891,000
------------ ------------
$ 3,744,000 $ 4,454,000
------------ ------------
------------ ------------
</TABLE>
Transactions in the allowance for doubtful receivables are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of period..................... $ 998,000 $ 1,335,000 $ 1,110,000
Provision for doubtful accounts.................. 346,000 (94,000) 14,000
Accounts charged off............................. (9,000) (131,000) (129,000)
------------- ------------- -------------
Balance end of period............................ $ 1,335,000 $ 1,110,000 $ 995,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(3) OTHER ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Cash surrender value on officers' life insurance policies....... $ 1,685,000 $ 574,000
Loans on officers' life insurance policies...................... (1,357,000) (449,000)
Debt issuance costs............................................. -- 719,000
Covenants not to compete........................................ 288,000 288,000
Accumulated amortization........................................ (52,000) (146,000)
Other........................................................... 164,000 140,000
------------- -------------
$ 728,000 $ 1,126,000
------------- -------------
------------- -------------
</TABLE>
The covenants not to compete are amortized over the life of the agreement.
Amortization expense related to the covenants not to compete amounted to
$171,000, $107,000 and $94,000 for the years ended June 30, 1996, 1997 and 1998,
respectively.
F-12
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(4) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Union benefits.................................................... $ 770,000 $ 700,000
Accrued bonuses................................................... 1,056,000 807,000
Accrued debt issuance costs....................................... -- 351,000
Accrued merger costs.............................................. -- 905,000
Accrued tax gross-up payments (note 14)........................... -- 2,936,000
Accrued insurance................................................. 764,000 618,000
Accrued vacation.................................................. 320,000 320,000
Accrued payroll................................................... 459,000 1,521,000
Other............................................................. 1,555,000 883,000
------------ ------------
$ 4,924,000 $ 9,041,000
------------ ------------
------------ ------------
</TABLE>
(5) LONG-TERM CREDIT FACILITY AND DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
The Company has a $20,000,000 secured bank line of credit with the
Company's principal bank for working capital purposes. Advances under
the line bear interest at various rates of interest ranging from 7.4%
to 8.5% at June 30, 1997 and 1998. Interest is payable monthly and
principal is due upon maturity on October 31, 1998. ................... $ 12,150,000 13,860,000
Note payable secured by certain equipment, bearing interest at 6.0%;
payable in annual principal and interest installments of $208,000; all
unpaid principal and interest due June 4, 2000......................... 556,000 381,000
Note payable secured by property in Austin, Texas, bearing interest at
10.0%; payable in monthly principal and interest installments of
$1,815; all unpaid principal and interest due November 1, 2021......... 199,000 197,000
Note payable secured by certain equipment, bearing interest at 5.51%;
payable in two installments of principal and interest of $2,000,000 due
on April 29, 1999 and 2000 -- 3,692,000
Other.................................................................... 36,000 29,000
------------- -------------
12,941,000 18,159,000
Less current installments of long-term debt.............................. 185,000 2,617,000
------------- -------------
Long-term debt, excluding current installments........................... $ 12,756,000 15,542,000
------------- -------------
------------- -------------
</TABLE>
F-13
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(5) LONG-TERM CREDIT FACILITY AND DEBT (CONTINUED)
The Company has unused and available amounts under its line of credit with its
principal bank in the amounts of $1,850,000 and $6,140,000, at June 30, 1997 and
1998, respectively.
Under the terms of its line of credit, the Company is required to meet certain
financial covenants and ratios, including working capital, net worth, and debt
to equity ratios. The Company was in compliance with all covenants and ratios at
June 30, 1997 and 1998. Additionally, under the terms of the line of credit, the
Company has pledged all of the assets of its wholly owned subsidiaries for the
line of credit.
The Company's line of credit was repaid in full on August 4, 1998 through the
proceeds received from the new credit facility (see note 14).
Annual maturities of long-term debt for the next five years for the periods
ended June 30 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1998
-------------
<S> <C>
1999................................................................. 2,617,000
2000................................................................. 3,059,000
2001................................................................. 1,010,000
2002................................................................. 1,010,000
2003................................................................. 183,000
Thereafter........................................................... 10,280,000
-------------
$ 18,159,000
-------------
-------------
</TABLE>
(6) INCOME TAXES
Income tax expense (benefit) is comprised of the following components:
<TABLE>
<CAPTION>
JUNE 30
-----------------------------------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Current tax expense:
Federal.......................................... $ 2,270,000 $ 3,674,000 919,000
State............................................ 626,000 1,065,000 332,000
------------ ------------ -------------
2,896,000 4,739,000 1,250,000
------------ ------------ -------------
Deferred tax expense (benefit):
Federal.......................................... 494,000 (252,000) 1,062,000
State............................................ 148,000 (80,000) 219,000
------------ ------------ -------------
642,000 (332,000) 1,281,000
------------ ------------ -------------
$ 3,538,000 $ 4,407,000 2,531,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-14
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(6) INCOME TAXES (CONTINUED)
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables............................ $ 444,000 $ 408,000
Accrued compensation.......................................... 1,013,000 731,000
Other......................................................... 598,000 788,000
------------- -------------
Total deferred tax assets................................. 2,055,000 1,927,000
------------- -------------
Deferred tax liabilities:
Depreciation.................................................. (3,392,000) (4,545,000)
Other......................................................... (100,000) (100,000)
------------- -------------
Total deferred tax liabilities............................ (3,492,000) (4,645,000)
------------- -------------
Net deferred tax liability................................ $ (1,437,000) $ (2,718,000)
------------- -------------
------------- -------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
Deferred income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
JUNE 30
--------------------------------------
<S> <C> <C> <C>
1996 1997 1998
----------- ----------- ------------
Allowance for doubtful receivables.................... $ (135,000) $ 90,000 $ 36,000
Other................................................. 284,000 (756,000) (190,000)
Depreciation.......................................... 692,000 860,000 1,153,000
Accrued compensation.................................. (199,000) (526,000) 282,000
----------- ----------- ------------
$ 642,000 $ (332,000) $ 1,281,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
F-15
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(6) INCOME TAXES (CONTINUED)
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to earnings before income taxes as follows:
<TABLE>
<CAPTION>
JUNE 30
----------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax expense..................... $ 2,932,000 $ 3,353,000 $ 1,779,000
Increase (decrease) in taxes resulting from:
State income tax expense, net of Federal income
tax deduction................................... 529,000 605,000 367,000
Nondeductible portion of stock-based
compensation.................................... 138,000 299,000 221,000
Other, net........................................ (60,000) 150,000 164,000
------------ ------------ ------------
$ 3,539,000 $ 4,407,000 $ 2,531,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(7) EMPLOYEE RETIREMENT PLANS
The Company and its subsidiaries contribute to multi-employer pension plans,
primarily defined benefit plans, as required by collective bargaining
agreements. Contributions to such plans are determined in accordance with the
provisions of negotiated labor contracts and are generally based on the number
of hours worked. Amounts contributed to these plans in fiscal 1996, 1997, and
1998 aggregated $1,380,000, $1,605,000 and $1,772,000, respectively. In the
event of the Company's partial or total withdrawal from such plans, it may be
liable for its share of any unfunded vested benefits thereunder. The Company
also may be assessed for its share of any unfunded vested benefits resulting
from partial or total withdrawal from such plans and any non-payment by other
employer participants. Less than 1% of labor is covered by a collective
bargaining agreement that will expire within one year.
The Company sponsors a defined contribution 401(k) plan. Subject to certain
terms and conditions of the plan, substantially all of the Company's non-union
employees are eligible to participate in the plan. The Company may, but is not
required to, make matching contributions to the plan each year, which are
allocated to each participant's account in proportion to the amount that he or
she has contributed to the plan during the applicable plan year. All Company and
employee contributions to the plan plus the earnings thereon are 100% vested.
Costs incurred under the plan were $106,000, $152,000 and $161,000 related to
the plan for the years ended June 30, 1996, 1997 and 1998, respectively.
(8) STOCK COMPENSATION PLANS
EMPLOYEE STOCK PURCHASE PLANS--The Company has established employee stock
purchase plans referred to as "stock buy-out agreements". Selected employees are
allowed to purchase shares at prices that are determined based on a book value
formula. The Company guarantees to repurchase the shares upon certain events or
termination of the employee. The repurchase price that is paid by the Company is
determined based on a book value formula that includes increased multiples at
dates specified in the agreements.
F-16
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(8) STOCK COMPENSATION PLANS (CONTINUED)
The stock buy-out agreements entered into subsequent to January 28, 1988
give rise to compensation expense that is accrued over the vesting period based
on the difference of the original purchase price and the buy-out price of the
shares.
Shares outstanding that are subject to the stock buy-out agreements were
62,000 and 75,000 at June 30, 1997 and 1998 respectively. The contingent
repurchase price of all these shares were $10,606,000 and $13,328,000 at June
30, 1997 and 1998, respectively.
Compensation expense related to the stock purchase plans amounted to
$519,000, $1,643,000 and $994,000 for the years ended June 30, 1996, 1997 and
1998, respectively. The accrued compensation related to the stock buy-out
agreements entered into subsequent to January 28, 1988 is reflected as accrued
compensation in the accompanying consolidated balance sheets.
STOCK OPTION PLAN--In March 1993, the Company adopted a stock option plan
(the Plan) pursuant to which certain key employees were granted options to
purchase up to 13,750 shares of the Company's common stock. Stock options were
granted in March 1993 with an exercise price equal to $51.49 per share. All
stock options have 10-year terms and vest and become fully exercisable after 5
years from the date of grant. In addition, specific vesting provisions provide
for an acceleration of the option exercise date in the event of the occurrence
of certain changes in control of the Company. Any shares acquired under these
agreements are subject to terms similar to the various employee stock buy-out
agreements, as described under Employee Stock Purchase Plans. There are no
additional options available for grant under the Plan.
Compensation expense (benefit) related to the stock option plans due to the
related stock buy-out agreements amounted to $302,000, $369,000 and $(314,000)
for the years ended June 30, 1996, 1997 and 1998, respectively. The accrued
compensation related to the stock option plan is reflected as accrued
compensation in the accompanying consolidated balance sheets.
Stock options outstanding were 13,750 and 0 at June 30, 1997 and 1998. There
was no stock option activity during the years ended June 30, 1996 and, 1997. All
13,750 stock options were exercised on June 30, 1998. The Company forgave the
exercise price of $51.49 for 11,250 stock options exercised and the resulting
compensation expense of $579,000 is included in general and administrative
expenses for the year ended June 30, 1998.
(9) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company and its subsidiaries lease various properties and equipment
under long-term agreements which expire at varying dates through 2002. Certain
of these leases provide for renegotiation of annual rentals at specified dates.
Rent expense was $452,000, $452,000 and $561,000 for the years ended June 30,
1996, 1997 and 1998, respectively.
F-17
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30: JUNE 30, 1998
- ------------------------- ---------------
<S> <C>
1999..................... $ 515,000
2000..................... 530,000
2001..................... 471,000
2002..................... 381,000
2003..................... 185,000
Thereafter............... 114,000
---------------
$ 2,196,000
---------------
---------------
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash accounts, and contract and trade receivables.
CASH
At June 30, 1997 and 1998, the Company has approximately $676,000 and
$234,000 on deposit at one financial institution.
ENVIRONMENTAL REMEDIATION COSTS
The Company is currently in the process of complying with upcoming
regulatory obligations to upgrade or close underground storage tanks under the
Resource Conservation and Recovery Act of 1980, including all applicable
requirements of state regulatory agencies, which must be met by December 22,
1998. The Company believes that the costs to address any associated
contamination would not reasonably be expected to exceed $170,000. The total
estimated aggregate cost of $72,000, principally related to the upgrade or
removal of the underground storage tanks, is expected to be paid in 1999 and has
been accrued for at June 30, 1998. The cost estimate is based on the proposals
from outside environmental engineering companies and from historical costs
incurred and represents Management's best estimate of the cost. The estimate of
costs and their timing of payment could change as a result of unforeseen
circumstances existing at the site.
LETTERS OF CREDIT
The Company has an existing standby letter of credit with a financial
institution in the amount of $450,000 for the benefit of a certain customer of
the Company. The standby letter of credit expires on March 1, 1999 and there is
no outstanding balance at June 30, 1998. The Company obtained a new standby
letter of credit in the aggregate amount of $2,000,000 on July 2, 1998 which
expires on December 31, 1998.
F-18
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
There are various lawsuits and claims pending against and claims being
pursued by the Company and its subsidiaries arising out of the normal course of
business. It is management's present opinion that the outcome of these
proceedings will not have a material effect on the Company's consolidated
financial statements taken as a whole.
(10) RELATED PARTY TRANSACTIONS AND NOTES PAYABLE TO STOCKHOLDERS
During December 1995, the Company purchased from its majority stockholder
facilities previously leased under a noncancelable operating arrangement. These
facilities were purchased for $2,200,000, with an initial payment of $700,000
and a note payable issued in the amount of $1,500,000. All unpaid principal and
interest was paid October 1, 1997.
In July 1994, the Company repurchased 4,923 shares from a stockholder for a
$590,000 promissory note. The note bears interest at 8.0% and is payable in
monthly principal and interest installments of $8,333. All unpaid principal and
interest is due October 2002.
In December 1997, the Company repurchased 673 shares from a stockholder with
a $111,000 promissory note. The note bears interest at 8.0% and is payable in
monthly principal and interest installments of $8,333. All unpaid principal and
interest is due January 1999.
(11) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Costs incurred on uncompleted contracts........................ $ 15,043,000 $ 24,533,000
Estimated earnings to date..................................... 5,849,000 3,279,000
------------- -------------
20,892,000 27,812,000
Less billings to date.......................................... 20,431,000 27,501,000
------------- -------------
$ 461,000 $ 311,000
------------- -------------
------------- -------------
Included in accompanying consolidated balance sheets under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $ 668,000 $ 976,000
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................... (207,000) (665,000)
------------- -------------
$ 461,000 $ 311,000
------------- -------------
------------- -------------
</TABLE>
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statements of financial
F-19
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
condition, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. SFAS No. 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at June 30, 1997 and 1998.
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
1997 1998
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash.............................................. $ 676,000 $ 676,000 $ 234,000 $ 234,000
Net receivables................................... 23,746,000 23,746,000 29,312,000 29,312,000
Financial liabilities:
Current installments of
long-term debt.................................. 185,000 185,000 2,617,000 2,617,000
Current installments of notes payable to
stockholders.................................... 819,000 819,000 131,000 131,000
Trade accounts payable............................ 4,233,000 4,233,000 7,532,000 7,532,000
Long-term debt.................................... 12,756,000 12,758,000 15,542,000 15,440,000
Notes payable to stockholders..................... 351,000 351,000 274,000 274,000
</TABLE>
The carrying amounts shown in the table are included in the consolidated
balance sheets under the indicated captions.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, net receivables, current installments of long-term debt, current
installments of notes payable to stockholders, and trade accounts payables:
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-term debt and notes payable to stockholders: The fair value of the
Company's long-term debt and notes payable to stockholders is estimated by
discounting the future cash flows of each instrument at rates currently
offered to the Company for similar debt instruments of comparable maturities
by the Company's bankers.
(13) HIGHWAY SERVICES ACQUISITION
On April 29, 1998, Penhall Company, a wholly-owned subsidiary of the
Company, purchased substantially all of the assets of Highway Services, Inc. for
approximately $9,654,000 plus the assumption of approximately $1,324,000 of
liabilities. Penhall Company paid approximately $5,962,000 in cash, with the
remainder payable in equal installments in April 1999 and 2000 pursuant to a
$3,692,000 secured
F-20
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(13) HIGHWAY SERVICES ACQUISITION (CONTINUED)
promissory note which bears interest at 5.51% per annum. HSI is based in
Minnesota and operates in approximately 25 states and is a national provider of
construction services including grinding, grooving, sawing, sealing and pavement
replacement. The acquisition has been accounted for by the purchase method and
accordingly, the results of operations of HSI have been included in the
Company's consolidated financial statements since April 29, 1998. The excess of
the purchase price over the fair value of the net identifiable assets acquired
of approximately $8,291,000 has been recorded as goodwill and is being amortized
on a straight-line basis over 15 years. The purchase agreement also provides
that certain stockholders of HSI purchase 3,147 of the Company's common stock
for $1,000,000.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and HSI as if the acquisition had
occurred as of the beginning of fiscal year 1997 and 1998, after giving affect
to certain adjustments, including amortization of goodwill, increased interest
expense on debt related to the acquisition, and related income taxes. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company and HSI constituted a single
entity during such periods.
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED JUNE 30,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Revenues......................................................................... $ 114,238,000 $ 114,706,000
-------------- --------------
-------------- --------------
Net earnings..................................................................... $ 7,061,000 $ 3,701,000
-------------- --------------
-------------- --------------
Earnings per share:
Basic.......................................................................... $17.62 $9.14
Diluted........................................................................ $17.32 $8.97
Weighted average number of shares outstanding:
Basic.......................................................................... 400,813 405,103
Diluted........................................................................ 407,728 412,434
</TABLE>
(14) SUBSEQUENT EVENTS
On August 4, 1998, $100,000,000 of 12% Senior Notes (the Senior Notes) were
sold by Penhall Acquisition Corp., an Arizona corporation formed by an unrelated
third party (the Third Party) to effect the recapitalization of the Company. As
part of the recapitalization, a series of mergers (the Recapitalization Mergers)
were consummated pursuant to which Phoenix Concrete Cutting, Inc., a
wholly-owned subsidiary of the Company, became the corporate parent of the
Company, the Third Party acquired a 62.5% interest in the Company and Phoenix
Concrete Cutting, Inc. became the successor obligor of the Senior Notes.
Following the consummation of the Recapitalization Mergers, Phoenix Concrete
Cutting, Inc. changed its name to Penhall International Corp., and the Company
changed its name to Penhall Rental Corp. For the year ended June 30, 1998,
$1,207,000 is included in general and administrative expenses for the costs
associated with the Recapitalization Mergers. At June 30, 1998, $719,000 has
been deferred as an other asset relating to costs associated with the issuance
of the debt.
F-21
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(14) SUBSEQUENT EVENTS (CONTINUED)
The Senior Notes are guaranteed by the wholly-owned subsidiaries of the
Company and mature on August 1, 2006. Interest will be payable semiannually in
arrears beginning February 1, 1999. In addition, the Senior Notes are
redeemable, at the Company's option, in whole at any time or in part from time
to time, on or after August 1, 2003, at certain redemption rates ranging from
106% to 102%.
Under generally accepted accounting principles, the Recapitalization Mergers
will be accounted for as a leveraged recapitalization transaction in a manner
similar to a pooling-of-interests. Under this method, the transfer of
controlling interest in the Company to a new investor will not change the
accounting basis of the assets and liabilities in the Company's separate
stand-alone financial statements.
In connection with the Recapitalization Mergers, the Company on June 30,
1998 entered into a certain Compensation Tax Consistency and Indemnificaiton
Agreement (the Agreement) with certain members of management. Under the
Agreement, the Company is obligated to make $3,271,000 of tax gross-up payments
to certain members of management. Such expense is included in the statement of
earnings for the year ended June 30, 1998 as other compensation.
Concurrent with the Recapitalization Mergers, the Company entered into a
$50,000,000 Senior secured credit facility agreement (the Credit Facility);
whereby, it issued a $20,000,000 term loan (the Term Loan) and received a
revolving loan (the Revolving Loan) for a maximum credit commitment of
$30,000,000.
The Term Loan in the amount of $20,000,000 commences on August 4, 1998 with
quarterly principal payments and ends on June 15, 2004. The quarterly principal
payments escalate, at graduated levels, from $750,000 per quarter for the four
quarters ending June 15, 2001 to $1,250,000 per quarter for the four quarters
ending June 15, 2002 to $1,500,000 per quarter for the eight quarters ending
June 15, 2004. The Company may elect to maintain the Term Loan as Base Rate
Loans and/or convert into Eurodollar Loans. Interest payments on a Base Rate
Loan will accrue quarterly at 1.25% plus the higher of the Federal Funds
Effective Rate (as defined) or the then current prime rate and is payable in
quarterly installments. Interest payments on Eurodollar Loans will accrue at
2.25% plus the Eurodollar Rate (as defined) and is payable on the last day of
each elected interest period which shall range from one to six months, as
elected by the Company.
The Revolving Loan in the maximum credit amount of $30,000,000 commences on
August 4, 1998 and the principal matures and is payable on June 15, 2004.
Minimum borrowings shall be $250,000 for borrowings elected as Base Rate Loans
and $500,000 for borrowings elected as Eurodollar Loans. Interest payments on a
Base Rate Loan will accrue quarterly at 1.25% plus the higher of the Federal
Funds Effective Rate (as defined) or the then current prime rate and is payable
in quarterly installments. Interest payments on Eurodollar Loans will accrue at
2.25% plus the Eurodollar Rate (as defined) and is payable on the last day of
each elected interest period which shall range from one to six months, as
elected by the Company.
Subject to and upon the terms and conditions set forth in the Credit
Facility Agreement, the lender may make a Swingline Loan to the Company in the
aggregate principal amount of $2,500,000. The expiration date of the Swingline
Loan is June 10, 2004. The Swingline Loan will be maintained as a Base Rate Loan
in which interest payments will accrue quarterly at 1.25% plus the higher of the
Federal Funds Effective Rate (as defined) or the then current prime rate and is
payable in quarterly installments.
F-22
<PAGE>
PENHALL INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996, 1997 AND 1998
(14) SUBSEQUENT EVENTS (CONTINUED)
The Credit Facility is secured by certain assets of the Company and contains
certain financial and non-financial covenants.
The initial proceeds from the Credit facility were used by the Company to
extinguish the bank line of credit as discussed in note 5.
The Company's contractual principal repayment obligations under the Senior
Notes and the Credit Facility for the years ending June 30 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
1999................. --
2000................. --
2001................. 3,000,000
2002................. 5,000,000
2003................. 6,000,000
Thereafter........... 106,000,000
-------------
Total................ 120,000,000
-------------
-------------
</TABLE>
F-23
<PAGE>
JOHN A. KNUTSON & CO., PLLP
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
Board of Directors
Highway Services, Inc.
We have audited the accompanying statements of income, retained earnings, and
cash flows of Highway Services, Inc. for the year 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 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Highway
Services, Inc. for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
JOHN A. KNUTSON & CO., PLLP
/s/ John A. Knutson & Co., PLLP
Certified Public Accountants
January 29, 1998
Minneapolis, Minnesota
F-24
<PAGE>
HIGHWAY SERVICES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE FOR THE THREE
ENDED MONTH PERIOD MONTH PERIOD
DECEMBER 31, ENDED MARCH ENDED MARCH
1997 31, 1997 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Contract income..................................................... $ 19,693,559 $ 2,722,826 $ 1,402,182
Contract costs...................................................... 15,062,354 2,415,860 772,225
------------- ------------- -------------
Gross profit.................................................. 4,631,205 306,966 629,957
Operating expenses
Equipment (Note 4)................................................ 537,534 192,373 288,155
General and administrative........................................ 1,467,427 230,889 236,695
Interest, net..................................................... 54,281 18,325 4,317
------------- ------------- -------------
2,059,242 441,587 529,167
------------- ------------- -------------
Net income (loss)............................................. 2,571,963 (134,621) 100,790
Retained earnings
Beginning of year................................................. 2,465,831 2,465,831 3,408,794
Dividends declared and paid....................................... (1,629,000) -- (1,889,846)
------------- ------------- -------------
End of year....................................................... $ 3,408,794 $ 2,331,210 $ 1,619,738
------------- ------------- -------------
------------- ------------- -------------
Net earnings (loss) per common share.......................... $ 1,420.97 $ (74.38) $ 55.68
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE>
HIGHWAY SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE THREE MONTH FOR THE THREE MONTH
DECEMBER 31, PERIOD ENDED MARCH PERIOD ENDED MARCH
1997 31, 1997 31, 1998
------------ ------------------- -------------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income............................................. $2,571,963 $ (134,621) $ 100,790
Adjustments to reconcile net income to net cash flows
from operating activities
Depreciation......................................... 416,678 104,169 121,033
Gain on sale of equipment............................ (20,790) -- (3,064)
Cash value increase in excess of premiums............ (23,762) 5,836 25
(Increase) decrease in assets
Accounts receivable................................ (452,892) (1,892,764) 660,232
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 110,169 110,169 --
Inventories........................................ 214,856 206,632 (42,065)
Prepaid expenses................................... (52,442) (46,718) 29,025
Refundable taxes................................... (6,280) -- 6,280
Increase (decrease) in liabilities
Accounts payable................................... 231,002 685,511 (411,189)
Accrued expenses................................... (128,614) (111,898) (98,059)
------------ ------------------- -------------------
Net cash provided by operating activities........ 2,859,888 (1,073,684) 363,008
------------ ------------------- -------------------
Cash flows from investing activities:
Proceeds from sale of equipment........................ 73,640 -- 12,939
Expenditures for property and equipment................ (387,284) (131,564) (32,337)
Deposit on computer equipment.......................... 14,225 14,225 --
Life insurance premiums paid........................... (23,799) (16,036) (7,800)
------------ ------------------- -------------------
Net cash (used) in investing activities.......... (323,218) (133,375) (27,198)
Cash flows from financing activities:
Principal payments on long-term debt................... (257,062) 937,589 807,769
Principal payments on capitalized lease obligation..... (25,694) -- --
Distributions to stockholders.......................... (1,629,000) -- (1,889,846)
------------ ------------------- -------------------
Net cash (used) in financing activities.......... (1,911,756) 937,589 (1,082,077)
------------ ------------------- -------------------
Net increase (decrease) in cash and cash
equivalents.................................... 624,914 (269,470) (746,267)
Cash and cash equivalents
Beginning of period.................................... 259,540 259,540 884,454
------------ ------------------- -------------------
End of period.......................................... $ 884,454 $ (9,930) $ 138,187
------------ ------------------- -------------------
------------ ------------------- -------------------
</TABLE>
See Notes to Financial Statements.
SUPPLEMENTAL DISCLOSURES
See Note 7
F-26
<PAGE>
HIGHWAY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Highway Services, Inc., incorporated on March 15, 1968, is a contractor
specializing in grinding, sawing, and repairing concrete highways throughout the
United States.
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
REVENUE AND COST RECOGNITION
The Company reports revenue from construction contracts on the percentage of
completion method for both financial and income tax reporting. Percentage of
completion is measured by the percentage of total costs incurred to date
compared to estimated total costs for each contract. Contract costs include
material, labor and benefits, subcontractors, equipment overhead, and other
direct costs. Provision for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Revisions in cost and profit
estimates are reflected in the accounting period when the facts which require
the revision become known.
UNAUDITED INTERIM STATEMENTS:
The financial statements for the three months ended March 31, 1997 and 1998
are unaudited. In the opinion of Management all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
financial statements have been included. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the Company's
future results of operations for the full year ending December 31, 1998.
PROPERTY AND DEPRECIATION
Property and equipment are carried at cost. Maintenance and repairs are
charged to operations and additions or improvements are capitalized. Items of
property sold, retired, or otherwise disposed of are removed from the asset and
accumulated depreciation accounts and any gains or losses thereon are reflected
in operations.
Depreciation is computed using straight-line and accelerated methods over
the following estimated service lives:
<TABLE>
<CAPTION>
TYPE OF ASSET LIVES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Construction equipment....................................................... 5 to 7 Years
Equipment capitalized under lease............................................ 5 Years
Trucks, trailers, and autos.................................................. 7 Years
Shop and office equipment.................................................... 5 to 12 Years
Building..................................................................... 39 Years
</TABLE>
2. RETIREMENT PLANS
PROFIT SHARING PLAN
In 1994 the Company adopted an employee retirement savings plan under
Internal Revenue Code Section 401(k). Full-time employees with at least one year
of service may enter the plan and elect to defer
F-27
<PAGE>
HIGHWAY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RETIREMENT PLANS (CONTINUED)
up to 15% of their salaries. Discretionary employer matching contributions are
determined periodically by the Company's board of directors. For the year ended
December 31, 1997, and the three month periods ended March 31, 1997 and 1998,
the Company matched 40% of employee elective deferrals. Total employer matching
contributions were $79,717, $9,085 (unaudited) and $8,195 (unaudited) for the
years ended December 31, 1997 and the three month periods ended March 31, 1997
and 1998, respectively.
MULTI-EMPLOYER PENSION PLANS
The Company contributes to union-sponsored multi-employer retirement plans
in accordance with negotiated union contracts. The plans cover all union
employees, which represent substantially all of the Company's employees.
Contributions, based on varying rates for the hours worked by the employees,
totaled $170,986, $51,884 (unaudited) and $28,354 (unaudited) for the year ended
December 31, 1997 and the three month periods ended March 31, 1997 and 1998,
respectively.
Government regulations significantly increase pension responsibilities for
participating employers. Under these regulations (the Multi-Employer Pension
Plan Amendments Act of 1980) if a plan terminates or the employer withdraws, the
Company could be subject to a substantial "withdrawal liability". The most
current financial information available from the plan which covers most of the
Company employees states that as of December 31, 1996 (the date of the latest
actuarial valuation) the unfunded value of vested benefits was $0. The Company
does not anticipate withdrawal from the plans, nor is the Company aware of any
unexpected plan terminations.
3. PROVISION FOR INCOME TAXES
The Company has elected to be taxed as an S corporation, whereby all taxable
income flows through to the stockholders. Therefore, no provision for federal
income taxes has been made.
Taxes currently payable occur for those states which charge minimum fees for
S corporations.
In the future, if the Company elects to be taxed as a C corporation,
deferred income taxes would be set-up for the cumulative difference between
financial statement and income tax depreciation methods. As of December 31, 1997
the cumulative difference between depreciation methods was approximately
$693,000, on which deferred income taxes would be approximately $277,000.
4. EQUIPMENT EXPENSE
<TABLE>
<CAPTION>
THREE MONTH THREE MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Depreciation................................................. $ 416,678 $ 104,876 $ 114,224
Repairs...................................................... 807,286 156,096 146,384
Labor and fringes............................................ 266,473 60,168 77,686
Equipment rent............................................... (13,940) 0 0
Licenses and fees............................................ 46,914 32,200 44,941
Gain on sale of equipment.................................... (20,790) 0 (3,064)
------------ ------------ ------------
1,502,621 353,340 380,171
Equipment costs charged to contracts......................... (965,087) (160,967) (92,016)
------------ ------------ ------------
$ 537,534 $ 192,373 $ 288,155
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-28
<PAGE>
HIGHWAY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS AND LEASES
The Company leases its building from R & B Properties, a partnership related
to Highway Services, Inc. through common ownership.
The building lease has a one year term ending February 1, 1998, with a base
rent of $2,800 per month. This is a triple net lease requiring the Company to
pay all taxes, insurance, and maintenance costs. Rent expense, including real
estate taxes was $48,156, $6,663 (unaudited) and $8,954 (unaudited) for the year
ended December 31, 1997 and three month periods ended March 31, 1997 and 1998,
respectively.
Future minimum annual lease payments required for years ending December 31
are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 36,254
1999............................................................... 38,050
2000............................................................... 39,942
2001............................................................... 42,025
2002............................................................... 3,517
</TABLE>
6. JOINT VENTURE
On November 19, 1996, the Company entered into a joint venture agreement
with Penhall Company of California. The joint venture has signed a subcontract
with Granite Construction to grind existing concrete pavement in the State of
California for approximately $2,600,000. The Company's portion of the work,
approximately $1,300,000 or 50% of the subcontract, was accounted for as a
separate job with Granite Construction and was completed during 1997.
7. SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS
Supplemental cash flow information and schedules of non-cash investing and
financing activities:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS THREE MONTHS
DECEMBER 31 ENDED ENDED
1997 MARCH 31, 1997 MARCH 31, 1998
------------ -------------- --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Interest paid............................................ $ 79,792 $ 18,325 $ 12,625
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
F-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information......................... iii
Summary....................................... 1
Risk Factors.................................. 15
The Transactions.............................. 23
Use of Proceeds............................... 24
Capitalization................................ 25
Unaudited Pro Forma Condensed Consolidated
Financial Statements........................ 26
Selected Historical Consolidated Financial
Data........................................ 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 35
The Exchange Offer............................ 41
Industry Overview............................. 47
Business...................................... 48
Management.................................... 60
Ownership of Capital Stock.................... 63
Certain Relationships and Related
Transactions................................ 68
Description of Certain Indebtedness........... 69
Description of the Notes...................... 71
Book-Entry; Delivery and Form................. 100
Certain Federal Income Tax Consequences....... 102
Plan of Distribution.......................... 103
Legal Matters................................. 105
Experts....................................... 105
Index to Financial Statements................. F-1
</TABLE>
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THE
ORIGINAL 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.
PROSPECTUS
$100,000,000
[LOGO]
PENHALL INTERNATIONAL CORP.
OFFER TO EXCHANGE
12% SENIOR NOTES DUE 2006
FOR ALL OUTSTANDING
12% SENIOR NOTES DUE 2006
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 10-851 of the Arizona Business Corporation Act provides that an
Arizona corporation may indemnify an individual made a party to a proceeding
because he is or was a director against liability incurred in the proceeding if
the individual (1) conducted himself in good faith; (2) reasonably believed (i)
in the case of conduct in his official capacity with the corporation, that his
conduct was in its best interests; and (ii) in all other cases, that his conduct
was at least not opposed to its best interests; and (3) in the case of any
criminal proceedings, he had no reasonable cause to believe his conduct was
unlawful. A corporation may indemnify a director in these circumstances only
upon specific authorization by the board of directors (or in certain
circumstances, a committee thereof) special legal counsel or by shareholders as
provided in Section 10-855. Section 10-852 of the Arizona Business Corporation
Act provides that an Arizona corporation must indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he is or was a director of the corporation
against reasonable expenses incurred by him in connection with the proceeding,
unless the articles of incorporation provide otherwise.
The Articles of Incorporation of the Company provide that a director of the
Company shall be entitled to the benefits of all limitations on the liability of
directors generally that are available under the Arizona Business Corporation
Act, except liability for: (i) the amount of a financial benefit received by a
director to which the director is not entitled; (ii) an intentional infliction
of harm on the corporation or the shareholders; (ii) a violation Section 10-833
of the Arizona Business Corporation Act; or (iv) an intentional violation of
criminal law.
The Bylaws of the Company provide that the Company shall, to the full extent
permitted by the laws of the State of Arizona, indemnify all directors and
officers whom it has the power to indemnify pursuant thereto.
The foregoing summary of the Arizona Business Corporation Act, of the
Company's Articles of Incorporation and of the Company's Bylaws is qualified in
its entirety by reference to the relevant provisions of the Arizona Business
Corporation Act and by reference to the relevant provisions of the Company's
Articles of Incorporation (filed as Exhibit 3.1) and the relevant provisions of
the Company's Bylaws (filed as Exhibit 3.2).
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2 Agreement and Plan of Merger, dated as of June 30, 1998 (as amended pursuant to letter agreements
executed in connection therewith), by and among Penhall International, Inc., the stockholders of Penhall
International, Inc., Phoenix Concrete Cutting, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. and Penhall
Acquisition Corp.
3.1 Amended and Restated Articles of Incorporation of the Company (formerly known as Phoenix Concrete
Cutting, Inc.)
3.2 Bylaws of the Company
3.3 Restated Articles of Incorporation of Penhall Rental Corp. (formerly known as Penhall International,
Inc.)
3.4 Bylaws of Penhall Rental Corp. (formerly known as Penhall International, Inc.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.5 Articles of Incorporation of Penhall Company
3.6 Bylaws of Penhall Company
4.1 Indenture dated as of August 1, 1998, between Penhall Acquisition Corp. and United States Trust Company
of New York, as Trustee
4.2 First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp.,
Penhall Company and United States Trust Company of New York
4.3 Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall
Company
4.4 Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT
Alex. Brown Incorporated and Credit Suisse First Boston Corporation
4.5 Form of the Company's 12% Senior Notes due 2006 (included in Exhibit 4.1)
4.6 Credit Agreement dated August 4, 1998, by and among the Company, Penhall Acquisition Corp., Bankers Trust
Company, as administrative agent, Credit Suisse First Boston, as syndication agent, and various lending
institutions named therein
4.7 Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill
& Co., L.P. and the Management Stockholders named therein
5 Opinion of Dechert Price & Rhoads*
10.1 Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and
Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006
10.2 Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill &
Co., Inc.
10.3 Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush
10.4 Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney
10.5 Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell
10.6 Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs
10.7 Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez
10.8 Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee
10.9 Penhall International, Inc. and Affiliated Companies Employees' Profit Sharing (401(k)) Plan*
10.10 Penhall International, Corp. 1998 Stock Option Plan*
12 Statement of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Moss Adams LLP
23.4 Consent of John A. Knutson & Co., PLLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as
Trustee under the Indenture filed as Exhibit 4.1
27 Financial Data Schedule
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedules:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
II-3
<PAGE>
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PENHALL INTERNATIONAL CORP.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on the 30th day of September, 1998.
<TABLE>
<S> <C> <C>
PENHALL INTERNATIONAL CORP.
By: /s/ JOHN T. SAWYER
-----------------------------------------
John T. Sawyer
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below appoints John T. Sawyer and Martin
W. Houge, either of whom may act without the joinder of the other, as his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other 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, 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 their substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board,
/s/ JOHN T. SAWYER President and Chief
- ------------------------------ Executive Officer
John T. Sawyer (Principal Executive
Officer)
Vice President-Finance and
/s/ MARTIN W. HOUGE Chief Financial Officer
- ------------------------------ (Principal Accounting
Martin W. Houge Officer)
/s/ BRUCE C. BRUCKMANN
- ------------------------------ Director
Bruce C. Bruckmann
/s/ HAROLD O. ROSSER II
- ------------------------------ Director
Harold O. Rosser II
</TABLE>
II-5
<PAGE>
SIGNATURES
PENHALL RENTAL CORP.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on the 30th day of September, 1998.
<TABLE>
<S> <C> <C>
PENHALL RENTAL CORP.
By: /s/ JOHN T. SAWYER
-----------------------------------------
John T. Sawyer
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board
(Sole Director),
/s/ JOHN T. SAWYER President and Chief
- ------------------------------ Executive Officer
John T. Sawyer (Principal Executive
Officer)
Vice President-Finance,
/s/ MARTIN W. HOUGE Chief Financial Officer
- ------------------------------ and Secretary (Principal
Martin W. Houge Accounting Officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
PENHALL COMPANY
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Anaheim, State of California, on the 30th day of September, 1998.
<TABLE>
<S> <C> <C>
PENHALL COMPANY
By: /s/ JOHN T. SAWYER
-----------------------------------------
John T. Sawyer
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board
(Sole Director),
/s/ JOHN T. SAWYER President and Chief
- ------------------------------ Executive Officer
John T. Sawyer (Principal Executive
Officer)
Vice President-Finance,
/s/ MARTIN W. HOUGE Chief Financial Officer
- ------------------------------ and Secretary (Principal
Martin W. Houge Accounting Officer)
</TABLE>
II-7
<PAGE>
Exhibit 2
Execution Copy
AGREEMENT AND PLAN OF MERGER
among
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.,
PENHALL ACQUISITION CORP.,
PENHALL INTERNATIONAL, INC.,
PHOENIX CONCRETE CUTTING, INC.
and
THE STOCKHOLDERS OF
PENHALL INTERNATIONAL, INC.
Dated as of June 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I THE MERGER 3
1.1 Exchange of Penhall Shares; the PCC Merger.........................................................3
1.2. Transactions at Closing...........................................................................4
1.3. Terms of the Merger...............................................................................5
1.4. Closing Date, Time and Place......................................................................6
1.5. Waiver............................................................................................7
1.6. Payment of Seller Consideration and Merger Consideration; Surrender of Stock......................7
1.7. No Further Ownership Rights in Existing Company Stock.............................................9
1.8. Termination of Exchange Fund......................................................................9
1.9. Lost, Stolen or Destroyed Certificates............................................................9
1.10. Closing Balance Sheet; Closing Date Indebtedness Amount; Adjustment to Seller
Consideration...................................................................................9
1.11. Adjustment of Seller Consideration for Certain Company Acquisitions.............................12
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY........................................13
2.1. Organization and Standing........................................................................13
2.2. Capitalization...................................................................................14
2.3. Authorization; Binding Agreement.................................................................15
2.4. Conflicts, Consents and Approvals................................................................15
2.5. Litigation.......................................................................................16
2.6. Financial Statements.............................................................................16
2.7. No Brokers or Finders............................................................................17
2.8. Taxes............................................................................................17
2.9. Absence of Undisclosed or Contingent Liabilities.................................................18
2.10. Property.........................................................................................19
2.11. Insurance........................................................................................21
2.12. Environmental Matters............................................................................22
2.13. Intellectual Property............................................................................23
2.14. Permits..........................................................................................24
2.15. Compliance with Laws.............................................................................24
2.16. Labor Matters....................................................................................25
2.17. Absence of Changes...............................................................................25
2.18. Transactions with Affiliates.....................................................................27
2.19. Contracts and Commitments........................................................................27
2.20. Benefit Plans....................................................................................28
2.21. Absence of Questionable Payments.................................................................32
2.22. Books and Records................................................................................32
2.23. Disclosure.......................................................................................32
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III SEVERAL REPRESENTATIONS AND WARRANTIES OF THE SELLERS...............................................32
3.1. Ownership of Shares..............................................................................32
3.2. Authorization; Binding Agreement.................................................................33
3.3. Conflicts, Consents and Approvals................................................................33
3.4. No Brokers or Finders............................................................................33
3.5 Investment Intent.................................................................................34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BRS AND NEWCO......................................................34
4.1. Organization.....................................................................................34
4.2. Authorization; Binding Agreement.................................................................34
4.3. Conflicts, Consents and Approvals................................................................35
4.4. Litigation.......................................................................................35
4.5. Financing........................................................................................36
4.6. No Brokers or Finders............................................................................36
4.7 Investment.......................................................................................36
ARTICLE V CERTAIN COVENANTS....................................................................................36
5.1. Conduct of the Company's Business................................................................36
5.2. Notices Prior to Closing.........................................................................36
5.3. Access and Information...........................................................................38
5.4. Public Announcements.............................................................................38
5.5. Hart-Scott-Rodino Act............................................................................38
5.6. Further Assurances...............................................................................38
5.7. Transfer of Certain Assets.......................................................................38
5.8. Voting, Shareholders Agreement and Other Matters.................................................39
5.9. Competition......................................................................................40
5.10. Consents.........................................................................................41
5.11. Best Efforts.....................................................................................41
5.12. Employees........................................................................................41
5.13. Financing........................................................................................41
5.14. Estoppel Certificates............................................................................41
5.15. Title Insurance..................................................................................42
5.16. Surveys..........................................................................................43
5.17. FIRPTA...........................................................................................43
5.18. Zoning Letters...................................................................................43
5.19. Exceptions That Will Not Exist At Closing........................................................43
5.20. Termination of Certain Promotional Activities....................................................43
ARTICLE VI CONDITIONS...........................................................................................44
6.1. Conditions Precedent to Each Party's Obligations.................................................44
6.2. Conditions Precedent to BRS' and Newco's Obligations............................................44
6.3. Conditions Precedent to the Sellers' Obligations.................................................46
6.4. Up-Dating of Disclosure Schedules................................................................47
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII TERMINATION AND ABANDONMENT........................................................................48
7.1. Termination......................................................................................48
7.2. Effect of Termination............................................................................49
ARTICLE VIII INDEMNIFICATION....................................................................................49
8.1. The Sellers' Obligation to Indemnify.............................................................49
8.2. The Surviving Corporation's Obligations to Indemnify.............................................50
8.3. Notice and Opportunity to Defend.................................................................50
8.4. Procedure for Claims by Parties..................................................................52
8.5. Limitations on Indemnification...................................................................53
8.6. Insurance and Tax Effect.........................................................................56
8.7. Survival of Representations and Warranties.......................................................56
ARTICLE IX APPOINTMENT OF SELLER REPRESENTATIVE................................................................57
9.1 Appointment of the Seller Representative; Enforcement of Rights, Benefits and Remedies............57
ARTICLE X MISCELLANEOUS........................................................................................59
10.1. Amendment and Modification......................................................................59
10.2. Waiver of Compliance; Consents.................................................................59
10.3. Notices.........................................................................................59
10.4. Assignment; No Third Party Beneficiaries........................................................60
10.5. Expenses........................................................................................60
10.6. Governing Law...................................................................................61
10.7. Counterparts....................................................................................61
10.8. Entire Agreement................................................................................61
10.9. Arbitration.....................................................................................61
10.10. Severability....................................................................................63
10.11. Arm Length Contract.............................................................................63
10.12. Headings; Interpretative Provisions.............................................................63
10.13. Time is of the Essence..........................................................................64
10.14 Golden Parachute Approval Requirement...........................................................64
</TABLE>
4
<PAGE>
EXHIBITS
Exhibit A - Restated Charter of Penhall
Exhibit B - Restated Charter of PCC
Exhibit C - Intentionally Omitted
Exhibit D - Form of PCC Plan of PCC Merger
Exhibit E - Plan of Merger, together with Officer's Certificates
Exhibit F - Form of Securities Holders Agreement
Exhibit G - Form of Opinion of Counsel to the Seller and the Company
Exhibit H - Compensation, Tax Consistency and Indemnification Agreement
Exhibit I - Employment Agreement for John Sawyer
Exhibit J - Employment Agreement for Other Management
Exhibit K - Form of Mutual Release and Satisfaction of the Seller and
Affiliates
Exhibit L - Form of Opinion of Counsel to Newco
Exhibit M - Form of Mutual Release and Satisfaction of the Company and
Subsidiaries
5
<PAGE>
SCHEDULES
Schedule 1.10 Closing Balance Sheet; Closing Date Indebtedness Amount;
Adjustment to Seller Consideration
Schedule 1.11 Acquisition Candidates
Schedule 2.1(b) Articles of Incorporation and Bylaws of the Company
Schedule 2.2(b) Subsidiaries
Schedule 2.2(c) Agreements Relating to the Company Stock
Schedule 2.4 Conflicts, Consents and Approvals
Schedule 2.5 Litigation
Schedule 2.6(a) Financial Statements
Schedule 2.6(b) Exceptions to Financial Statements
Schedule 2.8 Tax Matters
Schedule 2.9 Undisclosed or Contingent Liabilities
Schedule 2.10(a) Personal Property
Schedule 2.10(c) Owned Real Property/Tenant Leases/Landlord Leases
Schedule 2.10(d) Title Exceptions - Owned Real Property
Schedule 2.10(e) Title Exceptions - Leasehold Estates (Subsidiaries)
Schedule 2.10(f) Title Exceptions - Leasehold Estates (The Company)
Schedule 2.10(h) Exceptions to Exclusive Possession, Rent Payments, and
Tenant Improvement Work
Schedule 2.10(i) Real Property Casualties and Defaults
Schedule 2.10(k) Matters Impairing Use of Property and Operations
Schedule 2.11(a) Insurance
Schedule 2.11(b) Bonding Arrangements
Schedule 2.12(a) Environmental Matters
Schedule 2.12(b) Hazardous Substances
Schedule 2.12(c) Underground Tanks
Schedule 2.13 Intellectual Property
Schedule 2.14 Permits
Schedule 2.15 Compliance with Laws
Schedule 2.16 Labor Matters
Schedule 2.17 Changes Since June 30, 1997
Schedule 2.18 Transactions with Affiliates
Schedule 2.19 Contracts and Commitments
Schedule 2.20(a) Benefit Plans
Schedule 2.20(c) Benefit Plan Exceptions
Schedule 3.1(a) Ownership of Shares
Schedule 3.1(b) Seller Stock Agreement
Schedule 3.3 Conflicts, Consents and Approvals of Sellers
Schedule 4.3 Conflicts, Consents and Approvals of Newco and BRS
Schedule 4.6 Brokers or Finders
Schedule 5.7 Transfer of Certain Assets
Schedule 5.8 Voting, Shareholders Agreement and Other Matters
Schedule 5.9 Competition
6
<PAGE>
Schedule 6.2 (j) Employment Agreements
Schedule 6.2(l) Closing Approvals and Consents
- -
7
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
Page
<S> <C>
A and B Stockholders..............................................................................................7
AAA..............................................................................................................61
ABCA..............................................................................................................5
Accounting Referee...............................................................................................11
Acquisition Candidates...........................................................................................12
Adjustment Amount................................................................................................10
affiliate........................................................................................................27
Agreement.........................................................................................................2
Applicable Accounting Principles.................................................................................10
Arbiter..........................................................................................................62
Asserted Liability...............................................................................................50
associate........................................................................................................26
Audited Financial Statements.....................................................................................16
Basket...........................................................................................................53
Benefit Plans....................................................................................................29
BRS...............................................................................................................2
BRS Purchase Shares...............................................................................................4
Cash Merger Consideration.........................................................................................6
CERCLA...........................................................................................................22
CGCL..............................................................................................................7
Claim Response...................................................................................................52
Claims Notice....................................................................................................51
Class A Common Stock..............................................................................................3
Class B Common Stock..............................................................................................3
Class B Merger Consideration......................................................................................6
Class B Purchase Price............................................................................................4
Class C Common Stock..............................................................................................3
Closing...........................................................................................................6
Closing Date......................................................................................................6
Closing Date Balance Sheet.......................................................................................10
Closing Date Indebtedness Amount.................................................................................10
Closing Price....................................................................................................55
Code..........................................................................................................3, 18
Common Stock......................................................................................................6
Company.......................................................................................................2, 17
Company Accountants..............................................................................................10
Company Indemnified Party........................................................................................49
Company's knowledge..............................................................................................63
Compensation Agreement...........................................................................................45
Competitive Business.............................................................................................40
Constituent Corporations..........................................................................................5
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Contracts........................................................................................................27
Current Market Price.............................................................................................55
Defaulting Seller................................................................................................54
Disputing Parties................................................................................................61
DOJ..............................................................................................................38
EBITDA...........................................................................................................13
Effective Time....................................................................................................5
Eligible Assets..................................................................................................55
Employment Agreements............................................................................................45
Environmental Laws...............................................................................................22
Environmental Permits............................................................................................23
ERISA............................................................................................................31
ERISA Affiliate..................................................................................................31
Exceptions That Will Not Exist At Closing........................................................................19
Exchange..........................................................................................................4
Exchange Agent....................................................................................................7
Exchange Agent Agreement..........................................................................................7
Exchange Fund.....................................................................................................9
Existing Company Stock............................................................................................2
Final Adjustment Amount..........................................................................................11
Final Indebtedness Amount........................................................................................11
Financial Statements.............................................................................................17
Financing........................................................................................................41
FTC..............................................................................................................38
GAAP.............................................................................................................16
Hazardous Substance..............................................................................................23
Historical EBITDA................................................................................................13
HSI...............................................................................................................2
HSR Act..........................................................................................................38
Indemnified Parties..............................................................................................50
Indemnifying Party...............................................................................................51
Intellectual Property............................................................................................23
Interim Balance Sheet............................................................................................18
Interim Balance Sheet Date.......................................................................................18
Interim Financial Statements.....................................................................................17
IRS..............................................................................................................29
Labor Agreement..................................................................................................25
Landlord Leases..................................................................................................19
Leased Real Property.............................................................................................19
Leasehold Estates................................................................................................20
Leases...........................................................................................................19
Liens............................................................................................................14
Litigation Conditions............................................................................................51
Losses...........................................................................................................49
Management.......................................................................................................23
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Management Stockholders...........................................................................................2
material.........................................................................................................27
Material Adverse Change..........................................................................................53
Material Adverse Effect......................................................................................14, 53
Measurement Date.................................................................................................13
Merger............................................................................................................2
Merger Consideration..............................................................................................6
Multiemployer Plan...............................................................................................28
NCCF.............................................................................................................54
Net Loss.........................................................................................................56
Newco.............................................................................................................2
Newco Breach.....................................................................................................48
Newco Common Stock................................................................................................2
Non-Defaulting Seller............................................................................................54
Non-Management Stockholders.......................................................................................2
Owned Real Property..............................................................................................19
PCC...............................................................................................................2
PCC Merger........................................................................................................4
PCC Merger Sub....................................................................................................4
PCC Plan of Merger................................................................................................4
PCC Restated Charter..............................................................................................3
Peerless L/C.....................................................................................................10
Penhall Class A Common Stock......................................................................................3
Penhall Class B Common Stock......................................................................................3
Penhall International Corp.....................................................................................5, 6
Pension Plan.....................................................................................................29
Permits..........................................................................................................24
Permitted Exceptions.............................................................................................20
Permitted Leasehold Property Exceptions..........................................................................20
person...........................................................................................................14
Personal Property................................................................................................19
Plan of Merger....................................................................................................5
Pro Rata Share...................................................................................................12
Proposed Acquisition.............................................................................................12
Real Property....................................................................................................19
Recapitalization..................................................................................................2
Release..........................................................................................................23
Remediation Costs................................................................................................50
Response Period..................................................................................................52
Restated Penhall Charter..........................................................................................3
Review Period....................................................................................................10
Rogers Fee.......................................................................................................61
Schedules B......................................................................................................20
Securities Act...................................................................................................14
Securities Holders Agreement......................................................................................5
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Seller Breach....................................................................................................48
Seller Consideration..............................................................................................6
Seller Indemnified Party.........................................................................................50
Sellers...........................................................................................................2
Senior Management................................................................................................63
Series A Preferred Stock..........................................................................................6
Series B Preferred Stock..........................................................................................6
Shareholders Agreements..........................................................................................39
Shareholders' Valuation Benefit..................................................................................13
Stock Option Plan................................................................................................45
Stull Children...................................................................................................40
Subsidiaries.....................................................................................................14
Subsidiary...................................................................................................14, 17
Surveys..........................................................................................................43
Surviving Corporation.............................................................................................5
Tax..............................................................................................................17
Tax Returns......................................................................................................17
Taxes............................................................................................................17
Tenant Leases....................................................................................................19
Territory........................................................................................................40
Title Policies...................................................................................................42
Transfer.........................................................................................................39
Valuation Benefit................................................................................................13
Wooditch Shares..................................................................................................38
Zoning Letters...................................................................................................43
</TABLE>
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS IS AN AGREEMENT AND PLAN OF MERGER, dated as of June 30, 1998 (the
"Agreement"), by and among Bruckmann, Rosser, Sherrill & Co., L.P., a Delaware
limited partnership ("BRS"), Penhall Acquisition Corp., an Arizona corporation
("Newco"), Penhall International, Inc., a California corporation (the
"Company"), Phoenix Concrete Cutting, Inc., an Arizona corporation ("PCC"), the
stockholders of the Company identified on the signature pages hereto as the
"Management Stockholders" (the "Management Stockholders") and the stockholders
of the Company identified on the signature pages hereto as the "Non-Management
Stockholders" (the "Non-Management Stockholders" and, together with the
Management Stockholders, the "Sellers").
Background
A. The Company has issued and outstanding 421,615 shares of Common
Stock, without par value ("Existing Company Stock"), all of which are owned
of record by the Sellers, including 13,750 shares of Existing Company Stock
issued upon exercise of options to acquire Existing Company Stock and 3,146
shares of Existing Company Stock issued to certain Management Stockholders
who are shareholders of Highway Services, Inc. ("HSI") in connection with the
Company's acquisition of substantially all of the assets of HSI.
B. Prior to the Closing referred to herein, all of the issued and
outstanding shares of Existing Company Stock will be exchanged for shares of
Penhall Class A Common Stock and Penhall Class B Common Stock (each as
hereafter defined) as provided herein.
C. Prior to the Closing, a newly formed subsidiary of PCC will have
merged with and into the Company, as a result of which (i) the Company will
become a wholly owned subsidiary of PCC and (ii) each holder of shares of
Penhall Class A Common Stock and Penhall Class B Common Stock will receive an
equal amount of shares of Class A Common Stock and Class B Common Stock (each
as hereafter defined), respectively, of PCC.
D. Newco's authorized stock consists solely of 100 shares of Common
Stock, par value $.01 per share ("Newco Common Stock"). BRS owns one (1)
share of Newco Common Stock, which presently comprises the sole issued and
outstanding share of capital stock of Newco.
E. The Boards of Directors of the Company and PCC deem it advisable
and in the best interests of the Company and PCC and their stockholders, and
the Board of Directors of Newco deems it advisable and in the best interests
of Newco and its stockholder, to adopt a plan of recapitalization of PCC (the
"Recapitalization") pursuant to which, among other things, (i) Newco will
merge with and into PCC (the "Merger") on the terms and conditions set forth
in this Agreement, with PCC continuing as the surviving corporation of such
Merger, and (ii) BRS will purchase certain securities of PCC as the surviving
corporation in the Merger, all on the terms and conditions set forth herein.
2
<PAGE>
F. It is intended that these transactions be recorded as a
recapitalization for financial reporting purposes.
G. As to certain Management Stockholders and BRS, it is intended
that certain of these transactions constitute and be treated as transfers of
property to a corporation controlled by the transferors under Section 351 of
the Internal Revenue Code of 1986, as amended (the "Code"), and comparable
provisions of state tax law.
Terms
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements, and upon the terms and subject to the
conditions hereinafter set forth, and intending to be legally bound hereby, the
parties do hereby agree as follows:
ARTICLE I
THE MERGER
1.1. Exchange of Company Shares; the PCC Merger. Prior to the
Closing, the Company, PCC and the Sellers shall have taken the following
actions:
(a) the Articles of Incorporation of the Company shall have
been amended and restated substantially in the form attached hereto as Exhibit A
(the "Restated Penhall Charter") to authorize 2,000,000 shares of Existing
Company Stock, without par value, 2,000,000 shares of Class A Common Stock,
without par value (the "Penhall Class A Common Stock"), and 1,000,000 shares of
Class B Common Stock, without par value (the "Penhall Class B Common Stock") of
the Company;
(b) the Articles of Incorporation of PCC shall have been
amended and restated substantially in the form attached hereto as Exhibit B (the
"PCC Restated Charter") to authorize 2,000,000 shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), 1,000,000 shares of Class
B Common Stock, par value $.01 per share (the "Class B Common Stock") and
1,000,000 shares of Class C Common Stock, par value $.01 per share (the "Class C
Common Stock");
(c) the Company shall have caused all of the Options to be
fully vested and the Sellers holding such Options shall have exercised all of
the Options for shares of Existing Company Stock;
(d) all of the outstanding shares of Existing Company Stock
shall have been exchanged for shares of Penhall Class A Common Stock and Penhall
Class B Common Stock. Accordingly, the Company and each Seller hereby agree
that, prior to the Closing, (i) the Company will issue to each Seller the number
of shares of Penhall Class A Common Stock and Penhall Class B Common Stock set
forth under such Seller's name on Schedule 3.1(a) hereto in exchange for all of
the shares of Existing Company Stock owned by such Seller and set forth under
such Seller's name on Schedule 3.1(a) hereto, and (ii) each Seller will accept
such Penhall Class A Common Stock and Penhall Class B Common Stock in full
redemption and discharge of
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all of the shares of Existing Company Stock owned by such Seller (the
"Exchange"). Pursuant to the Exchange, each Seller shall forward certificate(s)
evidencing the Existing Company Stock to be exchanged, together with duly
executed stock powers therefor, and, upon filing the Penhall Restated Charter
with the Secretary of State of the State of California, the Company will forward
to such Seller either (x) the certificates representing the shares of Penhall
Class A Common Stock and Penhall Class B Common Stock to be issued to such
Seller or (y) if the Exchange fails to be consummated, a notification to that
effect together with the certificate(s) evidencing shares of Existing Company
Stock previously delivered to the Company by such Stockholder. Immediately
following the Exchange and giving effect thereto, the Company shall have issued
and outstanding 365,199 shares of Penhall Class A Common Stock and 56,416 shares
of Penhall Class B Common Stock, all of which shall be owned by the Sellers as
set forth in Schedule 3.1(a) hereto;
(e) PCC shall have declared and paid a dividend of $8,500,000
to the Company, which dividend may be in the form of one or more of assumptions
of liability, cash or other assets;
(f) PCC shall have formed a new subsidiary under the laws of
the State of California ("PCC Merger Sub"). PCC Merger Sub shall have been
merged with and into the Company (the "PCC Merger") pursuant to a Plan of Merger
substantially in the form of Exhibit D hereto (the "PCC Plan of Merger"), as a
result of which: (i) each share of common stock of PCC Merger Sub issued and
outstanding shall be converted into 1 share of Existing Company Common Stock,
which will represent all of the issued and outstanding shares of the Company,
(ii) each holder of shares of Penhall Class A Common Stock and Penhall Class B
Common Stock will receive an equal number of shares of Class A Common Stock and
Class B Common Stock, respectively, and (iii) the shares of PCC stock held by
the Company will be converted into 12,386 shares of Class C Common Stock;
(g) Immediately following the Exchange and the PCC Merger,
and giving effect thereto, PCC shall have issued and outstanding 365,199 shares
of Class A Common Stock and 56,416 shares of Class B Common Stock, all of which
shall be owned beneficially and of record by the Sellers in the amounts and as
set forth in Schedule 3.1(a) hereto, and 12,386 shares of Class C Common Stock,
all of which shall be owned beneficially by the Company.
1.2. Transactions at Closing. The following transactions, which
together shall constitute the Recapitalization, shall be consummated at the
Closing on the Closing Date in the following order and each transaction shall
be conditioned upon the occurrence of the other transactions:
(a) each Management Stockholder shall sell, and BRS shall
purchase, all of the outstanding shares of Class B Common Stock set forth
opposite such Management Stockholder's name and designated as "BRS Purchase
Shares" on Schedule 3.1(a) hereto at a purchase price of $322.94 per share (such
per share consideration multiplied by the total number of shares of Class B
Common Stock being referred to herein as the "Class B Purchase Price");
(b) Newco shall obtain the proceeds of the Financing
(as hereafter defined);
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(c) upon the terms and subject to the conditions contained in
Section 1.3 hereof and elsewhere in this Agreement, at the Effective Time (as
defined below), Newco shall be merged with and into PCC in accordance with this
Agreement, the Agreement and Plan of Merger attached hereto as Exhibit E (the
"Plan of Merger") and the applicable provisions of the Arizona Business
Corporation Act (the "ABCA"), the separate existence of Newco shall cease, and
PCC shall continue as the surviving corporation (the "Surviving Corporation")
and continue its corporate existence under the laws of the State of Arizona.
Pursuant to the Plan of Merger, the Articles of Incorporation of PCC shall be
amended to change the corporate name of PCC to "Penhall International Corp.";
(d) the Surviving Corporation shall pay the Cash Merger
Consideration (as hereafter defined);
(e) BRS, the Management Stockholders and the Surviving
Corporation shall enter into a Securities Holders Agreement (the "Securities
Holders Agreement") substantially in the form attached hereto as Exhibit F; and
(f) the Surviving Corporation shall sell, and BRS shall
purchase, 327,612 shares of Common Stock of the Surviving Corporation at a
purchase price of $1.00 per share and 10,899.51 shares of Series A Preferred
Stock of the Surviving Corporation at a purchase price of $1,000 per share.
1.3. Terms of the Merger. (a) Effective Time. At the Closing, the
parties hereto shall cause the Merger to be consummated by the execution and
filing of the Plan of Merger (and any other appropriate documents, such as
Officer's Certificates) with the Secretary of State of the State of Arizona
containing or referencing a copy of this Agreement and shall make all other
filings or recordings required in accordance with the ABCA. The Plan of
Merger shall provide that the Merger shall become effective immediately upon
the filing of the Plan of Merger. The time when the Merger shall become
effective is hereinafter referred to as the "Effective Time."
(b) Effect of Merger. At the Effective Time, the effect of
the Merger will be as provided by the ABCA. Without limiting the foregoing, at
the Effective Time, the Surviving Corporation shall thereupon and thereafter
possess all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, of each of Newco and PCC (the
"Constituent Corporations"); and all property, real, personal and mixed, and all
debts due on whatever account, including subscriptions to shares, and all other
choses in action, and all and every other interest, of or belonging to or due to
each of the Constituent Corporations shall be taken and deemed to be transferred
to and vested in the Surviving Corporation without further act or deed; and the
title to any real estate, or any estate or interest therein, vested in either of
the Constituent Corporations shall not revert or be in any way impaired by
reason of the Merger.
(c) Articles of Incorporation, Bylaws, Directors and Officers
of Surviving Corporation. At the Effective Time, the Articles of Incorporation
of PCC in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided therein and by law, except that such Articles of Incorporation shall be
amended and restated as provided in the Plan of Merger to, among other
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things: (i) authorize 5,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), 25,000 shares of Series A Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), and 50,000 shares of Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of
the Surviving Corporation and (ii) to change the corporate name of the Surviving
Corporation to "Penhall International Corp." At the Effective Time, the Bylaws
of Newco in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation until thereafter amended as provided therein and by
law. The directors of Newco immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, and the officers of PCC immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
in each case until their successors are duly elected or appointed and qualified
or as otherwise provided in the Bylaws of the Surviving Corporation or by law.
(d) Conversion of Shares.
(i) Conversion of Class A Common Stock. Each share
of Class A Common Stock issued and outstanding immediately prior to the
Effective Time shall be cancelled and extinguished and converted into the right
to receive an amount in cash, without interest, equal to the quotient of
$117,937,365 (the "Cash Merger Consideration" and, together with the Class B
Purchase Price, the "Seller Consideration") divided by the total number of
shares of Class A Common Stock issued and outstanding immediately prior to the
Effective Time.
(ii) Conversion of Class B Common Stock. Each share
of Class B Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into 12.00 shares of Common Stock and 0.385
shares of Series B Preferred Stock of the Surviving Corporation (the "Class B
Merger Consideration" and, together with the Cash Merger Consideration, the
"Merger Consideration").
(iii) Conversion of Class C Common Stock. Each share
of Class C Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into 0.323 shares of Series B Preferred Stock
of the Surviving Corporation.
(iv) Cancellation of Treasury Stock. Each share of
Class A Common Stock or Class B Common Stock then held in the treasury of PCC,
shall be cancelled and retired without any conversion thereof and no payment of
any consideration therefor and thereafter will cease to exist.
(v) Capital Stock of Newco. Each share of Newco
Common Stock issued and outstanding immediately prior to the Effective Time
shall be cancelled without any conversion thereof or payment of any
consideration therefor and thereafter will cease to exist.
1.4. Closing Date, Time and Place. Unless this Agreement has been
terminated pursuant to Section 7.1 hereof, the consummation of the Merger
(the "Closing") shall take place on the third business day after all of the
conditions to closing set forth in Article VI are fulfilled or waived, or
such other date and at such other time as the Company and Newco may agree in
writing (the "Closing Date"). The Closing shall take place at 10:00 a.m.
local time at the offices
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of Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York or at such
other location as the parties shall mutually agree.
1.5. Waiver. Each Seller (on behalf of itself and its affiliates)
hereby waives any and all rights held by it or its affiliates to demand
payment for fair value of any capital stock of the Company or PCC under
Chapter 13 of the California General Corporation Law ("CGCL"), Chapter 13 of
the ABCA, respectively, or similar provisions of applicable law in connection
with the Merger and the other transactions contemplated hereby in respect of
any capital stock of the Company or PCC now or hereafter owned by such Seller
or its affiliates.
1.6. Payment of Seller Consideration and Merger Consideration;
Surrender of Stock. (a) Upon delivery to BRS of certificates evidencing the
shares of Class B Common Stock representing the BRS Purchase Shares, BRS will
deliver to the holders of the BRS Purchase Shares the Class B Purchase Price
to be received by such holders pursuant to Section 1.2(a) at the Closing by
wire transfer of immediately available funds to a single account designated
in writing by the Seller Representative (as defined below) not less than five
(5) business days prior to Closing.
(b) Prior to the Effective Time, Newco shall designate one or
more reputable banks or trust companies (the "Exchange Agent") to act at the
Surviving Corporation's sole expense as agent for the holders of Class A Common
Stock and Class B Common Stock immediately prior to the Effective Time (the "A
and B Stockholders") pursuant to the terms of an exchange agent agreement in the
form and substance reasonably satisfactory to Newco and the Seller
Representative (the "Exchange Agent Agreement"), to receive the Cash Merger
Consideration or Class B Merger Consideration to be delivered to such A and B
Stockholders pursuant to Section 1.3(d). Alternatively, Newco may designate the
Surviving Corporation to act as the Exchange Agent in accordance with this
Section 1.6. At or immediately following the Effective Time, Newco shall deposit
or cause to be deposited with the Exchange Agent in trust for the benefit of the
A and B Stockholders, the Merger Consideration to which the A and B Stockholders
shall become entitled pursuant to Section 1.3(d).
(c) With respect to holders of record of the Class A Common
Stock and Class B Common Stock who shall have given written notice to Newco at
least one (1) Business Day prior to the Effective Time of, in the case of
holders of Class A Common Stock, wire instructions for payment of the Cash
Merger Consideration or, in the case of holders of the Class B Common Stock,
instructions for registration of shares constituting the Class B Merger
Consideration, the Exchange Agent shall deliver to such holders at the Closing,
upon surrender at the Closing to the Exchange Agent of such certificates that
evidenced the shares of Class A Common Stock or Class B Common Stock, the Merger
Consideration payable in respect of the shares of Class A Common Stock or Class
B Common Stock represented by such certificates in accordance with the
instructions for such payment or delivery provided by such holder, and such
certificates shall be cancelled forthwith.
(d) With respect to holders of record of the Class A Common
Stock and Class B Common Stock who shall not have given proper written notice
and received payment in accordance with subparagraph (c) above, promptly after
the Effective Time, the Exchange Agent
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shall mail to each person who was, at the Effective Time, a holder of record of
Class A Common Stock or Class B Common Stock entitled to receive the Merger
Consideration pursuant to Section 1.3(d), a form (mutually agreed to prior to
the Effective Time by Newco and the Company) of letter of transmittal and
instructions for use in effecting the surrender of the certificates that, at the
Effective Time, shall have evidenced any of such shares of Class A Common Stock
or Class B Common Stock to be exchanged pursuant to the Merger. Upon surrender
to the Exchange Agent of such certificates that evidenced the shares of Class A
Common Stock or Class B Common Stock to be exchanged pursuant to the Merger,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
requested, the Exchange Agent shall promptly deliver to the persons entitled
thereto the Merger Consideration payable in respect of such shares of Class A
Common Stock or Class B Common Stock represented by such certificates, and such
certificates shall forthwith be cancelled. Until so surrendered and exchanged,
each such certificate evidencing such shares of Class A Common Stock or Class B
Common Stock shall, after the Effective Time, be deemed to evidence only the
right to receive the Merger Consideration to which such holder is entitled
pursuant to Section 1.3(d).
(e) If payment of the Merger Consideration in respect of
cancelled shares of Class A Common Stock or Class B Common Stock is to be made
to a person other than the Seller in whose name a surrendered certificate or
instrument is registered, it shall be a condition to such delivery or payment
that (i) the certificate or instrument so surrendered shall be properly endorsed
or shall be otherwise in proper form for transfer, (ii) the Seller requesting
such delivery or payment shall have paid any transfer and other taxes required
by reason of such delivery or payment in a name other than that of the
registered holder of the certificate or instrument surrendered or shall have
established to the reasonable satisfaction of the Surviving Corporation or the
Exchange Agent that such tax either has been paid or is not payable, and (iii)
the Seller requesting such delivery or payment shall have provided security
reasonably satisfactory to BRS and the Seller Representative for such Seller's
indemnification obligations under this Agreement.
(f) At the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock,
Penhall Class A Common Stock, Penhall Class B Common Stock or any Existing
Company Stock thereafter on the records of the Company. From and after the
Effective Time, the holders of certificates evidencing ownership of shares of
Class A Common Stock, Class B Common Stock, Class C Common Stock, Penhall Class
A Common Stock, Penhall Class B Common Stock or any Existing Company Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares except as otherwise provided herein or by
law. If, after the Effective Time, shares of Class A Common Stock, Class B
Common Stock, Class C Common Stock, Penhall Class A Common Stock, Penhall Class
B Common Stock or Existing Company Stock are duly presented to the Surviving
Corporation for any reason, they will be cancelled and exchanged as provided in
this Article I. No interest shall be paid or accrue on any portion of the Merger
Consideration, except that dividends shall accrue with respect to Series A
Preferred Stock and Series B Preferred Stock in accordance with the terms of
such stock.
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(g) Notwithstanding anything to the contrary in this Section
1.6, none of the Surviving Corporation or any party hereto shall be liable to a
holder of shares of Class A Common Stock, Class B Common Stock or any Existing
Company Stock for any amount properly paid to a public official pursuant to any
applicable property, escheat or similar law. If any certificates representing
shares of Class A Common Stock, Class B Common Stock or any Existing Company
Stock shall not have been surrendered prior to two years after the Effective
Time (or immediately prior to such earlier date on which any cash or other
property in respect of such certificate would otherwise escheat to or become the
property of any Authority (as defined in Section 2.14)), any such cash or other
distributions in respect of such certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
1.7. No Further Ownership Rights in Existing Company Stock. The
issuance or payment of the Merger Consideration pursuant to this Article I
will be in full satisfaction of all rights pertaining to the Class A Common
Stock, Class B Common Stock, Penhall Class A Common Stock, Penhall Class B
Common Stock or any Existing Company Stock surrendered in exchange therefor.
1.8. Termination of Exchange Fund. Any portion of the Merger
Consideration deposited with the Exchange Agent pursuant to Section 1.6 (the
"Exchange Fund") which remains undistributed to the holders of the certificates
representing shares of Class A Common Stock, Class B Common Stock, Penhall Class
A Common Stock, Penhall Class B Common Stock or Existing Company Stock for six
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of shares of Class A Common Stock, Class B Common
Stock, Penhall Class A Common Stock, Penhall Class B Common Stock or Existing
Company Stock prior to the Merger who have not theretofore complied with this
Article I shall thereafter look only to the Surviving Corporation and only as
general creditors thereof for payment of their claim for cash or other property,
if any.
1.9. Lost, Stolen or Destroyed Certificates. In the event
certificates representing any shares of Class A Common Stock, Class B Common
Stock, Penhall Class A Common Stock, Penhall Class B Common Stock or Existing
Company Stock have been lost, stolen or destroyed and the holder thereof is
unable to obtain a new certificate by reason of the fact that there can be no
further registration of transfers of such certificates on the records of the
Surviving Corporation pursuant to Section 1.6, the Exchange Agent will issue
or pay in exchange therefor, upon receipt of an affidavit by the holder
thereof stating that such certificates have been lost, stolen or destroyed,
the portion of the Merger Consideration to which the holder is entitled under
Section 1.3; provided, however, that the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance or payment thereof,
require the holder to agree to indemnify, or if such indemnity is deemed
inadequate in Surviving Corporation's reasonable discretion, to deliver a
bond in such sum as it may reasonably direct as indemnity, against any claim
that may be made against the Surviving Corporation, Newco or the Exchange
Agent with respect to such certificates alleged to have been lost, stolen or
destroyed.
1.10. Closing Balance Sheet; Closing Date Indebtedness Amount;
Adjustment to Seller Consideration. (a) As promptly as practicable, but not
later than one hundred twenty
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(120) days after the Closing Date, the Surviving Corporation will cause to be
prepared and delivered to the Seller Representative (i) a balance sheet (the
"Closing Date Balance Sheet") of the Company and its Subsidiaries, together with
an unqualified report thereon by KPMG Peat Marwick LLP (the "Company
Accountants"), and (ii) a statement based on such Closing Date Balance Sheet
setting forth in detail a calculation of the Closing Date Indebtedness Amount
(as hereafter defined) and the Adjustment Amount (as hereinafter defined),
determined in accordance with the Applicable Accounting Principles (as hereafter
defined) and this Agreement. For this purpose, (i) "Closing Date Indebtedness
Amount" shall mean an amount equal to all indebtedness (including principal,
accrued interest and any applicable premiums) of the Company or its Subsidiaries
to any Seller or former stockholder of the Company and to Bank of America
(consisting in each case of short- and long-term notes payable), all similar
indebtedness of the Company or its Subsidiaries for borrowed money (excluding
borrowings under life insurance policies payable from the cash surrender value
of such policies), and all amounts drawn under the $2 million dollar letter of
credit posted in favor of Peerless Insurance Company (or any substitute letter
of credit) (the "Peerless L/C"), in each case as of immediately prior to the
Closing, whether or not such indebtedness shall have been repaid or refinanced
in connection with the Closing; (ii) "Adjustment Amount" means the amount, if
any, by which (i) the difference between (x) the Closing Date Indebtedness
Amount minus (y) the amount of the proceeds from the Closing Date Indebtedness
Amount used to fund additions to working capital of the Company and property,
plant and equipment of the Company necessary to support continued growth in the
Company's business (including without limitation all monies used to pay for
Proposed Acquisitions (as defined in Section 1.11(a) below) but excluding all
amounts drawn under the Peerless L/C) or to fund the employee bonuses, employee
loans, tax payments and other items set forth in Schedule 1.10 exceeds (ii)
$10,000,000; and (iii) "Applicable Accounting Principles" means GAAP (as defined
in Section 2.6) applied in a manner consistent with the Audited Financial
Statements (as defined in Section 2.6), except that all amounts, irrespective of
size, quantity or nature shall be considered material.
(b) After delivery of its calculation of the Closing Date
Indebtedness Amount, the Surviving Corporation shall make available to the
Seller Representative all books, records, work papers, personnel and other
materials and sources used by the Surviving Corporation and the Company's
Accountants to prepare the Surviving Corporation's calculation of the Closing
Date Indebtedness Amount and the Adjustment Amount. The Seller Representative
may dispute any items or amounts reflected on the Closing Date Balance Sheet or
in the Closing Date Indebtedness Amount and the Adjustment Amount calculations
on the basis that such items or amounts were not presented in accordance with
the Applicable Accounting Principles or this Agreement (or on the basis of math,
entry or other errors); provided, however, that the Seller Representative shall
notify the Surviving Corporation in writing of each disputed item or amount
within thirty (30) days of the Seller Representative's receipt of the Closing
Date Balance Sheet and statement of the Closing Date Indebtedness Amount and the
Adjustment Amount (such thirty (30) day period hereinafter referred to as the
"Review Period"). Any such notice of disagreement shall specify those items or
amounts as to which the Seller disagrees (and shall include the Seller
Representative's calculation of the Closing Date Indebtedness Amount and the
Adjustment Amount), and the Sellers and the Seller Representative shall be
deemed to have agreed with all
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other items and amounts included in the calculation of the Closing Date
Indebtedness Amount and the Adjustment Amount delivered pursuant to Section
1.10(a).
(c) If a notice of disagreement shall be duly given pursuant
to Section 1.10(b), the Surviving Corporation and the Seller Representative
shall, during the fifteen (15) business days following receipt of such notice,
use their reasonable best efforts to reach agreement on the disputed items or
amounts in order to determine the Closing Date Indebtedness Amount and the
Adjustment Amount. If, during such period, the Surviving Corporation and the
Seller Representative are unable to reach such agreement, they shall promptly
thereafter cause a nationally recognized firm of independent accountants chosen
and mutually accepted by the parties, or, if no such agreement is reached within
five (5) business days after the end of such period, the firm of Arthur Andersen
LLP (the "Accounting Referee"), to review this Agreement and the disputed items
or amounts for the purpose of calculating the Closing Date Indebtedness Amount
and the Adjustment Amount. In making such calculation, the Accounting Referee
shall consider only those items or amounts in the Surviving Corporation's
calculation of the Closing Date Indebtedness Amount and the Adjustment Amount as
to which the Seller Representative has disagreed. The Accounting Referee shall
deliver to the Surviving Corporation and the Seller Representative, as promptly
as practicable but in no event later than thirty (30) days after retention of
the Accounting Referee by the Surviving Corporation and the Seller
Representative, a report setting forth such calculations. Such report shall be
final and binding upon the Surviving Corporation and the Sellers and shall
constitute an arbitral award upon which a judgment may be entered in any court
having jurisdiction thereof. The cost of such review and report shall be borne
equally by the Surviving Corporation and the Sellers. The "Final Indebtedness
Amount" and the "Final Adjustment Amount" shall mean the Closing Date
Indebtedness Amount and the Adjustment Amount, respectively, (A) as shown in the
Surviving Corporation's calculation delivered pursuant to Section 1.10(a) if no
notice of disagreement with respect thereto is duly delivered pursuant to
Section 1.10(b) or (B) if such a notice of disagreement is delivered, as agreed
by the Surviving Corporation and the Seller Representative pursuant to this
Section 1.10(c) or in the absence of such agreement, as shown in the Accounting
Referee's calculation delivered pursuant to this Section 1.10(c).
(d) The Sellers and Surviving Corporation agree that they
will, and will cause their (and their affiliates') agents and representatives
to, cooperate and assist in the preparation of the Closing Date Balance Sheet
and the calculation of the Closing Date Indebtedness Amount and the Adjustment
Amount and in the conduct of the audits and reviews referred to in this Section
1.10, including the making available to the extent necessary of books, records,
work papers, and personnel.
(e) The Surviving Corporation shall be solely responsible for
the fees, costs and expenses due to the Company's Accountants in respect of the
preparation of the Closing Date Balance Sheet and of the calculation of the
Closing Date Indebtedness Amount and the Adjustment Amount pursuant to this
Section 1.10.
(f) Each of the Sellers shall pay to the Surviving
Corporation such Seller's pro rata share, based on his or its ownership interest
in the Company specified in Schedule 3.1(a)
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("Pro Rata Share"), of the Final Adjustment Amount, if any, with interest as
provided in paragraph (g) below.
(g) Any payments pursuant to paragraph (f) above shall be
made by wire transfer of immediately available funds within ten (10) days after
the Final Indebtedness Amount and the Final Adjustment Amount have been
determined to such account of the Surviving Corporation as may be designated by
the Surviving Corporation in writing (it being understood that if at the
conclusion of the Review Period, any portion of the Adjustment Amount is not in
dispute, such amount shall be paid within ten (10) business days after the
conclusion of the Review Period). The amount of any payment to be made pursuant
to this Section 1.10 shall bear interest from and including the Closing Date to
but excluding the date of payment at a rate per annum equal to the rate of
interest from time to time announced by Morgan Guaranty Trust Company of New
York as its Base Rate in New York City in effect from time to time during the
period from the Closing Date to the date of payment. Such interest shall be
payable at the same time as the payment to which it relates and shall be
calculated daily on the basis of a year of three hundred sixty-five (365) days
and the actual number of days elapsed.
1.11. Adjustment of Seller Consideration for Certain Company
Acquisitions. (a) With respect to any acquisition (a "Proposed Acquisition") of
any of the acquisition candidates identified on Schedule 1.11 hereto (the
"Acquisition Candidates") consummated by the Company or a Subsidiary of the
Company either prior to Closing or within one hundred twenty (120) days
following the Closing, the Sellers will be entitled to receive the Shareholders'
Valuation Benefit (as defined below) in accordance with the terms and conditions
of this Section 1.11.
(b) For each Proposed Acquisition consummated prior to
Closing (including the acquisition of HSI), the Merger Consideration and the
Class B Purchase Price shall be increased ratably by an amount equal to 50% of
the Shareholders' Valuation Benefit attributable to such Proposed Acquisition.
In the event that one or more Proposed Acquisitions are consummated on or before
the 120th day following the Closing, the Sellers shall be entitled to receive,
allocated among the Sellers according to each Seller's respective interest in
the total of the Merger Consideration and the Class B Purchase Price as set
forth in Schedule 3.1(a), an amount equal to 50% of the Shareholders' Valuation
Benefit attributable to each such Proposed Acquisition. Payments pursuant to
this paragraph (b) shall be made (i) at the Closing and in the manner provided
in the first sentence of this subparagraph (b) with respect to any Proposed
Acquisition consummated prior to the Closing (it being acknowledged that the
Class B Purchase Price and the Merger Consideration specified in Sections 1.2(a)
and 1.3(d) include such payments with respect to HSI), and (ii) with respect to
any Proposed Acquisition consummated following the Closing, by wire transfer of
immediately available funds within ten (10) business days after the consummation
of such Proposed Acquisition to a single account for the benefit of the Sellers
as may be designated by the Seller Representative in writing.
(c) In the event that the EBITDA of an Acquisition Candidate
(acquired pursuant to a Proposed Acquisition for which payment or adjustment
shall have been made under paragraph (b) above) for the period ending on the
first anniversary of the Measurement Date (as defined below) of such Proposed
Acquisition shall equal or exceed 90% of such Acquisition Candidate's Historical
EBITDA (as defined below), the Sellers shall be entitled to receive from
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the Surviving Corporation, as an adjustment to the Seller Consideration, an
amount equal to the remaining 50% of the Shareholders' Valuation Benefit for
such Acquisition Candidate. EBITDA shall be calculated in a manner consistent
with the calculation of the Historical EBITDA of such Acquisition Candidate. Any
such payment pursuant to this paragraph (c) shall be made by the Surviving
Corporation by wire transfer of immediately available funds within ten (10)
business days after the first anniversary date of the consummation of such
Proposed Acquisition to a single account for the benefit of the Sellers as may
be designated by the Seller Representative in writing.
(d) For purposes of this Section 1.11:
(i) "Shareholders' Valuation Benefit" means an
amount equal to 50% of the Valuation Benefit (as defined below);
(ii) "Valuation Benefit" means an amount equal to
the positive difference, if any, of (x) the product of Historical EBITDA (as
defined below) of any Acquisition Candidate multiplied by six (6), less (y) the
actual purchase price (including the value of all assumed bank debt, purchase
money debt and other indebtedness for borrowed money and the estimated value of
any future payments and adjustments as the parties may agree) to be paid for
such Acquisition Candidate;
(iii) "Historical EBITDA" of any Acquisition
Candidate means normalized (i.e., after adjustments for non-recurring and
similar items) earnings before interest, taxes, depreciation and amortization
("EBITDA") for the twelve month period ending on the Measurement Date of such
Proposed Acquisition, it being understood that the Surviving Corporation (or BRS
in the case of any Proposed Acquisition consummated prior to Closing) and the
Seller Representative shall use their respective best efforts to agree upon the
Historical EBITDA of an Acquisition Candidate prior to the date of consummation
of such Proposed Acquisition; provided that the parties agree that Historical
EBITDA of HSI shall equal $3,271,000; and
(iv) "Measurement Date" means, with respect to any
Proposed Acquisition that is consummated, the date that is the last day of the
month immediately preceding the month during which the closing of such Proposed
Acquisition occurs, except that if the closing occurs on the last day of a
month, the Measurement Date shall be the closing date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS AND THE COMPANY
Each Seller and the Company hereby represent and warrant jointly and
severally to BRS and Newco as follows:
2.1. Organization and Standing. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all
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requisite corporate power and authority to own, lease and operate its property
and to conduct the business in which it is engaged as presently conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned, leased
or operated by it, or the conduct of its business, makes such qualification
necessary, except where the failure to be so duly qualified and in good standing
could not reasonably be expected to have a Material Adverse Effect. As used
herein, the term "Material Adverse Effect" means any change, effect or
circumstance that has or is reasonably likely to have, any material adverse
effect (i) on the assets, liabilities, operations, business, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole or (ii) on the ability of the Sellers or the
Company to consummate the transactions contemplated hereby or (iii) on the
ability of each of the Company and its Subsidiaries to continue to operate its
business immediately after the Closing in substantially the same manner as such
business is conducted prior to the Closing.
(b) Attached hereto as Schedule 2.1(b) are true and complete
copies of the current Articles of Incorporation and Bylaws of the Company, as in
effect on the date of this Agreement.
2.2. Capitalization. (a) The authorized capital stock of the Company
consists solely of 5,000,000 shares of Existing Company Stock, of which 421,615
shares are issued and outstanding and will be issued and outstanding immediately
prior to the filing of the Restated Penhall Charter. The Sellers are the sole
record owners of the Existing Company Stock. There are no other shares of
capital stock of the Company issued. All of the outstanding shares of the
Company's capital stock (i) are duly authorized, validly issued, fully paid and
nonassessable, (ii) have not been issued in violation of any preemptive rights
of stockholders and (iii) have been offered and sold pursuant to a valid
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act"), and otherwise in compliance with the Securities Act and the
rules and regulations thereunder.
(b) The Company has subsidiaries as set forth on Schedule
2.2(b) (each, a "Subsidiary" and collectively, the "Subsidiaries"). Except for
the Subsidiaries, the Company does not own, and, except as set forth on Schedule
2.2(b), has not owned, directly or indirectly, beneficially or of record, or
have or, except as set forth on Schedule 2.2(b), had any operational control
over, or have any obligation to acquire, any capital stock or other equity
securities of any corporation, nor does the Company have any direct or indirect
equity or ownership investment, or any obligation to incur such investment, in
any person. As used herein, the term "person" means any individual, corporation,
partnership, limited liability company, joint venture, association, trust or
other entity or organization. Each issued and outstanding share of capital stock
or other equity security of the Subsidiaries (i) has been duly authorized and
validly issued, (ii) is fully paid and non-assessable, (iii) has not been issued
in violation of any preemptive rights of equityholders, and (iv) except as set
forth on Schedule 2.2(b) hereto and for the transactions set forth in Article I,
is owned, beneficially and of record by the Company, free and clear of any
claim, lien, security interest, mortgage, deed of trust, pledge, charge,
conditional sale or other title retention agreement, lease, preemptive right,
right of first refusal, option, restriction, tenancy, easement, license,
encroachment (from or onto any other property) or other encumbrance of any kind
(collectively, "Liens"). Except as set forth on Schedule 2.2(b), each
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Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation set forth on
Schedule 2.2(b) hereto and has full corporate power and authority to carry on
its business as it is now being conducted and to own, operate and lease its
properties and assets; is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned, leased or operated by it, or the conduct of its business, makes such
qualification necessary, except where the failure to be so duly qualified and in
good standing could not reasonably be expected to have a Material Adverse
Effect. The copies of the Articles of Incorporation and By-Laws of each
Subsidiary heretofore delivered to Newco are complete and correct copies of such
instruments as presently in effect.
(c) Except as set forth on Schedule 2.2(c) hereto, there are
no outstanding (i) securities of the Company or any Subsidiary convertible into
or exchangeable for shares of capital stock or equity securities of the Company
or any Subsidiary or (ii) options, warrants, calls or other rights to acquire
from the Company or any Subsidiary, or other obligations or understandings or
arrangements of the Company or any Subsidiary to issue, any capital stock,
equity securities or securities convertible into or exchangeable for capital
stock or equity securities of the Company or any Subsidiary. Except as set forth
on Schedule 2.2(c) hereto and for the transactions set forth in Article I, there
are no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any capital stock or equity securities of the
Company or any Subsidiary (or any of the other securities set forth in the
previous sentence). Except pursuant to this Agreement or as set forth on
Schedule 2.2(c) hereto, neither the Company nor any Subsidiary is a party to, or
bound by, any arrangement, agreement, instrument or order (i) relating to the
transfer of any capital stock or equity securities of the Company or any
Subsidiary, (ii) relating to the dividend or voting rights of any capital stock
or equity securities of the Company or any Subsidiary, or (iii) relating to
rights to registration under the Securities Act of any capital stock or equity
securities of the Company or any Subsidiary.
2.3. Authorization; Binding Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and each
other document or instrument contemplated hereby, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by the Company of this
Agreement and each other document or instrument executed or to be executed by
it in connection herewith, and the consummation by the Company of the
transactions contemplated hereby and thereby, have been, or, with respect to
the PCC Merger and the Merger, will have been prior to Closing, duly and
validly authorized by all necessary corporate and shareholder action. This
Agreement has been, and each other document or instrument to be executed by
the Company in connection herewith will be, duly executed and delivered by
the Company, and constitutes, or will constitute, a legal, valid and binding
obligation of the Company, enforceable against the Company, in accordance
with its terms.
2.4. Conflicts, Consents and Approvals. Except as set forth on
Schedule 2.4 hereto, the execution and delivery by the Company of this
Agreement and any other documents or instruments contemplated hereby, the
performance by the Company of its obligations hereunder and thereunder, and
the consummation of the transactions contemplated hereby and thereby, do not
and will not:
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(a) violate or conflict with or result in a breach of any
provision of the Articles of Incorporation or Bylaws of the Company or any
Subsidiary, as such instruments are currently in effect;
(b) subject to obtaining the consents and approvals specified
in Schedule 2.4, require any consent, approval or notice under, or conflict
with, or result in a violation or breach of, or constitute (with or without the
giving of notice or the lapse of time or both) a default (or give rise to any
right of termination, modification, cancellation or acceleration or result in
the creation or imposition of any Lien upon the property of the Company or a
Subsidiary) under, any of the terms, conditions or provisions of any (i) note,
bond, mortgage, indenture, license, lease, agreement or other document or
instrument or obligation to which the Company or a Subsidiary is a party, under
or pursuant to which any of its properties or assets are held, or by which any
portion of its properties or assets may be bound, or (ii) any permit, license,
approval, franchise or other governmental or regulatory authorization held or
used by or binding on the Company or any of the Subsidiaries, except for
conflicts, violations, breaches, defaults or other events that could not be
reasonably expected to have a Material Adverse Effect;
(c) violate or contravene any law, statute, rule or
regulation, or any order, writ, judgment, injunction, decree, determination or
award currently in effect, the violation or contravention of which could
reasonably be expected to have a Material Adverse Effect; or
(d) other than in respect of the HSR Act (as defined in
Section 5.5), require any action, consent, approval or authorization of, or
review by, or declaration, registration or filing with, or notice to, any court,
arbitrator, governmental agency or other regulatory authority, or any stock
exchange or similar self-regulatory organization.
2.5. Litigation. Except as set forth on Schedule 2.5 hereto, (a)
there is no pending or, to the knowledge of the Company, threatened claim,
arbitration proceeding, action, suit, investigation or other proceeding
against or involving the Company or any Subsidiary, or any of the property or
rights of the Company or any Subsidiary, which has had or could reasonably be
expected to have a Material Adverse Effect and (b) neither the Company nor
any Subsidiary is in violation of or default under any order, judgment, writ,
injunction or decree of any court, arbitrator or Authority (as defined in
Section 2.14). Any such order, injunction or decree binding on the Company or
any Subsidiary is disclosed in Schedule 2.5.
2.6. Financial Statements. Attached hereto as Schedule 2.6(a) are
copies of the audited consolidated financial statements of the Company and
its Subsidiaries for the years ended, and as of, June 30, 1997, June 30, 1996
and June 30, 1995, together with, in each case, the audit reports thereon of,
for the year ended and as of June 30, 1997, KPMG Peat Marwick LLP or, for the
years ended and as of June 30, 1996 and 1995, Moss Adams LLP (the "Audited
Financial Statements"). Except as set forth on Schedule 2.6(b) hereto, the
Audited Financial Statements are in accordance with the books and records of
the Company and its Subsidiaries, and fairly present in accordance with
generally accepted accounting principles ("GAAP") consistently applied the
consolidated assets, liabilities and financial position of the Company and
its Subsidiaries, as at the respective dates thereof, and the consolidated
results of their operations for the periods covered thereby. Also attached
hereto as Schedule 2.6(a) is a copy of the
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unaudited financial statements of the Company and its Subsidiaries for the nine
month period ended, and as of, March 31, 1998 (the "Interim Financial
Statements" and, together with the Audited Financial Statements, the "Financial
Statements"). Except as set forth on Schedule 2.6(b), the Interim Financial
Statements are in accordance with the books and records of the Company and its
Subsidiaries, and fairly present in accordance with GAAP (for interim reporting)
consistently applied the consolidated assets, liabilities and financial position
of the Company and its Subsidiaries, as at the date thereof, and the
consolidated results of their operations for the period covered thereby (except
in respect of normal and recurring year end adjustments, none of which is
material in amount). The contingency, tax and other reserves reflected on the
Financial Statements are adequate, appropriate and reasonable in accordance with
GAAP.
2.7. No Brokers or Finders. Except for William L. Rogers and his
affiliates, the fees related to which shall be borne as provided in Section
10.5, none of the Company, its Subsidiaries, affiliates, officers, directors
or employees, (a) has employed (or will employ) any broker or finder, or (b)
has incurred (or will incur) any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
by this Agreement.
2.8. Taxes. (a) For purposes of this Agreement:
(i) "Tax" or "Taxes" means all taxes, charges, fees,
levies or other assessments, including all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
alternative minimum, license, withholding, employment, payroll, excise,
estimated, severance, stamp, occupation, real or personal property or other
taxes, customs duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any federal, state, local or foreign tax authority;
(ii) "Tax Returns" means all returns, reports, forms
or other information required to be filed with, or supplied to, any tax
authority and all information forms required to be supplied to third parties
with respect to any Taxes; and
(iii) For purposes of this Section 2.8 and Section
2.17(m) hereof relating to Tax matters, "Company" and "Subsidiary" include any
predecessor entity to which the Company or a Subsidiary is a successor for Tax
purposes.
(b) Except as set forth in Schedule 2.8:
All Tax Returns (including consolidated, combined or
unitary federal and state Tax Returns which include or which should include the
Company or any Subsidiary) required to be filed by or on behalf of the Company
or any Subsidiary have been timely filed and each such Tax Return is materially
complete and accurate. All Taxes shown on such Tax Returns have been paid by or
on behalf of the Company and the Subsidiaries when due. The charges, accruals,
and reserves for unpaid Taxes that are reflected on the books of the Company and
each Subsidiary are adequate to cover such Taxes in accordance with GAAP.
Neither the Company nor any Subsidiary
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has filed a consent, election or agreement under Section 341(f) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder (collectively, the "Code"). No Liens for Taxes have been filed with
respect to any property of the Company or any Subsidiary except for Taxes not
yet due, there is no unpaid assessment of Taxes against the Company or any
Subsidiary, no claims are being asserted with respect to any Taxes of the
Company or any Subsidiary and to the Company's knowledge no examination is being
conducted or is pending which could result in Taxes being owed by the Company or
any Subsidiary. Neither the Company nor any Subsidiary has been advised by any
tax authority that it has or may have an obligation to file Tax Returns in a
jurisdiction where the Company or Subsidiary has not filed or has ceased filing
Tax Returns. The Company and each Subsidiary have complied in all material
respects with applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have withheld and properly remitted all Taxes required
to be withheld from the wages, salaries, payments or transfers of property to
employees and independent contractors. There are no effective waivers or
consents extending the statute of limitations with respect to Taxes for which
the Company or any Subsidiary could be liable. Neither the Company nor any
Subsidiary is a party to any agreement under which the Company or any Subsidiary
could be liable to indemnify another person for Taxes. Neither the Company nor
any Subsidiary is subject to any adjustment under Section 481 of the Code.
Neither the Company nor any Subsidiary is the subject of any private letter
ruling from, or closing agreement with any tax authority. Neither the Company
nor any Subsidiary owns an equity interest in any entity treated as a
partnership for federal income tax purposes. Neither the Company nor any
Subsidiary has ever been a member of an affiliated group that files or filed
consolidated federal income tax returns other than the affiliated group of which
the Company is the common parent.
(c) Neither the Company nor any Subsidiary has made, or is
obligated to make, any "excess parachute payment" within the meaning of Section
280G of the Code.
2.9. Absence of Undisclosed or Contingent Liabilities. Except as set
forth on Schedule 2.9 hereto and except as (and to the extent) accrued for in
the interim balance sheet, as of the date (the "Interim Balance Sheet Date") of
the balance sheet included in the Interim Financial Statements (the "Interim
Balance Sheet"), neither the Company nor any Subsidiary had any liability or
obligation, other than (i) executory obligations under contracts and other
contractual or employment arrangements not requiring disclosure in the Interim
Balance Sheet under GAAP and incurred in the ordinary course of business
consistent with past practice and (ii) liabilities and obligations arising from
normal year-end adjustments none of which, individually or in the aggregate,
would be material to the Company's financial position as reflected in the
Interim Financial Statements. Since the Interim Balance Sheet Date, neither the
Company nor any Subsidiary has become subject to any such liability or
obligation, other than (a) liabilities and obligations incurred in the ordinary
course of business consistent with past practice of a type reflected on the
Interim Balance Sheet which are not in an amount materially in excess of the
liabilities and obligations accrued for in the Interim Balance Sheet Date, (b)
executory obligations under contracts and other contractual or employment
arrangements not requiring disclosure in the Interim Balance Sheet under GAAP
and incurred in the ordinary course of business consistent with past practice
(c) liabilities and obligations arising from normal year-end adjustments none of
which, individually or in the aggregate, would be material to the Company's
financial position as reflected in the Interim Financial Statements and (d)
liabilities and
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obligations set forth on Schedule 2.9 hereto. Notwithstanding the foregoing, no
representations or warranties are given in this Section 2.9 with respect to
liabilities or obligations arising from environmental matters or conditions,
employee benefit plans or pursuant to ERISA, and Sections 2.12 and 2.20 shall
contain the only representations and warranties with respect to such items.
2.10. Property. (a) Except as set forth on Schedule 2.10(a) hereto,
the Company, or if so designated in Schedule 2.10(a), a Subsidiary, has (and
will continue to have immediately after the Closing) good and valid title to
all assets and properties the Company and the Subsidiaries purport to own
(other than the Real Property, as hereinafter defined), tangible and
intangible, in each case free and clear of any Liens, except for inventories
and other assets disposed of by the Company or any Subsidiary prior to the
Closing in the ordinary course of business consistent with past practice and
except for Liens for taxes not yet due and payable (collectively, the
"Personal Property").
(b) Except as set forth in Schedule 2.10(a) hereto, all of
the assets, tangible and intangible, used in the operation of the business of
the Company and the Subsidiaries as of the Interim Balance Sheet Date were
owned, leased or licensed by the Company and the Subsidiaries or, with respect
to intellectual property, in the public domain.
(c) Attached hereto as Schedule 2.10(c) is a list of (i) all
of the owned real property of the Company and the Subsidiaries (collectively,
the "Owned Real Property"), (ii) all leases, assignments of leases, subleases,
licenses, rights of use or occupancy and other written agreements pursuant to
which the Company or the Subsidiaries lease, sublease, use or occupy real
property (other than Job Sites (as defined below) used or occupied)
(collectively, the "Tenant Leases"), and (iii) all leases, assignments of
leases, subleases, rights of occupancy and other written agreements pursuant to
which the Company or any of the Subsidiaries lease, have assigned leasehold
estates, subleased or otherwise let to any person any Real Property (as
hereinafter defined) or any portion of or interest therein (the "Landlord
Leases"). The interests of the Company and the Subsidiaries in the Real Property
constitute the only interests in real property required to be owned by the
Company or the Subsidiaries in order that the Company and the Subsidiaries may
conduct their business as presently conducted, except for job sites owned or
leased by customers of either the Company or any of its Subsidiaries ("Job
Sites").
As used in this Agreement, the following terms have the following
meanings:
(i) "Exceptions That Will Not Exist At Closing"
means those matters disclosed on Schedules B which are also separately listed on
Schedule 2.10(d) under the heading Exceptions That Will Not Exist At Closing.
(ii) "Leased Real Property" means, collectively, all
the leasehold estates demised under the Tenant Leases.
(iii) "Leases" means, collectively, the Tenant
Leases and the Landlord Leases.
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(iv) "Real Property" means, collectively, the Owned
Real Property and the Leased Real Property.
(v) "Schedules B" means, collectively, Schedule B to
each of the title insurance policies listed on Schedule 2.10(d), copies of which
schedules are attached hereto as Exhibit A to Schedule 2.10(d).
(d) Except as set forth on Schedule 2.10(d) hereto, the
Company or, if so designated in Schedule 2.10(d), a Subsidiary, has (and will
continue to have immediately after the Closing) good and marketable,
indefeasible fee simple title to the Owned Real Property free and clear of any
and all Liens and title defects, except for (x) matters listed on Schedules B,
(y) minor imperfections of title, conditions, encroachments, easements,
covenants or restrictions, if any, none of which is substantial in amount and
none of which, individually or in the aggregate, materially detracts from the
value of the affected property or impairs the use of the affected property in
the manner such property is currently being used or impairs the conduct of the
Company's or any Subsidiary's business, and (z) Liens for real estate Taxes and
assessments not yet delinquent (all of the items described in (x), (y) and (z),
collectively, the "Permitted Fee Property Exceptions").
(e) On and as of the Closing Date, all of the Real Property
shall be free and clear of and none of the Real Property shall be subject to any
of the Exceptions That Will Not Exist At Closing.
(f) Except as set forth on Schedule 2.10(f) hereto, the
Company or, if so designated in Schedule 2.10(f), a Subsidiary, has (and will
continue to have immediately after the Closing) good and valid (i) title to the
leasehold estates conveyed under the Leases (the "Leasehold Estates"), and (ii)
leasehold title to the Leased Real Property free and clear of any Liens and
title defects, except for (x) matters set forth on Schedule 2.10(f), (y) minor
imperfections of title, conditions, encroachments, easements, covenants or
restrictions, if any, none of which is substantial in amount and none of which,
individually or in the aggregate, materially detracts from the value of the
affected property or impairs the use of the affected property in the manner such
property is currently being used or impairs the conduct of the Company's or any
Subsidiary's business, and (z) Liens for real estate Taxes and assessments not
yet delinquent (all of the items described in (x), (y) and (z), collectively,
the "Permitted Leasehold Property Exceptions," and together with the Permitted
Fee Property Exceptions, the "Permitted Exceptions"). Nothing in this
representation and warranty shall be deemed a representation or warranty with
respect to the fee interests encumbered by any of the Tenant Leases.
(g) The Company has delivered to Newco complete and correct
copies of all existing title insurance policies in the Company's or any
Subsidiary's possession and all surveys possessed by the Company or a Subsidiary
with respect to any of the Real Property.
(h) Except as set forth in Schedule 2.10(h), the Company is
in actual, exclusive possession of all of the Real Property, other than Real
Property that is the subject of a Landlord Lease, if any. Except as set forth in
Schedule 2.10(h), the basic rent and all additional
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rent payable under the Leases have been paid to date and not more than one month
in advance. All tenant improvement work and all other work required to be
performed under any of the Leases by the landlords thereunder or by the Company
or any Subsidiary has been performed, and, to the extent that the Company or a
Subsidiary is responsible for payment of such work, has been fully paid for,
whether directly to the contractor performing such work or to such landlord as
reimbursement therefor, except for items which the Company or any Subsidiary is
disputing in good faith (which items are fully reserved for in the Interim
Balance Sheet. Except as set forth on Schedule 2.10(h), there are no brokerage
commissions or finder's fees due from any Seller or the Company or any
Subsidiary which are unpaid with regard to any of the Leases or which will
become due at any time in the future with regard to the Leases.
(i) Except as set forth on Schedule 2.10(i) hereto, there
have been no casualties which are reasonably likely to result in the termination
of any of the Leases or the exercise of any buy-out provision contained in any
of the Leases relative to damage by casualty.
(j) To the Company's knowledge, there is not currently (i)
any pending or threatened condemnation action, eminent domain proceeding or
other litigation, action or proceeding concerning any of the Real Property, or
(ii) any pending or threatened investigation by any governmental authority which
relates to the ownership, maintenance, use or operation of any of the Real
Property. The Sellers have caused the Company and the Subsidiaries to deliver to
Newco complete and correct copies of all written notices and other
correspondence received by the Company or any Subsidiary within the past two (2)
years with respect to any of the matters set forth in the immediately preceding
clauses (i) and (ii). All of the buildings and other improvements upon the Real
Property are operational and do not require material repair and are in a state
of repair suitable for the continued operation of the business conducted thereon
without material repair. The water, gas, electricity and other utilities serving
each parcel of the Real Property are currently adequate to service the normal
operation by the Company or its Subsidiary, as the case may be, of such parcel
as currently conducted. Each parcel of the Real Property has physical access to
public right of ways sufficient for the conduct of the business as presently
conducted on such parcel.
(k) None of the matters listed on Schedule 2.10(k),
individually or in the aggregate: (i) materially impairs, or grants rights which
if exercised would materially impair the use of the affected property,
including, without limitation, any improvements thereon, in the manner such
property is currently being used, or (2) materially adversely affects or grants
rights which if exercised would materially adversely affect the operations of
the Company and the Subsidiaries or the results thereof, in either case taken as
a whole.
2.11. Insurance. Attached hereto as Schedule 2.11(a) is a list of the
insurance with respect to the business carried on by the Company and its
Subsidiaries. Such insurance is in effect and will be kept in effect up to the
Closing. Except as set forth on Schedule 2.11(a), (i) all of the Company's
liability insurance policies are on an "occurrence," as opposed to "claims
made," basis, (ii) none of the premiums under such policies are subject to
retroactive adjustment as a result of loss experience under such policies, and
(iii) the coverage provided by the Company's liability insurance policies for
any injuries or offenses that have occurred prior to the Closing will not in any
way be affected by, or terminate or lapse by reason of, the transactions
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contemplated hereby. Attached hereto as Schedule 2.11(b) are true and complete
lists of all open surety, bonding or similar arrangements for the Company or any
Subsidiary, prepared by the Company's brokers of surety and bonding
arrangements.
2.12. Environmental Matters. (a) Except as set forth in Schedule
2.12(a), neither the Company nor any of its Subsidiaries has received from
any governmental authority or other person any requests for information,
notices of claim, complaint, order, assessment, demand or other written
notification that the Company or any of its Subsidiaries are, may be or will
be potentially responsible with respect to any investigation, clean-up or
other liabilities or responsibilities arising from or related to the
presence, Release or threat of Release of Hazardous Substances at any sites,
and to the knowledge of the Company, the Sellers have received no such
notice, nor does the Company have knowledge of any legitimate basis upon
which such request, notice, demand or claim would be sent.
(b) Except as set forth in Schedule 2.12(b), to the knowledge
of the Company, no Hazardous Substances have been Managed or Released or
threatened to be Released at, on, about, under, from or onto any Real Property
now owned, operated or leased by the Company or any Subsidiary or in connection
with the conduct of the business of the Company and the Subsidiaries (as
presently conducted) at such Real Property, except for such Management or
Releases the consequences of which could not reasonably be expected to have a
Material Adverse Effect.
(c) Except as set forth in Schedule 2.12(c), no Real Property
owned or leased by the Company or any Subsidiary contains underground tanks,
active or abandoned. Except as set forth on Schedule 2.12(c), none of the
foregoing is required to be upgraded, retrofitted or replaced within the next
one (1) year pursuant to 40 CFR Part 280 or under any analogous state or local
Environmental Laws regulating underground storage tanks.
(d) The Company and each Subsidiary have obtained all
Environmental Permits, all such Environmental Permits are in full force and
effect and the Company and each Subsidiary are in compliance with all terms and
conditions of the Environmental Permits except where the failure to so obtain or
comply could not reasonably be expected to have a Material Adverse Effect. The
Company and each Subsidiary have made or will make before the Closing timely
application for renewals of all such Environmental Permits for which
Environmental Laws require that applications must be filed on or before the
Closing to maintain the Environmental Permits in full force and effect. If any
Environmental Permits are required to be transferred, or any notifications are
required to be made so that the Surviving Corporation can operate the Company
and its Subsidiaries after the Closing in the manner they were operated prior to
Closing, the Company and the Subsidiaries will prepare and file all required
applications therefor. BRS and Newco shall use their reasonable efforts to
cooperate with the Company and the Subsidiaries as to the foregoing.
(e) Each of the Company and its Subsidiaries and the
operations of its businesses are in compliance with all Environmental Laws
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.
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(f) As used herein, "CERCLA" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.
"Environmental Laws" means the common law and all applicable federal, state and
local laws relating to pollution or protection of human health or the
environment including, laws, statutes, ordinances, rules, regulations, orders,
codes and notices as adopted or issued as of the date of this Agreement relating
to the Management or Release or threatened Release of Hazardous Substances into
the environment (including without limitation ambient air, surface water, ground
water, land surface or subsurface strata). "Environmental Permits" means all
permits, approvals, certificates, registrations, licenses and other
authorizations which are required under Environmental Laws. "Hazardous
Substance" means any hazardous or toxic substance or waste, pollutant or
contaminant including petroleum products, asbestos, PCBs and radioactive
materials. "Management" (and its correlative terms) means the generation,
possession, manufacture, processing, distribution, use, treatment, storage,
disposal, transport, recycling or handling of Hazardous Substances. "Release"
means any spill, leak, discharge, disposal, pumping, pouring, emitting,
emptying, injecting, leaching, dumping or allowing to escape or presence of any
Hazardous Substance.
2.13. Intellectual Property. (a) Attached hereto as Schedule 2.13
is a correct list of all material trademarks, service marks, and
registrations and applications for trademarks, service marks and trade names,
copyrights registrations, and patents and patent applications owned or used
by the Company or a Subsidiary, and all licenses pertaining thereto. The
items listed in Schedule 2.13, together with any material trade secrets
(including without limitation, proprietary inventions, technology, know-how,
customer or product information, designs, and technical information to the
extent they are trade secrets) owned or used by the Company or any Subsidiary
are referred to as the "Intellectual Property". All of the trademarks,
service marks and trade names listed in Schedule 2.13 are currently being
used by the Company or a Subsidiary in its business except as otherwise
explicitly indicated in such Schedule. Except as set forth on Schedule 2.13
hereto, to the Company's knowledge, the Company and the Subsidiaries have
adequate and sufficient rights, whether registered or unregistered, to use
such Intellectual Property as currently used in their respective businesses,
free and clear of any Lien or competing rights or interests of others which
would preclude or otherwise impair the use by the Company or any Subsidiary,
as the case may be.
(b) The Company or a Subsidiary solely and exclusively owns
all right, title and interest in and to the Intellectual Property, except as set
forth on Schedule 2.13. The operation of the Company's and its Subsidiaries'
business does not, to the Company's knowledge, infringe on the patents,
trademarks, service marks, trade names, trade dress, copyrights, trade secrets
or other intellectual property rights of any third party. Except as set forth on
Schedule 2.13, to the Company's knowledge, no claims have been asserted by any
person in respect of the use of any Intellectual Property by the Company or a
Subsidiary.
(c) Except as set forth on Schedule 2.13, all of the patents,
trademark and service mark registrations, and copyright registrations listed on
Schedule 2.13 are valid and in full force, are held of record in the name of the
Company or a Subsidiary, are not, to the Company's knowledge, the subject of any
cancellation, reexamination opposition, extension of time to oppose,
interference, rejection, refusal to register or any other proceeding challenging
their extent or validity. With respect to the Intellectual Property, the Company
or a Subsidiary is
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the assignee in all patent applications, and the Company or a Subsidiary is the
applicant of record for all applications for trademark, service mark, and
copyright registration. No patents are held in the names of individual
inventors. No order, holding, decision or judgment has been rendered by any
governmental authority, and no agreement, consent or stipulation exists, which
would limit the Company's or any Subsidiary's use of any Intellectual Property
or any advertising or promotional claim or campaign. Except as set forth on
Schedule 2.13, to the Company's knowledge, neither the Company nor its
Subsidiaries have given any indemnification against infringement of patent,
trademark, copyright or other intellectual property rights as to any equipment,
materials, products, services or supplies.
(d) Other than as set forth on Schedule 2.13, neither the
Company nor any Subsidiary has asserted any claim of infringement, dilution,
unfair competition, misappropriation or misuse against any person with respect
to the Intellectual Property within the past three years. To the Company's
knowledge, no person is infringing, diluting, unfairly competing with or
misappropriating the rights of the Company or any Subsidiary with respect to the
Intellectual Property.
2.14. Permits. Except as set forth on Schedule 2.14 and except
where the Company's failure to own a Permit could not reasonably be expected
to have a Material Adverse Effect, the Company has obtained all certificates,
permits, franchises, licenses and authorizations ("Permits") required for the
operation of the Company's business as currently conducted by any
governmental or quasi-governmental authority having jurisdiction over the
Company, its properties or business or the Subsidiaries or their properties
or business. All such Permits are in full force and effect. The Company or
any Subsidiary is not in default (or non-compliance) under any Permit, except
where a default could not reasonably be expected to have a Material Adverse
Effect. No modification, suspension or cancellation of any Permit, or any
proceeding relating thereto, is pending or, to the knowledge of the Company,
threatened with respect to any Permit. No written notice has been received by
the Company or the Subsidiaries with respect to any failure by the Company or
any Subsidiary to have any Permit nor of any asserted present or past failure
by the Company or any Subsidiary to comply with any Permit or its terms, in
each case, where such failure could reasonably be expected to have a Material
Adverse Effect.
2.15. Compliance with Laws. Except as set forth in Schedule 2.15
hereto, the operations of the Company and each of its Subsidiaries have been
conducted in compliance in all material respects with applicable laws,
regulations and other requirements of all Authorities having jurisdiction
over the Company or any Subsidiary or any of their respective businesses or
operations, including without limitation such laws, regulations and
requirements relating to employment and employment practices, terms and
conditions of employment and wages and hours, rental of vehicles, machinery
and equipment, contracting and subcontracting, antitrust, consumer
protection, immigration, health, occupational safety and health, plant
closing, pension, building, zoning, subdivision matters, and securities,
except in each case where a failure to comply could not reasonably be
expected to have a Material Adverse Effect and except for laws, regulations
or requirements relating to Hazardous Substances. During the past three
years, neither the Company nor any Subsidiary has received any notification
of any asserted present or past failure by the Company or any Subsidiary to
comply with any laws, rules or regulations, except where an asserted present
or past failure to comply could not reasonably be expected to
24
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have a Material Adverse Effect and except for laws, regulations or
requirements relating to Hazardous Substances.
2.16. Labor Matters. (a) Except as set forth in Schedule 2.16, (i)
neither the Company nor any Subsidiary is party to or bound by any agreement
with any labor organization, including any collective bargaining or similar
agreement ("Labor Agreement"), (ii) there is no labor strike, dispute,
slowdown or stoppage pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Subsidiary, and (iii) neither the
Company nor any Subsidiary has experienced any material work stoppage,
strike, slowdown, or union organizational efforts since January 1, 1995. The
Company has delivered all Labor Agreements of the Company and its
Subsidiaries to BRS.
(b) Except as set forth in Schedule 2.16, neither the Company
nor any Subsidiary has had asserted against it any worker's compensation claim
which could reasonably be expected to have a Material Adverse Effect.
2.17. Absence of Changes. Except as and to the extent set forth on
Schedule 2.17, since June 30 1997, there has not been any Material Adverse
Effect or any change or occurrence which could reasonably be expected to have
a Material Adverse Effect. Without limiting the foregoing, except as and to
the extent set forth in Schedule 2.17 or pursuant to the transactions set
forth in Article I or the covenants set forth in Article V, since June 30,
1997 to the date of this Agreement, neither the Company nor any Subsidiary
has:
(a) Increased, or experienced any change in any assumptions
underlying or methods of calculating, any bad debt, contingency, tax or other
reserves or changed its accounting practices, methods or assumptions (including
changes in estimates or valuation methods);
(b) Changed the manner or timing of collecting accounts
receivable or satisfying accounts payable;
(c) Entered into any lease or sublease of real property or
assignment of any leasehold estate or exercised any purchase options or rights
of first refusal contained in any of the Leases, or terminated, surrendered,
cancelled or assigned any of its properties demised under the Leases, or any
part thereof;
(d) Permitted or allowed any of its Owned Real Property or
Leased Real Property, or assets (real, personal or mixed, tangible or
intangible) to be subjected to any Lien, except for Permitted Exceptions;
(e) Executed or consummated any contract or agreement for the
purchase or sale of any real property or otherwise purchased or conveyed any
real property or any interest therein;
(f) Written down the value of any assets except in accordance
with the Company's historical depreciation policy as reflected in the Audited
Financial Statements,
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consistently applied in accordance with past practice (including write-downs by
reason of shrinkage or mark-down);
(g) Cancelled any debts or waived any claims or rights
involving more than $50,000;
(h) Sold, transferred, or otherwise disposed of any of its
Owned Real Property, or any interest therein, or its other properties or assets
(real, personal or mixed, tangible or intangible), except for (i) inventory (and
dispositions of used equipment previously held for rental or for use in the
Company's subcontracting businesses) in the ordinary course of business
consistent with past practice, (ii) dispositions of excess, unnecessary or
obsolete furniture, fixtures and equipment which are not material in the
aggregate, or (iii) asset dispositions for consideration of less than $100,000
in the aggregate;
(i) Granted any increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) or any increases in the compensation
payable or to become payable to any officer or employee, except for normal
increases granted in the ordinary course of business consistent with past
practices, or entered into or amended any employment, consulting or similar
agreement or made any agreement or commitment to pay any severance or similar
compensation;
(j) Made any single capital expenditure or commitment in
excess of $50,000 for additions to property, plant, equipment or intangible
capital assets or made aggregate capital expenditures and commitments in excess
of $100,000 for additions to property, plant, equipment or intangible capital
assets;
(k) Made any distribution, in cash or otherwise, to any
Seller (except for payments of salaries and bonuses to officers and employees
consistent with the terms of existing employment agreements or arrangements and
past practice and loans or payments prior to June 30, 1998 in respect of vesting
of restricted stock in 1997 and the exercise of options), or declared, paid or
set aside for payment any dividend or other distribution in respect of its
capital stock or redeemed, purchased or otherwise acquired, or offered, sold or
issued, directly or indirectly, any shares of capital stock or other securities
of the Company (including options, warrants or rights to acquire securities), or
merged or consolidated with any person or effected any share exchange,
reclassification or subdivision of any of its capital stock or adopted any plan
of liquidation or dissolution or other reorganization, or acquired the stock,
assets or business of any other person;
(l) Paid, distributed, loaned or advanced any amount to, or
sold, transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with
any Seller, any affiliate of a Seller, officers or directors of either the
Company or any Subsidiary, or any affiliate or "associate" (as defined in Rule
405 under the Securities Act) of any officers or directors of either the Company
or any Subsidiary (except in each case for payments of salaries and bonuses to
officers and employees consistent with the terms of existing employment
agreements or arrangements and past practice and loans or payments prior to June
30, 1998 in respect of vesting of restricted stock in 1997 and the exercise of
options);
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(m) Made or revoked any election for Tax purposes (or had any
election made or revoked on its behalf) or changed a method of accounting for
Tax purposes; or
(n) Agreed, whether in writing or otherwise, to take any
action described in this Section.
2.18. Transactions with Affiliates. Except as set forth on
Schedule 2.18 hereto, neither any Seller nor (to the Company's knowledge) any
affiliate, as defined in Rule 405 under the Securities Act ("affiliate"), of
a Seller (other than the Company and the Subsidiaries) nor any of the
Company's officers, directors or employees or (to the Company's knowledge)
any of their associates, has any interest, directly or indirectly, in any
lease, Lien, contract, license, loan or other agreement or commitment to
which the Company or any Subsidiary is a party, or any property or asset used
or owned by, or any interest in any supplier or customer of, the Company or
any Subsidiary. Except as set forth on Schedule 2.18 hereto, neither the
Company nor any Subsidiary is indebted, directly or indirectly, to (a) any
Seller or (to the Company's knowledge) any affiliate of a Seller or (b) any
officer, director or employee of the Company or any Subsidiary for any
liability or obligation, whether arising by reason of stock ownership, oral
or written agreement or understanding or otherwise. Schedule 2.18 is a
complete and accurate list of all employees of the Company and each
Subsidiary owing more than $2,000 (except in respect of advances for business
expenses, none of which exceeds $5,000 or $50,000 in the aggregate) in
principal to the Company or any Subsidiary, setting forth the amounts owed,
the applicable interest rates, a description of the security and the maturity
dates of all such debts.
2.19. Contracts and Commitments. Schedule 2.19 hereto contains a
complete, current and correct list of all material contracts, commitments,
obligations or agreements of each of the Company and the Subsidiaries, and
all amendments thereto, whether written or oral, including the Leases (the
"Contracts"). For purposes of this Section 2.19 a contract which is
"material" shall include any single contract, whether written or oral:
(a) where any party thereto is obligated to make annual
payments aggregating more than $200,000;
(b) which constitutes a consulting or similar agreement
having a term greater than twelve (12) months or which constitutes an employment
agreement or an agreement which calls for severance payments;
(c) where any party thereto is obligated to make annual
payments aggregating more than $100,000 and either (i) the term of such contract
will not expire of its own accord within twelve (12) months of the date hereof,
or (ii) such contract is not subject to cancellation by the Company or a
Subsidiary, as the case may be, on not more than thirty (30) days notice without
material penalty;
(d) which constitutes an agreement by the Company or any
Subsidiary to pay a former employee compensation (including any bonus but
excluding any benefits made available to Company employees generally) at the
annual rate of more than $50,000;
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(e) which constitutes an agreement that restricts the Company
or any Subsidiary from carrying out its business anywhere in the world or from
competing with any other person or which is a confidentiality or non-disclosure
agreement restrictive of the Company;
(f) which constitutes an agreement by the Company or any
Subsidiary with any affiliate (other than the Company or any Subsidiary);
(g) which constitutes a franchising, partnership, joint
venture or similar agreement;
(h) which is a lease, purchase and sale agreement,
subordination, nondisturbance and attornment agreement or other agreement
relating to real property, including the Leases and any and all subordination,
nondisturbance and attornment agreements or similar agreements relating to any
of the Leases or to any of the Real Property;
(i) which relates to indebtedness or indemnification or any
guarantee of the Company or a Subsidiary (including any letter of credit) or
which grants any Lien on any assets, rights or properties of the Company or a
Subsidiary, or which is a tax sharing or similar agreement;
(j) which deals with any environmental investigations,
remediations or similar matters;
(k) which deals with any bonding or surety agencies or
relates to bonding capacity;
(l) which is a license or similar agreement for Intellectual
Property, whether as licensee or licensor; and
(m) where the consequences of a breach or default thereunder,
or the termination, expiration or cancellation thereof, could reasonably be
expected to result in a Material Adverse Effect.
True, correct and complete copies of all written Contracts described in Schedule
2.19 have been delivered to Newco, together with a complete written description
of any oral Contract. Each of the Contracts is in full force and effect and
constitutes the legal, valid, binding and enforceable obligations of the Company
or Subsidiary, as applicable, and, to the Company's knowledge, the other parties
thereto in accordance with its terms. Except as set forth on Schedule 2.19 and
except for breaches or defaults that could not reasonably be expected to have a
Material Adverse Effect, neither the Company nor any Subsidiary is in default
under or has breached any of the Contracts and no act or omission has occurred
which, with notice or lapse of time or both, would constitute a breach or
default under any term or provision of any such Contract. To the knowledge of
the Company, no other party is in breach or default under any of such Contracts,
and no act or omission has occurred by any other party thereto which, with
notice or lapse of time or both, would constitute such a breach or default under
any term or provision thereof. Subject to receipt of the consents set forth in
Schedule 2.4, the Contracts will remain in full force and effect (without any
breach or
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default or modification thereunder, or event which could give rise to breach,
default or modification) for the benefit of the Company, the Subsidiaries and
the Surviving Corporation following the Closing.
2.20. Benefit Plans. (a) Set forth on Schedule 2.20(a) is a true
and complete list of each (i) "employee benefit plan," as defined in Section
3(3) of ERISA (including any "multiemployer plan" as defined in Section 3(37)
of ERISA (a "Multiemployer Plan")), (ii) other pension, retirement,
supplemental retirement, deferred compensation, excess benefit, profit
sharing, bonus, incentive, stock purchase, stock ownership, stock option,
stock appreciation right, employment, severance, salary continuation,
termination, change-of-control, health, life, disability, group insurance,
vacation, holiday and fringe benefit plan, program, contract, or arrangement
maintained, contributed to, or required to be contributed to, by the Company
or any ERISA Affiliate for the benefit of any employee, former employee,
director, officer or independent contractor of the Company or a Subsidiary or
under which the Company or any ERISA Affiliate has any liability with respect
to any employee, former employee, director, officer or independent contractor
of the Company or Subsidiary (the "Benefit Plans").
(b) As applicable with respect to each Benefit Plan (other
than a Multiemployer Plan), the Company has made available to Newco true and
complete copies of (i) each Benefit Plan, including all amendments thereto, and
in the case of an unwritten Benefit Plan, a written description thereof, (ii)
all trust documents, investment management contracts, custodial agreements and
insurance contracts relating thereto, (iii) the current summary plan description
and each summary of material modifications thereto, (iv) the three most recent
annual reports (Form 5500 and all schedules thereto) filed with the Internal
Revenue Service ("IRS"), (v) the most recent IRS determination letter and each
currently pending application to the IRS for a determination letter, (vi) the
three most recent summary annual reports, actuarial reports, financial
statements and trustee reports and (vii) all records, notices and filings
concerning IRS or Department of Labor audits or investigations, "prohibited
transactions" within the meaning of Section 406 of ERISA or Section 4975 of the
Code and "reportable events" within the meaning of Section 4043 of ERISA. The
Company has made a written request to the sponsoring union of each Multiemployer
Plan for true and complete copies of the three most recent annual reports (Form
5500 and all schedules thereto) filed with the IRS, and statements or
computations regarding potential withdrawal liability, if any. The Company made
available to Newco true and complete copies of such information and
documentation outlined in the previous sentence with respect to such
Multiemployer Plans that the Company has in its possession on or prior to the
date hereof and the Closing Date, as applicable.
(c) Except as otherwise disclosed with particularity on
Schedule 2.20(c):
(i) There has been no failure by the Company or any
ERISA Affiliate to comply with the provisions of ERISA and the Code applicable
to the Benefit Plans (other than a Multiemployer Plan), which failure could
reasonably be expected to have a Material Adverse Effect. There has been no
failure by any Benefit Plan (other than a Multiemployer Plan) to be maintained,
operated and administered in compliance with its terms and any related documents
or agreements and the applicable provisions of ERISA and the Code, which failure
could reasonably be expected to have a Material Adverse Effect.
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(ii) There has been no failure by any Benefit Plans
(other than a Multiemployer Plan) which are "employee pension benefit plans"
within the meaning of Section 3(2) of ERISA and which are intended to meet the
qualification requirements of Section 401(a) of the Code (each a "Pension Plan")
to meet the requirements for such qualification or by their related trusts to
meet the requirements for exemption from taxation under Section 501(a) of the
Code, which failure could reasonably be expected to have a Material Adverse
Effect.
(iii) All Pension Plans (other than a Multiemployer
Plan) have received determination letters from the IRS to the effect that such
Pension Plans are qualified and their related trusts are exempt from federal
income taxes and no determination letter with respect to any Pension Plan has
been revoked nor, to the knowledge of the Company is there any reason for such
revocation, nor has any Pension Plan been amended since the date of its most
recent determination letter in any respect which would adversely affect its
qualification.
(iv) No Benefit Plan (other than a Multiemployer
Plan) is now or at any time has been subject to Part 3, Subtitle B of Title I of
ERISA or Title IV of ERISA. All contributions to, and payments from, any Benefit
Plan which may have been required in accordance with the terms of such Benefit
Plan or any related document have been timely made. All such contributions to,
and payments from, any Benefit Plan, except those to be made from a trust,
qualified under Section 401(a) of the Code, for any period ending before the
Closing Date that are not yet, but will be, required, are properly accrued and
reflected on the Interim Balance Sheet.
(v) Neither the Company nor any ERISA Affiliate has
ever contributed to, or been required to contribute to any Multiemployer Plan .
Neither the Company nor any ERISA Affiliate has any liability (contingent or
otherwise) relating to the withdrawal or partial withdrawal from a Multiemployer
Plan. All required contributions, withdrawal liability payments or other
payments of any type that the Company or any ERISA Affiliate have been obligated
to make to any Multiemployer Plan have been duly and timely made. Any withdrawal
liability incurred with respect to any Multiemployer Plan has been fully paid as
of the date hereof. Neither the Company nor any ERISA affiliate has undertaken
any course of action that could reasonably be expected to lead to a complete or
partial withdrawal from any Multiemployer Plan. To the knowledge of the Company,
no Multiemployer Plan is in "reorganization" within the meaning of Section 4241
of ERISA nor has notice been received by the Company or any ERISA Affiliate that
any such Multiemployer Plan will be placed in "reorganization."
(vi) To the knowledge of the Company, there are no
pending audits or investigations by any governmental agency involving the
Benefit Plans, and no threatened or pending claims (except for individual claims
for benefits payable in the normal operation of the Benefit Plans), suits or
proceedings involving any Benefit Plan, any fiduciary thereof or service
provider thereto, nor to the knowledge of the Company is there any basis for any
such claim, suit or proceeding.
(vii) Neither the Company, any ERISA Affiliate, nor
to the knowledge of the Company, any fiduciary, trustee or administrator of any
Benefit Plan, has engaged in or, in
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connection with the transactions contemplated by this Agreement, will engage in
any transaction with respect to any Benefit Plan which would subject any such
Benefit Plan, the Company, any ERISA Affiliate, Newco or the Surviving
Corporation to a tax, penalty or liability for a "prohibited transaction" under
Section 406 of ERISA or Section 4975 of the Code. None of the assets of any
Benefit Plan (other than a Multiemployer Plan) is invested in any property
constituting "employer real property" or an "employer security," within the
meaning of Section 407 of ERISA.
(viii) All insurance premiums with respect to any
insurance policy related to a Benefit Plan (other than a Multiemployer Plan) for
any period up to and including the Closing Date shall have been paid, or accrued
and booked on or before the Closing Date, and, with respect to any such
insurance policy or premium payment obligation, neither the Company nor any
ERISA Affiliate shall be subject to a retroactive rate adjustment, loss sharing
arrangement or other actual or contingent liability.
(ix) There has been no failure by any Benefit Plan
that is a "group health plan" within the meaning of Section 607 of ERISA and
that is subject to Section 4980B of the Code to comply with the continuation
coverage requirements of the Code and ERISA, which failure could reasonably be
expected to have a Material Adverse Effect.
(x) No Benefit Plan provides benefits, including,
without limitation, death or medical benefits, beyond termination of service or
retirement other than (A) coverage mandated by law, (B) death or retirement
benefits under a Benefit Plan qualified under Section 401(a) of the Code or (C)
coverage mandated by the terms of any collective bargaining agreement; provided,
however, that neither the Company nor any ERISA Affiliate will be required,
whether pursuant to the terms of any collective bargaining agreement or
otherwise, to make any contributions or payments to the applicable health or
welfare plan or fund with respect to any period after the termination of the
collective bargaining relationship between the applicable union and the Company
or any ERISA Affiliate. Neither the Company nor any ERISA Affiliate has made a
written or oral representation to any current or former employee promising or
guaranteeing any employer paid continuation of medical, dental, life or
disability coverage for any period of time beyond retirement or termination of
employment.
(xi) The Sellers' and the Company's execution of,
and performance of the transactions contemplated by, this Agreement will not
constitute an event under any Benefit Plan that will result in any payment
(whether as severance pay or otherwise), acceleration, vesting or increase in
benefits with respect to any employee.
(xii) All of the employees whose primary
responsibility relate to the business of the Company and the Subsidiaries are
employed by the Company and the Subsidiaries and no such individual is employed
by any other ERISA Affiliate.
(d) As used herein, the capitalized terms below have the
following meanings:
(i) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
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(ii) "ERISA Affiliate" means (i) any corporation
included with the Company in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (ii) any trade or business (whether or
not incorporated) which is under common control with the Company within the
meaning of Section 414(c) of the Code; (iii) any member of an affiliated service
group of which the Company is a member within the meaning of Section 414(m) of
the Code; or (iv) any other person or entity treated as an affiliate of the
Company under Section 414(o) of the Code.
2.21. Absence of Questionable Payments. Neither the Company nor
any Subsidiary, nor, to the knowledge of the Company, any of their respective
directors, officers, agents, employees or other person acting on their
behalf, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating
to political activity to government officials or others or established or
maintained any unlawful or unrecorded funds. Neither the Company nor any
Subsidiary, nor, to the knowledge of the Company, any of their respective
directors, officers, agents, employee or other persons acting on their
behalf, has accepted or received any unlawful contributions, payments, gifts,
or expenditures.
2.22. Books and Records. The Company has maintained complete,
current and correct copies of: (a) the Articles of Incorporation and Bylaws
and other organizational documents of the Company and each of its
Subsidiaries and all amendments thereto; (b) the stock records of the Company
and each Subsidiary; and (c) the minutes and other records of the meetings
and other proceedings of the stockholders and directors of the Company and
each Subsidiary.
2.23. Disclosure. No representation or warranty made by the
Sellers or the Company in this Agreement or any disclosure schedule or
certificate or other agreement delivered hereunder contains any untrue
statement of a material fact or omits any material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE III
SEVERAL REPRESENTATIONS AND
WARRANTIES OF THE SELLERS
Each Seller hereby represents and warrants severally to BRS and Newco
as follows:
3.1. Ownership of Shares. (a) Except as set forth on Schedule 3.1(a) hereto, (i)
such Seller is the sole record and beneficial owner of the shares of Existing
Company Stock set forth opposite such Seller's name on Schedule 3.1(a) hereto,
free and clear of any Liens, and (ii) at and as of the Closing, such Seller will
be the sole record and beneficial owner of the shares of Class A Common Stock or
Class B Common Stock set forth opposite such Seller's name on Schedule 3.1(a)
hereto, free and clear of any Lien. Subject to the conditions set forth herein,
at the Closing, such Seller will transfer and deliver to BRS good and valid
title to the BRS Purchase Shares (if any) set forth opposite such Seller's name
on Schedule 3.1(a) hereto, free and clear of any Lien.
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(b) Except pursuant to this Agreement or as set forth on
Schedule 3.1(b) hereto, neither such Seller nor any of its affiliates is a party
to, or bound by, any arrangement, agreement, instrument or order (i) relating to
the transfer of any capital stock or equity securities of the Company or any
Subsidiary, (ii) relating to the dividend or voting rights of any capital stock
or equity securities of the Company or any Subsidiary, or (iii) relating to
rights to registration under the Securities Act of any capital stock or equity
securities of the Company or any Subsidiary.
3.2. A uthorization; Binding Agreement. Such Seller has full
corporate, trust, limited liability company or partnership power and
authority (or, if such Seller is a natural person, individual capacity) to
execute and deliver this Agreement and each other document or instrument
contemplated hereby, to perform its obligations hereunder and thereunder, and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery by such Seller (if such Seller is a corporation or other entity)
of this Agreement and each other document or instrument executed or to be
executed by it in connection herewith, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate, trust, partnership or other
organizational action. This Agreement has been, and each other document or
instrument to be executed by such Seller in connection herewith will be, duly
executed and delivered by such Seller, and constitutes, or will constitute, a
legal, valid and binding obligation of such Seller, enforceable against such
Seller, in accordance with its terms.
3.3. Conflicts, Consents and Approvals. Except as set forth on
Schedule 3.3 hereto, the execution and delivery by such Seller of this
Agreement and any other documents or instruments contemplated hereby, the
performance by such Seller of its obligations hereunder and thereunder, and
the consummation by such Seller of the transactions contemplated hereby and
thereby, do not and will not:
(a) if such Seller is a corporation or other entity, violate
or conflict with or result in a breach of any provision of the Articles of
Incorporation or Bylaws (or similar documents) of such Seller, as such
instruments are currently in effect;
(b) subject to obtaining the consents and approvals specified
in Schedule 3.3, require any consent, approval or notice under, or conflict
with, or result in a violation or breach of, or constitute (with or without the
giving of notice or the lapse of time or both) a default (or give rise to any
right of termination, modification, cancellation or acceleration or result in
the creation or imposition of any Lien upon the property of such Seller, the
Company or a Subsidiary) under, any of the terms, conditions or provisions of
any (i) note, bond, mortgage, indenture, license, lease, agreement or other
document or instrument or obligation to which such Seller is a party, under or
pursuant to which any of its properties or assets are held, or by which any
portion of its properties or assets may be bound, or (ii) any permit, license,
approval, franchise or other governmental or regulatory authorization held or
used by or binding on such Seller;
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(c) violate or contravene any law, statute, rule or
regulation, or any order, writ, judgment, injunction, decree, determination or
award currently in effect and applicable to such Seller; or
(d) other than in respect of the HSR Act (as defined in
Section 5.5), require any action, consent, approval or authorization of, or
review by, or declaration, registration or filing with, or notice to, any court,
arbitrator, governmental agency or other regulatory authority, or any stock
exchange or similar self-regulatory organization.
3.4. No Brokers or Finders. Except as contemplated by Section 10.5
with respect to the fees of William L. Rogers and his affiliates, such Seller
and its affiliates (excluding the Company and the other Sellers) (a) have not
employed (and will not employ) any broker or finder, and (b) have not
incurred (and will not incur) any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
by this Agreement.
3.5. Investment Intent. The shares of Penhall Class A Common
Stock, Penhall Class B Common Stock, Class A Common Stock, Class B Common
Stock, Common Stock or Series B Preferred Stock to be acquired by such Seller
pursuant to this Agreement are being acquired for such Seller's own account
and (except for Seller's BRS Purchase Shares) not with a view to or for sale
in connection with any distribution thereof. Each Seller acknowledges that
none of the Penhall Class A Common Stock, Penhall Class B Common Stock, Class
A Common Stock, Class B Common Stock, Common Stock or Series B Preferred
Stock has been registered under the Securities Act of 1933, as amended, or
any state securities laws, and that each certificate representing the Penhall
Class A Common Stock, Penhall Class B Common Stock, Class A Common Stock,
Class B Common Stock, Common Stock or Series B Preferred Stock shall bear a
legend setting forth or referring to the restrictions contained in this
Agreement and to such other restrictions as may be required by applicable law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BRS AND NEWCO
BRS and Newco hereby represent and warrant, jointly and severally, to
the Sellers as follows:
4.1. Organization. (a) Newco is a corporation duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction of its
formation, and has all requisite power and authority to carry on its business
as it is now being conducted.
(b) BRS is a limited partnership duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
formation, and has all requisite power and authority to carry on its business as
it is now being conducted.
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4.2. Authorization; Binding Agreement. (a) Newco has full corporate
power and authority to execute and deliver this Agreement and each other
document or instrument contemplated hereby, to perform its obligations hereunder
and thereunder, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Newco of this Agreement and each other
document or instrument executed or to be executed by it in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate action. This
Agreement has been, and each other document or instrument to be executed by
Newco in connection herewith will be, duly executed and delivered by Newco, and
constitutes, or will constitute, legal, valid and binding obligations of Newco,
enforceable against Newco in accordance with their terms.
(b) BRS has full partnership power and partnership authority
to execute and deliver this Agreement and each other document or instrument
contemplated hereby and to which it is party, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by BRS of this Agreement and each other
document or instrument executed or to be executed by it in connection herewith,
and the consummation of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate or partnership
action. This Agreement has been, and each other document or instrument to be
executed by BRS in connection herewith will be, duly executed and delivered by
BRS, and constitutes, or will constitute, legal, valid and binding obligations
of BRS, enforceable against BRS in accordance with their terms .
4.3. Conflicts, Consents and Approvals. Except as set forth in
Schedule 4.3, the execution and delivery by Newco and BRS of this Agreement
and any other documents or instruments contemplated hereby, the performance
by Newco and BRS of their respective obligations hereunder and thereunder,
and the consummation by Newco and BRS of the transactions contemplated hereby
and thereby, do not and will not:
(a) violate or conflict with or result in a breach of any
provision of the Articles of Incorporation or Bylaws of Newco or the partnership
agreement of BRS;
(b) require any consent, approval or notice under, or
conflict with, or result in a violation or breach of, or constitute (with or
without the giving of notice or the lapse of time or both) a default (or give
rise to any right of termination, modification, cancellation or acceleration or
result in the creation or imposition of any Lien upon the property of Newco or
BRS) under, any of the terms, conditions or provisions of any (i) note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which Newco or BRS is a party, under or pursuant to which any of their
respective properties or assets are held or by which any portion of their
respective properties or assets may be bound, or (ii) any permit, license,
approval, franchise or other governmental or regulatory authorization held or
used by or binding on Newco or BRS, except for conflicts, violations, breaches,
defaults or other events that could not reasonably be expected to have a
material adverse effect on the assets, liabilities, operations, business,
results of operations or condition (financial or otherwise) of Newco or BRS or
on the ability of Newco or BRS to consummate the transactions contemplated
hereby;
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(c) violate or contravene any law, statute, rule or
regulation, or any order, writ, judgment, injunction, decree, determination or
award currently in effect; or
(d) require any action, consent, approval or authorization
of, or review by, or declaration, registration or filing with, or notice to, any
court, arbitrator, governmental agency or other regulatory authority.
4.4. Litigation. There is no claim, action, suit, investigation or
proceeding pending or, to the knowledge of Newco or BRS, threatened against
or involving Newco or BRS, or any of their respective properties or rights,
which, if adversely determined, could reasonably be expected to have a
material adverse effect on the ability of Newco or BRS to perform their
respective obligations hereunder.
4.5. Financing. Newco has received and delivered to the Company
true and correct copies of (i) letter(s) from Bankers Trust Corporation and
CS First Boston Corporation regarding high yield debt financing in the amount
of $100,000,000 and (ii) a letter from Bank of America regarding senior bank
financing in the amount of $60,000,000. The letters referred to in clauses
(i) and (ii) above are collectively referred to as the "Financing Letters."
The Financing Letters have been accepted by Newco and BRS and are in full
force and effect.
4.6. No Brokers or Finders. Except as set forth in Schedule 4.6,
neither Newco nor BRS, nor any of their respective affiliates, nor any of
their respective officers, directors, or employees, (a) has employed (or will
employ) any broker or finder, or (b) has incurred (or will incur) any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement.
4.7. Investment. BRS is acquiring the BRS Purchase Shares for its
own account and not with a view to any resale or distribution of such stock
in violation of the Securities Act of 1933, as amended, or any other
applicable laws of the United States or any state therein. By reason of BRS's
business or financial experience, it has the capacity to protect its
interests in connection with the transactions contemplated by this Agreement.
ARTICLE V
CERTAIN COVENANTS
5.1. Conduct of the Company's Business. (a) Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Company and its Subsidiaries shall, and the Sellers shall cause the
Company and the Subsidiaries to, conduct the operations of the Company and the
Subsidiaries in the ordinary course of business and consistent with past
practice, and shall use commercially reasonable efforts to preserve intact their
business organization, keep available the services of their officers and key
employees, and maintain satisfactory relationships with material customers,
suppliers, contractors, distributors, licensors, licensees and others having
business relationships with the Company. During the period from the date of this
Agreement to the Closing Date, neither the Company, any Subsidiary nor any
Seller will take any action reasonably within their control, or omit to take any
action reasonably
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within their control, which would cause any of the representations and
warranties in Article II and Article III hereof to become untrue in any material
respect.
(b) Without limiting the foregoing, during the period from the
date of this Agreement to the Closing Date, neither the Company nor any
Subsidiary shall, and the Sellers shall cause the Company and the Subsidiaries
not to, take any of the actions specified in Section 2.17 without the prior
written consent of Newco, except the Company and the Subsidiaries may consummate
the acquisition of HSI.
5.2. Notices Prior to Closing. (a) Prior to the Closing, the
Company shall give prompt notice to Newco of:
(i) any breach or default by the Company of any of
its representations, warranties, covenants or agreements hereunder or under any
document or instrument contemplated hereby;
(ii) any notice or other communication to the
Company from any third party alleging that the consent of such third party is or
may be required in connection with the transactions contemplated by this
Agreement;
(iii) any notice or other communication to the
Company from any Authority in connection with the transactions contemplated by
this Agreement;
(iv) any materially adverse change in the assets,
liabilities, operations, business, results of operations or financial condition
of the Company and its Subsidiaries, taken as a whole; and
(v) any claim, action, or proceeding against the
Company or a Subsidiary which could reasonably be expected to have a Material
Adverse Effect.
(b) Prior to the Closing, each Seller shall give prompt
notice to Newco of:
(i) any breach or default by such Seller or any of
such Sellers' representations or warranties set forth in Article III, or such
Seller's covenants or agreements hereunder or under any document or instrument
contemplated hereby;
(ii) any notice or other communication to such
Seller from any third party alleging that the consent of such third party is or
may be required in connection with the transactions contemplated by this
Agreement.
(iii) any notice or other communication to such
Seller from any Authority in connection with the transactions contemplated by
this Agreement; and
(iv) any claim, action, or proceeding against such
Seller which could reasonably be expected to have a Material Adverse Effect.
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(c) Prior to the Closing, BRS and Newco shall give prompt
notice to the Sellers of:
(i) any breach or default by BRS or Newco of any of
its representations, warranties, covenants or agreements hereunder or under any
document or instrument contemplated hereby;
(ii) any notice or other communication to BRS or
Newco from any third party alleging that the consent of such third party is or
may be required in connection with the transactions contemplated by this
Agreement;
(iii) any notice or other communication to BRS or
Newco from any Authority in connection with the transactions contemplated by
this Agreement; and
(iv) any claim, action, or proceeding which could
reasonably be expected to materially adversely affect the ability of BRS or
Newco to consummate the transactions contemplated hereby.
5.3. Access and Information. Prior to the Closing Date, the
Company and the Subsidiaries will give Newco (and any lender providing
financing in connection with the transactions contemplated hereby) and their
authorized representatives (including without limitation accountants,
environmental auditors, surveyors and legal counsel) access at all reasonable
times during business hours, upon reasonable notice, to all of the offices,
warehouses and other facilities of the Company and the Subsidiaries, to all
contracts, agreements, commitments, books and records of the Company and the
Subsidiaries and to the officers and key employees (including auditors) of
the Company and the Subsidiaries.
5.4. Public Announcements. From the date of this Agreement until
Closing, BRS and Newco, on the one hand, and the Sellers, the Company and the
Subsidiaries, on the other hand, shall not, and shall cause their affiliates
not to, issue or cause the publication of any press release or any other
public announcements with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other party,
except (subject to the other party's right to review and consult in the
formulation of the published material) as required by applicable law and as
is customary in connection with the transactions contemplated by the
Financing. The provisions of this Section 5.4 shall survive any termination
of this Agreement pursuant to Section 7.1.
5.5. Hart-Scott-Rodino Act. As soon as practicable after the date
of this Agreement, Newco, the Sellers and the Company, in cooperation with
each other, shall file (or cause to be filed) with each of the United States
Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") any
reports or notifications that may be required to be filed by them under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), in connection with the transactions contemplated by this Agreement,
and shall use their respective reasonable best efforts to obtain early
termination of all waiting periods under the HSR Act. All fees due from any
party to the FTC or DOJ under the HSR Act in connection with the filing of
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any of those reports or notifications shall be shared equally by the Company and
BRS (subject to Section 10.5 hereof).
5.6. Further Assurances. The Sellers, the Company and the
Subsidiaries, on the one hand, and BRS and Newco, on the other hand, agree
that subsequent to the Closing Date, at the request of the other party, they
will execute and deliver, or cause to be executed and delivered, to the other
party such further instruments and take such other reasonable actions as may
be necessary to carry out the transactions contemplated by this Agreement
(which, except as otherwise provided herein, shall not include any obligation
of any party to make payments or incur financial obligations).
5.7. Transfer of Certain Assets. (a) Prior to or simultaneous with
the Closing, the Company will transfer and assign to Roger C. Stull, without
representation, warranty or recourse, all of its right, title and interest in
and to (i) all of the shares of capital stock of The Wooditch Group held by
the Company (the "Wooditch Shares"), and (ii) the six automobiles identified
on Schedule 5.7 hereto. Roger C. Stull shall indemnify, defend and hold
harmless the Company Indemnified Parties (as hereafter defined) from and
against any and all Losses (as hereafter defined) in respect of (i) Taxes
attributable to the transfer of the Wooditch Shares and the automobiles
identified on Schedule 5.7 and (ii) the ownership and use of the automobiles
identified on Schedule 5.7 following such transfer.
(b) It is acknowledged that Roger C. Stull and Ann R. Stull
own the following life insurance policies, which are subject to split dollar
understandings and Assignments of Life Insurance Policies as Collateral with the
Company: (i) Northwestern Mutual, Nos. 7228156, 7494474 and 9161473 (Roger C.
Stull, insured); and Northwestern, Mutual Nos. 7555323 and 9372584 (Ann R.
Stull, insured). As of the Closing, (A) the Company and the Stulls will
terminate their split dollar understandings and the Assignments of Life
Insurance Policy as Collateral, (B) the Company will relinquish any and all
claims against the Stulls for reimbursement of premiums paid by the Company on
the policies (C) the Stulls will relinquish any and all claims against the
Company arising out of borrowings by the Company against the policies, and (D)
the Stulls will own the policies free and clear of any claims by the Company.
5.8. Voting, Shareholders Agreement and Other Matters. (a) Each of
the Sellers hereby consents to the execution and delivery by the Sellers and
the Company of this Agreement and the performance of the transactions
contemplated hereby, including, without limitation, to the extent such
execution, delivery or performance conflict with the provisions of the
Shareholders Agreements (as defined below). On or prior to the Closing Date,
each of the Sellers and the Company shall terminate the agreements identified
under the heading "Stock Buy-Out Agreements" on Schedule 2.2(c) hereto (the
"Shareholders Agreements").
(b) Other than pursuant to the Exchange and in accordance
with Article I hereto, each Seller hereby agrees not to Transfer (as hereafter
defined) any shares of Existing Company Stock, Penhall Class A Common Stock,
Penhall Class B Common Stock, Class A Common Stock or Class B Common Stock from
the date of this Agreement. As used herein, "Transfer" means the making of any
sale, exchange, assignment, hypothecation, gift, security interest, pledge or
other encumbrance, or any contract therefor, any voting trust or other
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agreement or arrangement with respect to the transfer of voting rights
(including any proxy or similar arrangement (whether or not revocable)) or any
other beneficial interest in any of the Existing Company Stock, Penhall Class A
Common Stock, Penhall Class B Common Stock, Class A Common Stock or Class B
Common Stock, the creation of any other claim thereto or any other transfer or
disposition whatsoever, whether voluntary or involuntary, affecting the right,
title, interest or possession in or to such Existing Company Stock, Penhall
Class A Common Stock, Penhall Class B Common Stock, Class A Common Stock or
Class B Common Stock.
(c) Each of the Management Stockholders agrees to execute and
deliver at the Closing a Securities Holders Agreement substantially in the form
attached hereto as Exhibit F.
(d) Each Seller, by executing and delivering this Agreement,
hereby authorizes, approves and consents to, as a stockholder of the Company and
PCC, and in the manner provided under Section 603 of the CGCL and Section 704 of
the ABCA, (i) the execution, delivery and performance by the Company and PCC and
their Subsidiaries of this Agreement and the transactions contemplated hereby
(including, without limitation, the transactions contemplated by the
Compensation Agreement (as defined in Section 6.2(i)), and (ii) officers of the
Company and PCC executing and delivering such agreements, documents,
assignments, certificates and other instruments and taking such other action as
they may deem necessary, advisable, convenient or proper in connection with this
Agreement and the transactions contemplated hereby. Each Seller will take all
additional required or appropriate actions, as directors and/or stockholders, to
vote for, consent to, approve, adopt and otherwise effect the Merger and the
other transactions contemplated hereby.
5.9. Competition. (a) Following the Closing, each Seller set forth
on Schedule 5.9 hereto, on behalf of itself and its affiliates, agrees that,
for the period specified opposite such Seller's name on Schedule 5.9 hereto,
neither it nor its affiliates shall, without the prior written consent of the
Surviving Corporation, directly or indirectly, as owner, partner, agent,
employee, consultant or otherwise, (i) engage in any business in the
Territory (as defined below) which provides services or sells or leases
products similar or equivalent to the products or services provided or sold
immediately after the Closing by the Company and the Subsidiaries (a
"Competitive Business") or (ii) solicit, attempt to solicit for employment or
otherwise engage the services of, or become associated in any Competitive
Business with, any person who was an employee, officer or director of the
Company or the Subsidiaries at any time during the twelve (12) months
preceding the date of this Agreement. Without limiting the generality of the
foregoing, following the Closing, Roger C. Stull, on behalf of himself and
his affiliates, agrees that, for the period specified opposite Mr. Stull's
name on Schedule 5.9 hereto, neither he nor his affiliates shall, without the
prior written consent of the Surviving Corporation, directly or indirectly,
as owner, partner, agent, employee, consultant or otherwise, assist or
promote in any manner Gregory J. Stull, Kimberlie R. McTavish, Christine
Marie Kiser or Nicole Lynn Stull (the "Stull Children") in engaging in any
activity prohibited by the foregoing sentence, it being understood and agreed
that if any of the Stull Children engages in any activity described in this
Section 5.9(a) during the period specified opposite Roger C. Stull's name on
Schedule 5.9 hereto, then there shall be a rebuttable presumption that Roger
C. Stull assisted or promoted such activity. For purposes of this Agreement,
"Territory" shall mean each and every county located in the states of
California,
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Arizona, Nevada, Minnesota, Alabama, Arkansas, Colorado, Delaware, Florida,
Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana,
Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, New
Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania,
South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia, Wisconsin, Wyoming, and all other counties of other states of the
United States or foreign jurisdictions in which the Company has conducted
business, or during the period applicable to any Seller, shall have conducted
business. None of the foregoing shall (i) prevent any Seller from owning up to
5% of the outstanding equity of a publicly-traded company or from making
indirect investments through an investment partnership or other investment
entity in any corporation, partnership, limited liability company or other
person or entity, (ii) prevent Roger C. Stull from participating in charitable,
business or trade associations, or in the auto racing industry in any respect,
or (iii) be construed as being binding in any way on the Stull Children or on
William L. Rogers or his affiliates (other than an affiliate who is a Seller
listed in Schedule 5.9).
(b) The parties agree that to the extent any provision or
portion of Section 5.9(a) shall be held, found or deemed to be unreasonable,
unlawful or unenforceable by a court of competent jurisdiction, then any such
provision or portion thereof shall be deemed to be modified to the extent
necessary in order than any such provision or portion thereof shall be legally
enforceable to the fullest extent permitted by applicable law; and the parties
do further agree that any court of competent jurisdiction shall, and the parties
hereto do hereby expressly authorize, require and empower any court of competent
jurisdiction to, enforce any such provision or portion thereof in order that any
such provision or portion thereof shall be enforced to the fullest extent
permitted by applicable law.
(c) As the violation by a Seller or its affiliates of the
provisions of this Section 5.9 would cause irreparable injury to the Surviving
Corporation, and there is no adequate remedy at law for such violation, the
Surviving Corporation shall, notwithstanding anything to the contrary herein,
have the right in addition to any other remedies available, at law or in equity,
to seek to enjoin such Seller or its affiliates in a court of equity from
violating such provisions. Each Seller, on behalf of itself and its affiliates,
hereby waives any and all defenses it may have on the ground of lack of
jurisdiction or competence of the court to grant an injunction or other
equitable relief, or otherwise. The existence of this right shall not preclude
any other rights and remedies at law or in equity which the Surviving
Corporation may have. The prevailing party in any enforcement action or court
proceeding under this Section 5.9 shall be entitled to the extent permitted by
law to reimbursement from the other party for all of the prevailing party's
costs, expenses and attorneys' fees.
5.10. Consents. Following the execution and delivery of this
Agreement, the Company shall use commercially reasonable efforts to obtain
the consents required from the relevant parties pursuant to the contracts
(including the Leases) set forth on Schedule 2.4 (it being understood that
neither the Company nor any Seller shall be required to execute any guaranty,
incur any other obligation or pay any money to any third party or commence
any legal, administrative or other proceeding).
5.11. Best Efforts. Each of the parties hereto will use its
reasonable best efforts to cause the conditions to Closing set forth herein
to be satisfied as soon as reasonably practicable.
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5.12. Employees. The Company, the Sellers, BRS and Newco shall use
their reasonable best efforts to cooperate with one another in making any
required communications with current or former employees regarding the
transactions contemplated by this Agreement and any employee benefit plans or
other benefit arrangements.
5.13. Financing. BRS and Newco will use their commercially
reasonable efforts to obtain for the Company the debt financing required to
effect the transactions contemplated by this Agreement and to pay related
fees and expenses on terms and conditions reasonably satisfactory to Newco
(the "Financing").
5.14. Estoppel Certificates. The Company and the Subsidiaries
shall use their commercially reasonable efforts to obtain on or prior to the
Closing Date, landlord's estoppel certificates in form and substance
reasonably acceptable to Newco and dated a date occurring not more than
twenty (30) days prior to the Closing Date from each of the lessors under all
of the Leases (collectively, the "Estoppel Certificates"). No Estoppel
Certificate shall be conditioned upon any increase in rental or other
payment, a reduced term or any other change in the terms and provisions of
the subject lease.
5.15. Title Insurance. The Company and the Subsidiaries shall use
their commercially reasonable efforts to obtain, at their sole expense, good
and valid, irrevocable ALTA or CLTA title insurance binders or commitments
(collectively, the "Title Commitments," and each a "Title Commitment"), in
final form, from one or more title insurance companies reasonably acceptable
to Newco (collectively, the "Title Company"), irrevocably committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment and reasonably acceptable to
Newco) to issuing: (i) date down endorsements to, in form and substance
acceptable to Newco or, at the Company's election, reissuances of, with
effective dates of the closing Date (collectively, the "Date Down
Endorsements"), existing policies held on the date hereof by the Company or
the Subsidiary owning the covered parcel of Real Property in amounts
substantially the same as those of the existing policies or in such higher
amounts as may be required by any lender providing financing in connection
with the transactions contemplated hereby and otherwise in form and substance
acceptable to Newco, or (ii) with respect to parcels of Owned Real Property
not covered by the preceding clause (i), ALTA or, with respect to all Owned
Real Property located in California, CLTA form of title insurance policies
insuring good, valid, indefeasible fee simple title to each parcel of the
Owned Real Property in the Company in the respective amounts listed on
Schedule 2.11(a), where applicable, or in amounts substantially the same as
those of the existing policies or in such higher amounts as may be required
by any lender providing financing in connection with the transactions
contemplated hereby, in any case subject to no Liens or exceptions to title
other than the following (collectively, the "Permitted Title Exceptions"):
(x) matters listed on Schedules B, except for the Exceptions That Will Not
Exist At Closing, (y) minor imperfections of title, conditions,
encroachments, easements, covenants or restrictions, if any, none of which is
substantial in amount and none of which, individually or in the aggregate,
materially detracts from the value of the affected property or impairs the
use of the affected property in the manner such property is currently being
used or impairs the conduct of the Company's or any Subsidiary's business,
and (z) Liens for real estate Taxes and assessments not yet due and payable,
(collectively the "Title Policies"). Newco agrees that the issuers of the
existing policies
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are acceptable and that First American Title Insurance Company shall be an
acceptable issuer of any new title policy. Each of the Title Commitments shall
be effective as of a date occurring not earlier than the date of this Agreement
and the effective dates of each of them shall be brought down to the time of the
Closing. Each such Title Commitment shall include such endorsements thereto as
may reasonably be requested by Newco, provided that Newco shall bear the cost of
any such endorsements. On or prior to the Closing Date, the Company and the
Subsidiaries shall execute and deliver, or cause to be executed and delivered,
to the Title Company any affidavits reasonably requested by the Title Company in
connection with the issuance of the Title Commitments, the Title Policies or the
Date Down Endorsements in form and substance as required hereunder. The Company
shall pay at Closing all premiums and other fees, costs and expenses necessary
for the issuance of the Title Policies and Date Down Endorsements.
5.16. Surveys. If any lender providing financing in connection
with the transactions contemplated hereby requires surveys of any of the
Owned Real Property or requires title insurance upon such Owned Real Property
of a nature or extent that a survey thereof is, for practical purposes,
required, then, with respect to all of those parcels for which surveys are so
required, the Company and the Subsidiaries shall use their commercially
reasonable efforts to obtain, at their sole expense, no later than fifteen
(15) days prior to Closing, as-built surveys of each parcel of the Owned Real
Estate (the "Surveys") in accordance with the 1992 minimum standard detail
requirements for ALTA/ACSM Land Title Surveys, including, to the extent
required by such lender or for the issuance of such title insurance, Table A
items 2,3,4,6,7,8,9,10,11 and 13 and with the Accuracy Standards (as adopted
by ALTA and ACSM) of an Urban Survey, dated after April 20, 1998, and
showing, without limiting the foregoing, with respect to each parcel of the
Owned Real Estate, all easements and other appurtenances and all easements
and other encumbrances burdening such parcel. Each Survey shall be certified
to such lender, the Company, Newco, the Title Company and any other person
reasonably requested by Newco and shall comply with any requirements imposed
by the Title Company as a condition to the removal of any survey exception
from the general exceptions to the Title Policy covering the Owned Real
Property shown on the property surveyed.
5.17. FIRPTA. Either (a) on or before the Closing Date, the
Company and PCC shall issue to Newco and BRS a certificate in compliance with
U.S. Treasury Regulation Section 1.1445-2(c)(3) certifying that the shares of
Class A Common Stock and the BRS Purchase Shares are not a U.S. real property
interest or (b) each Seller shall issue to Newco and BRS a certificate in
compliance with U.S. Treasury Regulation Section 1.1445-2(b)(2) certifying
that such Seller is not a foreign person.
5.18. Zoning Letters. The Company and the Subsidiaries shall, at
the request of BRS or Newco, reasonably cooperate with Newco in obtaining
building code and zoning code compliance letters stating that each parcel of
Real Property complies with the building and zoning codes applicable thereto
and otherwise in form and substance satisfactory to Newco from the
governmental authorities having jurisdiction over such matters with respect
to such parcel of Real Property for which BRS or Newco requests such letters
(collectively, the "Zoning Letters").
5.19. Exceptions That Will Not Exist At Closing. Immediately upon
its execution of this Agreement, the Company and the Subsidiaries shall use
their commercially reasonable
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efforts to have satisfied or discharged of record all of the Exceptions That
Will Not Exist At Closing.
5.20. Termination of Certain Promotional Activities. The parties
acknowledge that the Company and the Subsidiaries have received from the auto
racing teams managed by Roger C. Stull advertising and promotional benefits.
The parties agree that, immediately after the Closing, the Surviving
Corporation and its subsidiaries shall have no obligation to sponsor and make
any payments for such racing teams, shall cease to receive such advertising
and promotional benefits, and shall have no continuing rights to sponsor such
auto racing teams.
ARTICLE VI
CONDITIONS
6.1. Conditions Precedent to Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated hereby
shall be subject to fulfillment (or written waiver) of each of the following
conditions:
(a) no order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been enacted, entered,
promulgated or enforced by any court, governmental authority or regulatory body
which restrains, prohibits or prevents the consummation of the transactions
contemplated hereby; and
(b) any waiting period applicable to the transactions
contemplated hereby under the HSR Act shall have been terminated or expired.
6.2. Conditions Precedent to BRS' and Newco's Obligations. BRS'
and Newco's obligation to consummate the transactions contemplated hereby
shall be subject to the fulfillment of each of the following additional
conditions, any one or more of which may be waived in writing by BRS and
Newco:
(a) each of the Sellers and the Company shall have performed
in all material respects its obligations under this Agreement required to be
performed on or prior to the Closing Date pursuant to the terms hereof;
(b) the representations and warranties of the Sellers and the
Company contained in this Agreement that are not qualified by materiality shall
be true and correct in all material respects, and the representations and
warranties of the Sellers and the Company set forth in this Agreement that are
qualified by materiality shall be true and correct, as of the time immediately
prior to the consummation of the Exchange (irrespective of any notice delivered
to Newco after the date hereof), with the same force and effect as though such
representations and warranties had been made as of the time immediately prior to
the consummation of the Exchange;
(c) there shall not have occurred after the date hereof any
material adverse change in the assets, liabilities, operations, business,
results of operations or financial condition of the Company and its Subsidiaries
taken as a whole;
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(d) Newco shall have received a certificate of the Seller
Representative on behalf of the Sellers, dated the Closing Date, certifying to
the fulfillment of the conditions set forth in clauses (a), (b) and (c) above;
(e) Newco shall have received a certificate, dated the
Closing Date, duly executed by the Secretary or an Assistant Secretary of the
Company certifying as to: (i) the attached copy of the resolutions of the Board
of Directors (or a duly authorized committee or officer) of the Company
authorizing and approving the execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement and any other
documents or instruments contemplated hereby, and stating that the resolutions
thereby certified have not been amended, modified, revoked or rescinded; and
(ii) the incumbency, authority and specimen signature of each officer of the
Company executing this Agreement or any other document or instrument
contemplated hereby;
(f) Newco shall have received a certificate of the Company's
organization, valid existence and good standing as a domestic corporation in the
state of its incorporation as of a date no more than five (5) days prior to the
Closing Date;
(g) Newco shall have received from counsel for the Company
and for the Sellers an opinion dated the Closing Date in the form attached
hereto as Exhibit G and from counsel for the Management Stockholders an opinion
in form and substance reasonably satisfactory to Newco;
(h) Each of Management Stockholders shall have validly
executed and delivered the Securities Holders Agreement referred to in Section
5.8;
(i) On or prior to June 30, 1998, each of the Management
Stockholders, Floyd E. Skor, the Charles D. Steichen and Martha L. Steichen
Trust and the Company shall have validly executed and delivered the
Compensation, Tax Consistency and Indemnification Agreement substantially in the
form attached hereto as Exhibit H (the "Compensation Agreement");
(j) Each of the persons designated on Schedule 6.2(j) shall
have validly executed and delivered the Employment Agreements substantially in
the forms attached hereto as Exhibits I and J (the "Employment Agreements");
(k) The Surviving Corporation shall have adopted a
stock-based management incentive plan covering 5% of the Surviving Corporation's
common equity (the "Stock Option Plan");
(l) The Company shall have received (and furnished to Newco
evidence thereof reasonably satisfactory to Newco) all of the approvals and
consents from third parties and Authorities designated on Schedule 6.2(l) (and
such approvals and consents shall not have expired or been withdrawn as of the
Closing Date);
(m) Newco shall have received the proceeds of the Financing
on terms reasonably acceptable to Newco;
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(n) Each Seller, on behalf of itself and its affiliates
(other than the Company and the Subsidiaries) (i) shall have executed and
delivered to the Company and the Subsidiaries and the Surviving Corporation a
Mutual Release and Satisfaction in the form of Exhibit K hereto, and (ii) shall
have executed and delivered to the Company and the Subsidiaries and the
Surviving Corporation all documents necessary to release or terminate any Liens
in favor of such Seller or its affiliates (other than the Company and the
Subsidiaries) on the assets, properties or rights of the Company and the
Subsidiaries and the Surviving Corporation and (iii) shall have terminated the
Shareholders Agreements;
(o) Newco and the Company and any lender providing financing
to the transactions contemplated hereby, shall have received such Title
Commitments, Title Policies, Surveys and Estoppel Certificates as shall be
required by such lender in order to provide such financing;
(p) On or before the Closing Date, Newco shall have received
evidence reasonably satisfactory to it that the Exceptions That Will Not Exist
At Closing have been satisfied or discharged and no longer encumber or otherwise
affect any of the Real Property;
(q) The Company and the Sellers shall have delivered updated
disclosure Schedules, if any, pursuant to Section 6.4; and
(r) The Sellers shall have caused the shareholder approval to
be made in accordance with Section 10.14.
6.3. Conditions Precedent to the Sellers' Obligations. The
Sellers' and the Company's obligation to consummate the transactions
contemplated hereby shall be subject to the fulfillment of each of the
following additional conditions, any one or more of which may be waived in
writing by the Seller Representative and the Company:
(a) Each of BRS and Newco shall have performed in all
material respects its obligations under this Agreement required to be performed
on or prior to the Closing Date pursuant to the terms hereof;
(b) the representations and warranties of each of BRS and
Newco contained in this Agreement that are not qualified by materiality shall be
true and correct in all material respects, and the representations and
warranties of BRS and Newco set forth in this Agreement that are qualified by
materiality shall be true and correct, on and as of the Closing Date
(irrespective of any notice delivered to the Sellers or the Company after the
date hereof) with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date;
(c) the Sellers and the Company shall have received a
certificate of an officer of BRS and Newco, dated the Closing Date, on behalf of
Newco, certifying to the fulfillment of the conditions set forth in clauses (a)
and (b) above;
(d) the Sellers and the Company shall have received a
certificate, dated the Closing Date, duly executed by an officer of Newco
certifying as to: (i) the attached copy of the
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resolutions of Newco authorizing and approving the execution, delivery and
performance of, and the consummation of the transactions contemplated by, this
Agreement and any other documents or instruments contemplated hereby, and
stating that the resolutions thereby certified have not been amended, modified,
revoked or rescinded; and (ii) the incumbency, authority and specimen signature
of each officer of Newco executing this Agreement or any other document or
instrument contemplated hereby;
(e) the Sellers and the Company shall have received a
certificate, dated the Closing Date, duly executed by an authorized person of
BRS certifying as to: (i) the attached copy of the resolutions of BRS
authorizing and approving the execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement and any other
documents or instruments contemplated hereby, and stating that the resolutions
thereby certified have not been amended, modified, revoked or rescinded; and
(ii) the incumbency, authority and specimen signature of each authorized person
of BRS executing this Agreement or any other document or instrument contemplated
hereby;
(f) the Sellers and the Company shall have received from
counsel for Newco an opinion dated the Closing Date in the form of Exhibit L;
(g) Roger C. Stull and Ann R. Stull shall have been released
from all obligations and liabilities under that certain Agreement of Indemnity,
dated January 7, 1991, between Roger C. Stull, Ann R. Stull and Fidelity and
Deposit Company of Maryland ("Fidelity"), and Fidelity shall have given its
consent, in form and substance reasonably satisfactory to Newco, to the payment
of the Cash Merger Consideration.
(h) BRS and the Surviving Corporation shall have validly
executed and delivered the Securities Holders Agreement referred to in Section
5.8;
(i) On or prior to June 30, 1998, the Company shall have
validly executed and delivered the Compensation Agreement;
(j) The Surviving Corporation shall have validly executed and
delivered the Employment Agreements;
(k) The Surviving Corporation shall have adopted the Stock
Option Plan;
(l) the Company and the Subsidiaries shall have executed and
delivered to the Sellers a Mutual Release and Satisfaction in the form of
Exhibit M hereto; and
(m) BRS and Newco shall have furnished to the Sellers and the
Company evidence reasonably satisfactory to the Seller Representative and the
Company that the purchasers of the senior subordinated notes in the Financing
and Newco's and the Surviving Corporation's other lenders (including all bank
lenders) have consented to the payment of the Cash Merger Consideration, it
being understood that incorporation of the language provided by Sellers prior to
the date hereof for inclusion in the indenture for the senior subordinated notes
and the loan agreements with bank lenders to Newco and the Surviving Corporation
shall constitute conclusively such satisfactory evidence.
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6.4. Up-Dating of Disclosure Schedules. Prior to the Closing, the
Company and the Sellers may deliver to Newco and BRS revised disclosure
Schedules modifying or qualifying the representations and warranties of the
Sellers and the Company under Articles II and III hereof with respect to any
matter or event that causes an inaccuracy or breach of a representation or
warranty and that first arises prior to the Closing Date (whether before or
after the date of this Agreement), except for matters or events of which any
Seller (solely with respect to such Seller's representations and warranties
in Article III) or the Company (solely with respect to the Company's and the
Sellers' representations and warranties in Article II) had knowledge as of
the date of this Agreement; provided, that the Company also may add matters
or events to the revised disclosure Schedules of which Floyd E. Skor, but no
other person listed in Section 10.12(c), had knowledge as of the date of this
Agreement. Such revised disclosure Schedules shall be deemed to have modified
the representations and warranties made by the Sellers and the Company on the
date hereof and to be made as of the time immediately prior to the
consummation of the Exchange and to have superseded any similarly numbered
Schedule delivered to Newco and BRS on the date hereof. The foregoing,
however, shall not affect the condition to the Closing obligations of BRS and
Newco contained in Section 6.2(b) as such condition relates to such
representations and warranties prior to giving effect to the delivery of such
revised Schedules. In the event that the condition to the Closing obligations
of BRS and Newco set forth in Section 6.2(b), as such condition relates to
representations and warranties, shall not have been satisfied, but would be
satisfied after giving effect to the delivery of revised disclosure Schedules
under this Section 6.4, then, subject to Section 8.5(j), the sole remedy of
Newco and BRS in respect of the failure of such condition shall be to elect
not to consummate the transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1. Termination. Except with respect to provisions that expressly survive the
termination of this Agreement, this Agreement may be terminated:
(a) by mutual written agreement of BRS, Newco, the Company
and the Sellers;
(b) by BRS or Newco (provided BRS or Newco is not in material
breach of this Agreement), by written notice to the parties hereto, at any time
if (i) the representations and warranties of a Seller or the Company in this
Agreement were incorrect in any material respect when made or at any time
thereafter, or (ii) any of the Sellers or the Company is in breach in any
material respect of any of its covenants or agreements in this Agreement (each,
a "Seller Breach"), and, in either of such cases, such Seller Breach continues
uncured for ten (10) days after written notice thereof by BRS or Newco;
provided, however, if such Seller or the Company (as the case may be) commences
to effect a cure within the foregoing ten-day period, such person shall be
permitted such additional time as may be reasonable (based on the nature of the
Seller Breach, the possibility for cure, and the effect of delay on the party
seeking termination) to cure so long as such person diligently continues to seek
to effect a cure;
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(c) by the Sellers (provided no Seller is in material breach
of this Agreement), by written notice to the parties hereto, at any time if (i)
the representations and warranties of BRS or Newco in this Agreement were
incorrect in any material respect when made or at any time thereafter, or (ii)
BRS or Newco is in breach in any material respect of any of its covenants or
agreements in this Agreement (each, a "Newco Breach"), and, in either of such
cases, such Newco Breach continues uncured for ten (10) days after written
notice thereof by the Sellers; provided, however, if BRS or Newco (as the case
may be) commences to effect a cure within the foregoing ten-day period, such
entity shall be permitted such additional time as may be reasonable (based on
the nature of the Newco Breach, the possibility for cure, and the effect of
delay on the party seeking termination) to cure so long as such entity
diligently continues to seek to effect a cure;
(d) by BRS, Newco or the Sellers, if a court of competent
jurisdiction or governmental or regulatory body shall have issued an order,
decree or ruling, or taken any other action, restraining, enjoining or otherwise
prohibiting the Closing of the transactions contemplated hereby and such order,
decree, ruling or other action shall have become final and non-appealable; or
(e) by BRS, Newco, the Company or the Sellers, if the Closing
shall not have occurred by August 31, 1998; provided, however, that at the time
of any such termination, the terminating party is not in willful and material
breach of any of its representations, warranties, covenants or obligations
hereunder.
7.2. Effect of Termination. If this Agreement is terminated as
provided herein, no party shall have any liability or further obligation to
any other party under the terms of this Agreement or otherwise; provided that
if such termination shall result from the willful breach by the
non-terminating party of any representation or warranty, or the failure of
the non-terminating party to perform a covenant of this Agreement, such party
shall be fully liable for any and all damages incurred or suffered by the
other parties as a result of such failure. The provisions of Section 10.5
shall survive any termination of this Agreement pursuant to Section 7.1.
ARTICLE VIII
INDEMNIFICATION
8.1. The Sellers' Obligations to Indemnify. Subject to the limitations and
procedures contained in this Article VIII, from and after the Closing, the
Sellers, jointly and severally, shall indemnify, defend and hold harmless Newco,
BRS, the Surviving Corporation and each of their affiliates, and their
respective directors, officers, employees and representatives (each, a "Company
Indemnified Party"; provided that such term shall not include any Seller
regardless of their affiliation with the Surviving Corporation), from and
against any and all claims, losses, settlements, fines, liabilities, damages,
deficiencies, costs or expenses (including interest, penalties and reasonable
attorneys' fees and disbursements) (collectively, "Losses") suffered, sustained,
incurred or required to be paid by any such Company Indemnified Party due to,
based upon, arising out of or otherwise in respect of (i) any inaccuracy in, or
any breach of, any representation or warranty of the Sellers or of the Company
contained in this Agreement (or any
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schedule hereto or any certificate or other agreement delivered on behalf of
Sellers hereunder), determined without regard to any materiality, Material
Adverse Effect, Material Adverse Change, substantial compliance or similar
exception or qualification contained in or otherwise applicable to such
representation or warranty; provided that, the indemnification obligation of the
Sellers with respect to the representations and warranties contained in Article
III hereof shall be several and not joint as to each Seller, (ii) any breach of
any covenant or agreement of the Sellers or the Company contained in this
Agreement, (iii) any Loss, whether disclosed or undisclosed and whether existing
prior to, on or after the Closing (other than on account of defaults, violations
or breaches arising from actions first occurring after the Closing by the
Surviving Corporation or any of its subsidiaries under any obligations assumed
by it or them in connection with the transactions contemplated hereby), arising
from or relating to any sold or discontinued business or operation of the
Company or any Subsidiary (or any respective predecessor) or any business or
activity conducted by the Company or any Subsidiary (or any respective
predecessor) other than the businesses and activities conducted by the Company
and its Subsidiaries on or after the date hereof, (iv) the enforcement by any
Company Indemnified Party of its rights under this Agreement, (v) any Loss,
whether disclosed or undisclosed, arising from or relating to (A) environmental
conditions first occurring, existing or arising prior to the Closing due to,
based upon, arising out of or otherwise in respect of a Release or threat of
Release of Hazardous Substances at any property owned or leased by the Company
or the Subsidiaries prior to the date of this Agreement (but not on the date
hereof) (whether into the air, soil, ground or surface waters on or off-site),
(B) the off-site transportation, storage, treatment, recycling, disposal or
spill of Hazardous Substances (but excluding crushed concrete, concrete slurry,
asphalt, rebar and associated materials that are generated in the ordinary
course of operations of the Company or the Subsidiaries) generated or caused by
the Company or the Subsidiaries, prior to the Closing, or (C) any investigation,
remediation or other response costs ("Remediation Costs") associated with any
environmental conditions identified in connection with the removal or upgrading
of any existing underground storage tanks identified on Schedule 2.12(c) (except
for the cost of removing, upgrading or installing such tanks) not meeting the
December 1998 RCRA technical requirements for such tanks except for conditions
resulting from Releases occurring after the Closing; provided, however, that
with respect to Sections 8.1(v)(A) and (B) above, Sellers shall only be
responsible for such Losses which, individually or in the aggregate but
collectively for such Sections, exceed $50,000, and provided further that with
respect to Section 8.1(v)(C) above, the Surviving Corporation shall be
responsible for the first $100,000 of such Remediation Costs, Sellers shall be
responsible for the next $100,000 of Remediation Costs, and the parties shall
share equally all such Remediation Costs in excess of $200,000.
8.2. The Surviving Corporation's Obligations to Indemnify. Subject
to the limitations and procedures contained in this Article VIII, from and
after the Closing, the Surviving Corporation shall indemnify, defend and hold
harmless each Seller and its affiliates, and their respective directors,
officers, employees and representatives (each, a "Seller Indemnified Party"
and, together with the Company Indemnified Parties, the "Indemnified
Parties"), from and against any and all Losses suffered, sustained, incurred
or required to be paid by any such Seller Indemnified Party due to, based
upon, arising out of or otherwise in respect of (i) any inaccuracy in, or
breach of, any representation or warranty of BRS or Newco contained in this
Agreement (or any certificate or other agreement delivered by Newco
hereunder), (ii) any
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breach of any covenant or agreement of the Surviving Corporation, BRS or Newco
contained in this Agreement and (iii) the enforcement by any Seller Indemnified
Party of its rights under this Agreement.
8.3. Notice and Opportunity to Defend. The obligations and
liabilities of any party hereto against which indemnification is sought
hereunder with respect to claims resulting from the assertion of liability by
third parties shall be subject to this Section 8.3.
(a) Promptly after receipt by any Indemnified Party of notice
of any demand or claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability") that could
reasonably be expected to result in a Loss, the Indemnified Party shall give
notice thereof (a "Claims Notice") to any other party obligated to provide
indemnification pursuant to Section 8.1 or 8.2 (each, an "Indemnifying Party").
Each Claims Notice shall describe the Asserted Liability in reasonable detail,
and shall indicate the amount (estimated, if necessary) of the Loss that has
been or may be suffered by the Indemnified Party. The rights of any Indemnified
Party to be indemnified hereunder shall not be adversely affected by its failure
to give, or its failure to timely give, a Claims Notice with respect thereto
unless, and if so, only to the extent that, the Indemnifying Party is materially
prejudiced thereby.
(b) The Indemnifying Party may elect to compromise or defend,
at its own expense and by its own counsel, any Asserted Liability if (i) the
claim involves (and continues to involve) solely monetary damages and the
Indemnifying Party's assumption of the defense or settlement of such claim will
not have a material adverse effect on the Indemnified Party's business, (ii) the
Indemnifying Party states in writing to the Indemnified Party the Indemnifying
Party's good faith belief (based on the facts then known by the Indemnifying
Party) that, as between the two, the Indemnifying Party is solely obligated to
satisfy and discharge the claim, and (iii) the Indemnifying Party makes
reasonably adequate provision to satisfy the Indemnified Party of the
Indemnifying Party's ability to satisfy and discharge the claim (the foregoing
collectively, the "Litigation Conditions"); provided, however, that if the
parties in any action shall include both an Indemnifying Party and an
Indemnified Party, and the Indemnified Party shall have received written advice
of counsel that counsel selected by the Indemnifying Party has a conflict of
interest under applicable standards of professional responsibility because of
the availability of different or additional defenses to the Indemnified Party,
the Indemnified Party shall have the right to select one separate counsel to
participate in the defense of such action on its behalf, at the expense of the
Indemnifying Party; and provided further, however, that the Indemnifying Party
shall forfeit the right to control the defense or settlement of any such claim
if, at any time after assuming the defense or settlement thereof, the
Indemnifying Party no longer satisfies the Litigation Conditions. Subject to the
foregoing, if the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner, if the nature
of the Asserted Liability so requires) notify the Indemnified Party of its
intent to do so, and the Indemnified Party shall cooperate, at the expense of
the Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend (or, as
provided below, discontinues its defense of) the Asserted Liability, fails to
notify the Indemnified Party of its election as herein provided, or fails to
satisfy the Litigation Conditions, the Indemnified Party may pay, compromise or
defend such Asserted Liability. Either of the Indemnified Party or the
Indemnifying Party may participate, at its own
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expense (except as provided in the first sentence of this subparagraph (b)), in
the defense of an Asserted Liability being controlled by the other party.
Notwithstanding the foregoing, if, subsequent to the Indemnifying Party's
satisfaction of the Litigation Conditions and election to compromise or defend
an Asserted Liability, the Indemnifying Party can demonstrate to the reasonable
satisfaction of the Indemnified Party, based on facts not available to the
Indemnifying Party at the time of the original satisfaction of the Litigation
Conditions, that the Indemnifying Party is not obligated to satisfy or discharge
such claim, then Indemnifying Party may elect to discontinue the defense or
settlement of the Asserted Liability and the Indemnified Party may elect to
assume the defense or settlement of the Asserted Liability at the Indemnified
Party's expense. If the Indemnifying Party chooses to defend any claim, the
Indemnified Party shall, subject to receipt of a reasonable confidentiality
agreement, make available to the Indemnifying Party any books, records or other
documents within its control, and the reasonable assistance of its employees,
for which the Indemnifying Party shall be obliged to reimburse the Indemnified
Party the reasonable out-of-pocket expenses of making them available. If the
Indemnifying Party elects to discontinue the defense or settlement of an
Asserted Liability and the Indemnified Party elects to assume such defense or
settlement, the Indemnifying Party shall, subject to the receipt of a reasonable
confidentiality agreement, make available to the Indemnified Party any books,
records or other documents within its control, and shall provide to the
Indemnified Party the work product of the litigation or proceeding related to
such defense or settlement (except for books, records, documents and work
product (or portions thereof) relating solely to the Indemnifying Party's
liability for the relevant claim and the provision of which, based on opinion of
counsel, would prejudice the Indemnifying Party's defense of any action by the
Indemnified Party under this Article VIII).
(c) The Indemnifying Party and the Indemnified Party shall
use commercially reasonable efforts to cooperate in determining the validity of
any third party claim for any Loss for which a claim for indemnification may be
made hereunder. Each party shall use commercially reasonable efforts to minimize
all Losses.
8.4. Procedure for Claims by Parties. In the event that any party
incurs or suffers any Losses with respect to which indemnification may be
sought by such party pursuant to this Article VIII (other than in respect of
third party claims), the Indemnified Party must assert the claim by a Claims
Notice to the Indemnifying Party. The Claims Notice must state the nature and
basis of the claim in reasonable detail based on the information available to
the Indemnified Party. Each Indemnifying Party to whom a Claims Notice is
given shall respond to any Indemnified Party that has given a Claims Notice
(a "Claim Response") within thirty (30) days (the "Response Period") after
the date that the Claims Notice is given. Any Claim Response shall specify
whether or not the Indemnifying Party given the Claim Response disputes the
claim described in the Claims Notice. If any Indemnifying Party fails to give
a Claim Response within the Response Period, such Indemnifying Party shall be
deemed not to dispute the claim described in the related Claims Notice. If
any Indemnifying Party elects not to dispute a claim described in a Claims
Notice, whether by failing to give a timely Claim Response or otherwise, then
the amount of such claim shall be conclusively deemed to be an obligation of
such Indemnifying Party, unless the amount of the Loss actually suffered by
the Indemnified Party differs from the amount of the claim (whether by change
of circumstance, mistake or fraud of the Indemnified Party or otherwise). If
any Indemnifying Party shall be obligated to indemnify an Indemnified
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Party hereunder, such Indemnifying Party shall pay to such Indemnified Party the
amount to which such Indemnified Party shall be entitled within thirty (30) days
after the last day of the applicable Response Period or, if the Claims Notice
relates to Losses that have not been liquidated as of the date of the Claims
Notice, the date on which all or any part of such Losses shall have become
liquidated and determined. If there shall be a dispute as to the amount or
manner of indemnification under this Agreement, the Indemnifying Party and the
Indemnified Party shall seek to resolve such dispute through negotiations and,
if such dispute is not resolved within twenty (20) days, the Indemnified Party
may submit such dispute to arbitration pursuant to Section 10.9. If any
Indemnifying Party fails to pay all or any part of any indemnification
obligation on or before the later to occur of (y) thirty (30) days after the
last day of the applicable Response Period, and (z) if the Claims Notice relates
to Losses that have not been liquidated as of the date of the Claims Notice, the
date on which all or any part of such Losses shall have become liquidated and
determined, then the Indemnifying Party shall also be obligated to pay to the
Indemnified Party interest on the unpaid amount for each day during which the
obligation remains unpaid at an annual rate established in the manner described
in Section 1.10(g).
8.5. Limitations on Indemnification. The indemnification provided
for in Sections 8.1 and 8.2 shall be subject to the following limitations:
(a) The Sellers shall not be obligated to pay any
indemnification amounts for Losses pursuant to Section 8.1(i) until the
aggregate amount of all Losses pursuant thereto exceeds an amount equal to
$3,000,000 (the "Basket"), whereupon the Company Indemnified Parties shall be
entitled to indemnification under Section 8.1(i) for all such Losses in excess
of such amount, up to a maximum amount equal to $50,000,000, subject to
paragraph (d) below. In addition, no claim shall be made for Losses with respect
to any breach of a representation or warranty under Section 8.1(i) unless the
claim for Losses with respect to such breach reasonably could be expected to
exceed $50,000; provided, however, that any breaches arising out of a series of
related events or the same set of operative facts shall be treated as a single
claim for purposes of this paragraph (a).
(b) No claims for indemnification in respect of Sections
8.1(i) or 8.2(a)(i) shall be made after the date on which the applicable
representation or warranty upon which such claim was based ceases to survive
pursuant to Section 8.7; provided that the expiration of any representation or
warranty under Section 8.7 shall not affect any claim made pursuant to a Claims
Notice delivered prior to the date of such expiration.
(c) The limitations on the indemnification obligations set
forth in this Section 8.5 shall not apply to any covenants of the Sellers (or
any other party) in this Agreement (including covenants in Article II and
Article III, except to the extent that any representations or warranties are
contained within such covenants). In addition, notwithstanding the provisions of
paragraph (a) above, the limitations on the indemnification obligations of
Sellers set forth in paragraph (a) above shall not apply to breaches of the
representations and warranties made in Sections 2.1 (other than the second
sentence of Section 2.1(a)), 2.2 (other than in Section 2.2(b) with respect to
the qualification or licensing of the Subsidiaries as foreign corporations),
2.3, 3.1 and 3.2.
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(d) Notwithstanding anything to the contrary set forth
herein, no limitation or condition of liability or indemnity applicable to any
Seller shall apply to any breach of a representation or warranty if such
representation or warranty was made with actual knowledge by such Seller that it
(i) contained an untrue statement of a material fact or (ii) omitted to state a
material fact necessary to make the statements contained therein not misleading.
For purposes of calculating the amount of Losses incurred arising out of or
relating to any breach of a representation or warranty by any Seller, the
references to "Material Adverse Effect" or "Material Adverse Change" or other
materiality qualifications (or correlative terms), including as expressed in
accounting concepts such as GAAP, shall be disregarded.
(e) The Company Indemnified Parties may seek recovery against
any Seller for any Loss for which the Sellers are jointly and severally liable
hereunder, except that (i) in any action (including any arbitration pursuant to
Section 10.9) to recover such Loss, the appropriate Company Indemnified Parties
may not proceed against any Seller unless (subject to jurisdictional, venue or
other procedural limitations) it also proceeds against each of the Roger C.
Stull and Ann R. Stull Trust, the National Christian Charitable Foundation, Inc.
(the "NCCF"), John Sawyer, J&J Investments, LLC, the Repchinuck Revocable Trust,
C. George Bush and Bruce Varney; (ii) the Servants' Trust shall not be liable
for any portion of the Pro Rata Share of the Roger C. Stull and Ann R. Stull
Trust, the Gregory J. Stull Family Trust, the Kevin C. McTavish Family Trust,
the Christine Marie Stull Family Trust or Nicole Lynn Stull of such Loss, and
J&J Investments, LLC shall not be liable for any portion of the Pro Rata Share
of John Sawyer of such Loss; (iii) the Management Stockholders, Floyd E. Skor,
the Charles D. Steichen and Martha L. Steichen Trust, as a group shall not be
liable for more than their aggregate Pro Rata Share of such Loss; (iv) B-R
Investors/Penhall I, L.P. shall not be liable for more than its Pro Rata Share
of such Loss; (v) the liability of each Management Stockholder (other than John
Sawyer, J&J Investments, LLC, the Repchinuck Revocable Trust, C. George Bush and
Bruce Varney) shall be limited to his or its Eligible Assets (as defined in
Section 8.5(g)); and (vi) no Non-Defaulting Seller (as defined in Section 8.5
(f)) who is a Non-Management Stockholder, and none of John Sawyer, J&J
Investments, LLC, the Repchinuck Revocable Trust, C. George Bush or Bruce
Varney, shall be liable for any Management Stockholder's Pro Rata Share of such
Loss until the appropriate Company Indemnified Parties have attempted in good
faith, through appropriate judicial or other proceedings, to recover
indemnification payments from such Management Stockholder under Section 8.1 for
the full amount of such Management Stockholder's Eligible Assets.
(f) The Sellers agree among themselves that each Seller shall
pay such Seller's Pro Rata Share of any Loss, other than a Loss arising out of a
breach of a representation or warranty by another Seller under Article III or a
breach of a covenant by another Seller for which the breaching Seller is solely
liable hereunder; provided, however, subject to the limitations of Section
8.5(e), if any Seller (a "Defaulting Seller") fails to pay any or all of his or
its Pro Rata Share of such Loss, each remaining Seller (a "Non-Defaulting
Seller") shall also pay a fraction of the shortfall of such Loss equal to such
Non-Defaulting Seller's Pro Rata Share divided by the aggregate Pro Rata Share
of all Non-Defaulting Sellers. Each Defaulting Seller shall indemnify, defend
and hold harmless the Non-Defaulting Sellers from any Losses incurred by the
Non-Defaulting Sellers that are caused by the failure of such Defaulting Seller
to pay such Defaulting Seller's Pro Rata Share of any Losses to the extent
required herein. Each Seller acknowledges it
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is his or its intent, as a material part of the consideration for the execution
of this Agreement, that each Seller shall be liable to pay such Seller's Pro
Rata Share of any Losses to the extent provided herein. At the Closing, each
Management Stockholder shall grant a security interest in the shares of the
Surviving Corporation stock received as Merger Consideration, and the proceeds
thereof, to the Surviving Corporation in respect of such Management
Stockholder's obligations under this Article VIII by executing a pledge
agreement containing terms and conditions reasonably satisfactory to the
Surviving Corporation (including without limitation the full subordination of
such pledge to the Surviving Corporation's rights under the Securities Holders
Agreement).
(g) Each Management Stockholder may, at his or its option,
satisfy any indemnification obligation under Section 8.1 by payment of cash or
by delivery to the Surviving Corporation of shares of stock of the Surviving
Corporation, which shares shall have a Current Market Value determined in
accordance with Section 8.5(h); provided, however, that if any Management
Stockholder elects to satisfy such indemnification obligation by payment of
cash, such Management Stockholder must make such election irrevocably by written
notice to the Surviving Corporation before the commencement of any determination
of Fair Market Value under Section 8.5(h), of which commencement the Surviving
Corporation will give ten (10) days prior notice. No cash shall be paid to a
Management Stockholder upon the occurrence of any event requiring the redemption
from such Management Stockholder of shares of Surviving Corporation stock
received as Merger Consideration, and no Management Stockholder shall otherwise
be permitted to transfer any shares of Surviving Corporation stock received as
Merger Consideration or receive cash or other property in respect of such
shares, unless such Management Stockholder first provides security reasonably
satisfactory to BRS and the Seller Representative for such Management
Stockholder's indemnification obligations under this Agreement in the full
amount of his or its Eligible Assets. For purposes of this Agreement, a
Management Stockholder's "Eligible Assets" shall include (i) all shares of stock
of the Surviving Corporation received by such Management Stockholder as Merger
Consideration, (ii) all cash and other property received by such Management
Stockholder in connection with any transfer or redemption of such shares, and
(iii) all cash and other property (including other securities of the Surviving
Corporation or any other entity) received by such Management Stockholder in
respect of such shares, whether by way of dividend, merger, reorganization,
recapitalization, or otherwise.
(h) For purposes of this Agreement, "Current Market Price" on
any date shall mean, with respect to any security, if such security is publicly
traded in the United States, the average of the daily Closing Prices for the ten
(10) consecutive trading days ending on the date immediately prior to the date
as of which the Current Market Price is to be determined, or, if such day is not
a trading date, the trading day immediately preceding such date. The "Closing
Price" for each day shall be the average of the closing bid and asked price for
such security on the NASDAQ National Market System, or, if not then traded
thereon, the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
price regular way on the principal stock exchange on which such security is then
listed or traded, or, if not then listed or traded on any such exchange, the
mean of the closing bid and asked prices on an automated quotation system as
furnished by any New York Stock Exchange member firm selected from time to time
by the Surviving Corporation for that
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purpose. Except as set forth in the preceding sentence, with respect to any
security that is not publicly traded in the United States, "Current Market
Price" on any date shall mean the fair market value of such security on such
date as determined by mutual agreement of BRS, John Sawyer and the Seller
Representative, or, if they are unable to agree, by an independent appraiser
selected by the Surviving Corporation and reasonably acceptable to John Sawyer
and the Seller Representative. The costs of any such appraiser shall be paid by
the Surviving Corporation.
(i) Each Seller agrees that neither it nor any of the other
Sellers is a necessary or indispensable party for any action (including an
arbitration pursuant to Section 10.9) for the purpose of determining whether the
Company Indemnified Parties are entitled to indemnification for any Losses
pursuant to this Agreement, hereby waives, to the fullest extent permitted by
law, any requirement that the Company Indemnified Parties join such Seller in,
or provide such Seller with notice of, any such action and hereby agrees not to
file a motion to dismiss, vacate, stay or transfer such action by reason of a
Company Indemnified Party's failure to join any Seller as a party to such
action. Notwithstanding the foregoing, the Company Indemnified Parties (i) shall
give notice of such action to the Seller Representative and the Sellers to the
extent required by the other provisions of this Agreement, (ii) shall name in
such action the persons specified in clause (i) of Section 8.5(e), and (iii)
shall not oppose the joinder of any of the Sellers, if not named as a party in
any such action brought by any Company Indemnified Party against one or more of
the Sellers pursuant to this Agreement, as a party to such action, upon any of
such Sellers' written request; provided, however, any failure of the Company
Indemnified Parties to give notice of any such action to any of the Sellers
(other than the Seller Representative) or of any of the Sellers to actually
receive such notice shall not affect the validity of the agreements and waivers
of each Seller set forth in the first sentence of this Section 8.5(i). Each
Seller also agrees that service of process or any other legal process for any
action brought by the Company Indemnified Parties pursuant to this Agreement may
be made as set forth in Section 9.1(b) of this Agreement. Each Seller agrees
that any of the other Sellers may join or be joined in any such action in which
such Seller has been named as an Indemnifying Party by the Company Indemnified
Parties, or in which such Seller has joined in the action.
(j) Notwithstanding anything in this Agreement to the
contrary, none of the Sellers shall have any liability on account of a breach or
inaccuracy in a representation or warranty pursuant to Section 8.1(i), to the
extent that (A) the matter or event which causes the inaccuracy or breach first
arose prior to the Closing Date (either before or after the date of this
Agreement), (B) neither any Seller nor the Company had knowledge of such matter
or event as of the date of this Agreement, (C) such matter or event is disclosed
to BRS and Newco in the revised disclosure Schedules delivered pursuant to
Section 6.4 and (D) BRS and Newco shall have elected to proceed with the
Closing.
8.6. Insurance and Tax Effect. (a) Any payments made pursuant to
the provisions of this Article VIII shall be treated as an adjustment to the
total consideration payable to the Sellers under this Agreement.
(b) The amount of any Loss for which indemnification is
provided under any of Sections 8.1 or 8.2 shall be net of any amounts (net of
the costs of recovery of such amounts)
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recovered by the Indemnified Party under insurance policies with respect to such
Loss (collectively, a "Net Loss").
(c) The amount of any Loss shall be (i) increased to take
account of the net Tax cost (if any) actually incurred by the Indemnified Party
arising from the receipt of indemnity payments hereunder (grossed up for such
increase) and (ii) reduced to take account of any net Tax benefit (if any)
actually realized by the Indemnified Party arising from the incurrence or
payment of any such Net Loss.
8.7. Survival of Representations and Warranties. The provisions
set forth in Section 10.5 of this Agreement shall expressly survive the
termination or abandonment of this Agreement. All covenants and agreements
contained in this Agreement shall survive the Closing Date in perpetuity and
shall remain in full force and effect in accordance with their terms. The
representations and warranties set forth in Articles II, III and IV of this
Agreement (and any Schedule thereto) shall survive the Closing Date for a
period of eighteen (18) months, except (a) the representations in Section 2.8
(and any Schedules thereto) shall survive until the date which is 60 days
after the expiration of the statute of limitations applicable to such
matters, (b) the representations and warranties in Sections 2.12 and 2.20
(and any Schedules thereto) shall survive the Closing Date for a period of
five (5) years, (c) the representations and warranties in Sections 2.1 - 2.4,
Article III and Sections 4.1 and 4.2 (and any Schedules thereto) shall
survive the Closing Date in perpetuity, and (d) the foregoing time
limitations shall not apply to any claims which have been the subject of a
Claims Notice prior to expiration of the applicable time period. Subject to
Section 8.5(j), no right of indemnification hereunder shall be limited by
reason of any investigation or audit conducted before or after the Closing or
the knowledge of any party of any breach of a representation, warranty,
covenant or agreement by the other party at any time, or the decision of any
party to complete the Closing.
ARTICLE IX
APPOINTMENT OF SELLER REPRESENTATIVE
9.1. Appointment of the Seller Representative; Enforcement of
Rights, Benefits and Remedies. (a) Each Seller hereby irrevocably constitutes
and appoints Roger C. Stull as the Seller Representative for the purpose of
performing and consummating the transactions contemplated by this Agreement.
The appointment of Roger C. Stull as the Seller Representative is coupled
with an interest and all authority hereby conferred shall be irrevocable and
shall not be terminated by any or all of the Sellers without the consent of
Newco (or, after the Closing, the Surviving Corporation), which consent may
be withheld for any reason, and the Seller Representative is hereby
authorized and directed to perform and consummate all of the transactions
contemplated by this Agreement. Not by way of limiting the authority of the
Seller Representative, each and all of the Sellers, for themselves and their
respective heirs, executors, administrators, successors and assigns, hereby
authorize the Seller Representative to:
(i) waive any provision of this Agreement which the
Seller Representative deems necessary or desirable;
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(ii) execute and deliver on their behalf all
documents and instruments which may be executed and delivered pursuant to this
Agreement, including without limitation the shares of Existing Company Stock,
Penhall Class A Common Stock, Penhall Class B Common Stock, Class A Common
Stock, Class B Common Stock or Class C Common Stock and the stock powers with
respect thereto;
(iii) make and receive notices and other
communications pursuant to this Agreement and service of process in any legal
action or other proceeding arising out of or related to this Agreement or any of
the transactions hereunder;
(iv) settle any dispute, claim, action, suit or
proceeding arising out of or related to this Agreement or any of the
transactions hereunder;
(v) receive and distribute the Seller Consideration
and adjustments thereto;
(vi) appoint or provide for successor agents; and
(vii) pay expenses incurred or which may be incurred
by or on behalf of the Sellers in connection with this Agreement.
In the event of the inability, failure or refusal of Roger C. Stull to act as
the Seller Representative, or in the event of the death of Roger C. Stull or any
successor, the Sellers promptly shall appoint one of the Sellers as their agent
for purposes of this Article IX by action of Sellers who held a majority in
interest of the shares of Existing Company Stock. Failing such an appointment
within thirty (30) days of such inability, failure, refusal or death, Newco (or,
after the Closing, the Surviving Corporation) may, by written notice to the
Sellers at the last address of the Sellers applicable for purposes of Section
10.3 hereof, designate one of the Sellers as the Seller Representative.
(b) Any claim, action, suit, or other proceeding, whether in
law or equity, to enforce any right, benefit or remedy granted to the Sellers
under this Agreement may be asserted, brought, prosecuted or maintained only by
the Seller Representative. Any claim, action, suit or other proceeding, whether
in law or equity, to enforce any right, benefit or remedy granted under this
Agreement, including without limitation any right of indemnification provided in
Article VIII hereof, may be asserted, brought, prosecuted or maintained by a
Company Indemnified Party against the Sellers or the Seller Representative by
service or process on the Seller Representative and without the necessity of
serving process on, or otherwise joining or naming as a defendant in such claim,
action, suit or other proceeding, any Seller. With respect to any matter
contemplated by this Article IX, the Sellers shall be bound by any determination
in favor of or against the Seller Representative or the terms of any settlement
or release to which the Seller Representative shall become a party.
(c) The Seller Representative shall not be liable to any
Seller for any acts or omissions of the Seller Representative in connection with
his duties and obligations hereunder, except in the case of the Seller
Representative's gross negligence or willful misconduct. The
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Sellers (excluding the Seller Representative and his affiliates), jointly and
severally, agree to indemnify and hold the Seller Representative harmless as to
any liability (other than on account of his respective indemnification
obligations under Article VIII) incurred by him to any person by reason of his
having accepted the same or in carrying out any of the terms hereof, and to
reimburse the Seller Representative for all of his costs and expenses,
including, among other things, reasonable attorneys' fees and costs, incurred by
reason of any matter as to which an indemnity is paid under this Section 9.1(c);
provided, however, that no indemnity need be paid in the case of the Seller
Representative's gross negligence or willful misconduct.
ARTICLE X
MISCELLANEOUS
10.1. Amendment and Modification. This Agreement may be amended, modified
supplemented or altered only by a written agreement signed by the parties hereto
at any time prior to the Closing with respect to any of the terms contained
herein.
10.2. Waiver of Compliance; Consents. Any failure of a party to
comply with any obligation, covenant, agreement or condition herein may be
waived, but only if such waiver is in writing and is signed by the party
against whom the waiver is to be effective. Such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure. Whenever this Agreement requires or permits consent by or
on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set
forth in this Section 10.2.
10.3. Notices. All notices and other communications hereunder
shall be in writing (including by telecopy) and shall be deemed to have been
duly given when delivered in person (including by overnight courier), when
telecopied (with confirmation of transmission having been received) or three
(3) days after being mailed by registered or certified mail (postage prepaid,
return receipt requested), in each case to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice).
(a) if to Newco:
Penhall Acquisition Corp.
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, New York 10022
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Attn: Mr. Harold O. Rosser II
Facsimile No.: (212) 521-3707
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19102
Attn: G. Daniel O'Donnell, Esq.
Facsimile No.: (215) 994-2222
(b) if to the Sellers:
Roger C. Stull
1440 Vista Del Mar
Fullerton, California 92631
Facsimile No.: (714) 871-0490
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attn: Milton B. Hyman, Esq.
Facsimile No.: (310) 203-7199
(c) If to the Company or PCC:
Penhall International, Inc.
1801 Penhall Way
Anaheim, California 92803
Attn: Roger C. Stull
Facsimile No.: (714) 999-2493
10.4. Assignment; No Third Party Beneficiaries. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns,
but neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto without the prior
written consent of the other parties hereto; provided that the Company or the
Surviving Corporation may assign its rights and obligations to any lender
providing financing in connection with the transactions contemplated hereby
(or in connection with any sale by the Surviving Corporation of its business
or any part thereof); provided that no such assignment shall relieve BRS or
the Surviving Corporation of its obligations under this Agreement. The
affiliates, directors, officers, employees and representatives of BRS, Newco
and the Surviving Corporation
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are intended third party beneficiaries of Section 8.1 of this Agreement. The
affiliates, directors, officers, employees and representatives of the Sellers
are intended third party beneficiaries of Section 8.2 of this Agreement. Nothing
else contained in this Agreement is intended to confer upon any person
(including, without limitation, any employees) other than the parties hereto and
their respective successors and permitted assigns, and rights or remedies
hereunder.
10.5. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto will bear its own expenses in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
documents and instruments contemplated hereby and in connection with the
transactions contemplated hereby and thereby, including all fees and
disbursements of counsel, accountants, appraisers and other advisors retained
by such party; provided, however, that if the transactions contemplated by
this Agreement are consummated, (i) Roger C. Stull will pay a portion of the
fees payable to William L. Rogers and his affiliates (the "Rogers Fee") in an
amount equal to the product of the Rogers Fees multiplied by the
Non-Management Stockolders' (excluding Floyd E. Skor, B-R Investors/Penhall
I, L.P. and the Charles D. Steichen and Martha L. Steichen Trust) pre-Closing
ownership percentage of Existing Company Stock (without giving effect to the
transactions under the Exchange) and (ii) except as provided in the
immediately preceding clause (i), the Surviving Corporation shall bear the
expenses of the Sellers, BRS and Newco in addition to its own expenses. In
addition, the financial cost to BRS of the dilution from certain of the
Surviving Corporation's post-Closing management stock arrangements, in the
aggregate amount of $995,922, shall be borne one-third by the Roger C. Stull
and Ann R. Stull Trust, one-third by BRS and one-third by the Management
Stockholders. The Roger C. Stull and Ann R. Stull Trust's share of such cost,
$331,974, shall be subtracted from the Cash Merger Consideration payable to
it at Closing in full satisfaction of its obligations under the preceding
sentence.
10.6. Governing Law. This agreement, and all agreements, documents
and instruments delivered pursuant to hereto incorporated herein, unless
otherwise expressly provided therein, shall be governed by, and construed in
accordance with, the substantive laws of the State of California applicable
to agreements made and to be performed entirely within such state, without
reference to the conflicts of laws rules of such state.
10.7. Counterparts. This Agreement may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each
of which shall be deemed an original and all of which shall together
constitute one and the same instrument.
10.8. Entire Agreement. This Agreement, including the documents
and instruments referred to herein or contemplated hereby, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter hereof. There are no restriction, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth
or referred to herein. Except for that certain Letter Agreement (regarding
confidentiality) dated March 13, 1998 between the Company and BRS, this
Agreement supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof.
10.9. Arbitration. (a) If any dispute or controversy shall arise
among the parties hereto as to any matter arising out of or in connection
with this Agreement, the parties shall
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attempt in good faith to resolve such controversy by mutual agreement. If such
dispute or controversy cannot be so resolved, it shall be resolved solely in
accordance with the provisions of this Section 10.9.
(b) Any dispute, controversy or claim between or among the
parties to this Agreement (the "Disputing Parties") arising out of or related to
this Agreement, or the breach thereof, shall be settled by a single arbitrator
by arbitration, conducted in the State of California, in accordance with the
Commercial Rules of the American Arbitration Association (the "AAA"). Such
arbitration shall be administered by the AAA only if one (or more) of the
Disputing Parties requests such administration. Arbitration shall be the
exclusive remedy for determining any such dispute, regardless of its nature.
Unless mutually agreed by the parties otherwise, any arbitration shall take
place in the City of Los Angeles, California.
(c) The arbitrator shall be selected by the Disputing Parties
within fifteen (15) days after demand for arbitration is made by a Disputing
Party. If the Disputing Parties are unable to agree on an arbitrator within such
period, then each Disputing Party shall select one arbitrator, and each such
arbitrator shall select a third arbitrator and the dispute shall be settled by
the panel consisting of such three arbitrators (such panel, or the single
arbitrator agreed to by both parties, as the case may be, being hereinafter
referred to as the "Arbiter"). Each arbitrator shall be an attorney licensed in
the State of California and shall possess substantive legal experience with
respect to the principal issues on dispute.
(d) This agreement to resolve any disputes by binding
arbitration shall extend to claims against any parent, subsidiary or affiliate
of each party, and when acting within such capacity, any officer, director,
shareholder, employee or agent of each party, or of any of the above, and shall
apply as well to claims arising out of state and federal statutes and local
ordinances as well as to claims arising under the common law. In the event of a
dispute subject to this paragraph the Disputing Parties shall be entitled to
reasonable discovery subject to the discretion of the Arbiter. The remedial
authority of the Arbiter shall be the same as, but no greater than, would be the
remedial power of a court having jurisdiction over the parties and their
dispute. In the event of a conflict between the Commercial Rules of the AAA and
these procedures, the provisions of these procedures shall govern.
(e) Except as may otherwise be agreed to in writing by the
Disputing Parties or as ordered by the Arbiter upon substantial justification,
the hearings of the dispute shall be held and concluded within ninety (90) days
of submission of the dispute to arbitration. The Arbiter shall render its final
award within thirty (30) days following closing of the record. The Arbiter shall
state the factual and legal basis for the award. The decision of the Arbiter
shall be final and binding, and no appeal shall be permitted therefrom. Final
judgment may be entered upon such an award in any State or Federal court having
the arbitration jurisdiction thereof, but entry of such judgment shall not be
required to make such award effective.
(f) Any filing or administration fees shall be borne
initially by the Disputing Party requesting administration by the AAA. If more
than one Disputing Party requests such administration, the fees shall be borne
initially by the party incurring such fees as provided by the rules of the AAA.
The initial fees and costs of the Arbiter shall be borne equally between the
62
<PAGE>
Disputing Parties. The prevailing party in such arbitration, as determined by
the Arbiter, and in any enforcement or other court proceedings, shall be
entitled to the extent permitted by law, to reimbursement from the other party
for all of the prevailing party's costs (including but not limited to the
Arbiter's compensation), expenses, and attorneys' fees.
(g) Nothing in this Section 10.9 shall limit any right that
any party may otherwise have to seek to obtain (i) preliminary injunctive relief
in order to preserve the status quo pending the disposition of any such
arbitration proceeding or (ii) temporary or permanent injunctive relief from any
breach of any provision of this Agreement.
10.10. Severability. If any provision or provisions of this
Agreement or of any of the documents or instruments delivered pursuant
hereto, or any portion of any provision hereof or thereof, shall be deemed
invalid or unenforceable pursuant to a final determination of any court of
competent jurisdiction or as a result of future legislative action, such
determination or action shall be construed so as not to affect the validity
or enforceability hereof or thereof and shall not affect the validity or
effect of any other portion hereof or thereof.
10.11. Arm Length Contract. This Agreement has been negotiated "at
arms length" by the parties, each represented by counsel of its choice and
each having an equal opportunity to participate in the drafting of the
provisions hereof. Accordingly, in construing the provisions of this
Agreement no party shall be presumed or deemed to be the "drafter" or
"preparer" of the same.
10.12. Headings; Interpretative Provisions. (a) The headings of the
various Articles and Sections of this Agreement have been inserted for the
purpose of convenience of reference only, and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
(b) When reference is made in this Agreement to an Article or
Section or Schedule, such reference shall be to an Article, Section or Schedule
of this Agreement unless otherwise indicated. Whenever the words "included",
"includes" or "including" (or any other tense or variation of the word
"include") are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". As used in this Agreement, the auxiliary verbs
"will" and "shall" are mandatory, and the auxiliary verb "may" is permissive
(and, by extension, is prohibitive when used negatively, as a denial of
permission). All accounting terms used but not otherwise defined in this
Agreement shall have the meanings determined by GAAP. The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. The definitions contained in this Agreement are applicable to
the singular as well as to the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any document or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes.
63
<PAGE>
(c) Whenever a representation or warranty is stated to be
based on the "knowledge of the Company", the "Company's knowledge" or a similar
qualification, such phrase refers to whether any of the Company's Senior
Management (as hereafter defined) has actual knowledge, after due inquiry, of
the matters involved. For purposes of this Agreement, the Company's "Senior
Management" consists of C. George Bush, Martin Houge, David S. Neal, Robert
Norling, Renee O'Brien, Bruce Repchinuck, John Sawyer, Floyd Skor, Charles D.
Steichen, Roger C. Stull and Bruce Varney.
(d) Any matter disclosed by the Company or the Sellers to BRS
and Newco in any disclosure Schedule shall be deemed to be disclosed with
respect to any other Schedule so long as the relevance of the matter to such
other Schedule is readily apparent from the disclosure of the matter that
appears in the Schedule where it is disclosed.
(e) Reasonable or Best Efforts. Whenever a covenant requires
a party to use its "best efforts," "reasonable efforts," "reasonable best
efforts" or "commercially reasonable efforts" to do something or cause something
to occur, such party shall be deemed to have performed such covenant if it used
the requisite efforts regardless of whether such efforts were successful.
10.13. Time is of the Essence. Time is of the essence in the
performance of this Agreement.
10.14. Golden Parachute Approval Requirement. Prior to execution
of the Compensation Agreement, the Sellers shall have caused the shareholder
approval requirements set forth in Section 280G(b)(5) of the Code to be
satisfied with respect to all payments incident to the transactions under the
Compensation Agreement to any "disqualified individual" as defined in Section
280G(c) of the Code.
64
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
PENHALL ACQUISITION CORP.
By: /s/ Harold O. Rosser II
-----------------------------------------
Name: Harold O. Rosser II
Title:
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership,
the general partner
By: BRSE Associates, Inc., its general partner
By: /s/ Harold O. Rosser II
-----------------------------------------
Name: Harold O. Rosser II
Title:
PENHALL INTERNATIONAL, INC.
By: /s/ Roger C. Stull
-----------------------------------------
Name: Roger C. Stull
Title: President
PHOENIX CONCRETE CUTTING, INC.
By: /s/ C. George Bush
-----------------------------------------
Name: C. George Bush
Title: President
65
<PAGE>
"MANAGEMENT STOCKHOLDERS"
/s/ Gary T. Bush
-----------------------------------------
Gary T. Bush
/s/ C. George Bush
-----------------------------------------
C. George Bush
/s/ Scott E. Campbell
-----------------------------------------
Scott E. Campbell
/s/ David A. Ellison
-----------------------------------------
David A. Ellison
/s/ Alfred R. Fenton
-----------------------------------------
Alfred R. Fenton
/s/ Vincent M. Gutierrez
-----------------------------------------
Vincent M. Gutierrez
/s/ Lawrence E. Henkels
-----------------------------------------
Lawrence E. Henkels
/s/ David P. Henning
-----------------------------------------
David P. Henning
/s/ Jack S. Hobbs
-----------------------------------------
Jack S. Hobbs
/s/ Richard M. Lawler
-----------------------------------------
Richard M. Lawler
/s/ Alan G. Lowry
-----------------------------------------
Alan G. Lowry
/s/ Randel E. Mathews
-----------------------------------------
Randel E. Mathews
/s/ Leif McAfee
-----------------------------------------
Leif McAfee
/s/ Joseph P. Morello
-----------------------------------------
Joseph P. Morello
/s/ David S. Neal
-----------------------------------------
David S. Neal
NORLING LIVING TRUST
DATED OCTOBER 5, 1995
By: /s/ Robert C. Norling
------------------------------------
Robert C. Norling
its: Trustee
By: /s/ Karen D. Norling
------------------------------------
Karen D. Norling
its: Trustee
/s/ Richard S. Reel
------------------------------------
Richard S. Reel
MICHAEL BRUCE REPCHINUCK
REVOCABLE TRUST
By: /s/ Michael Bruce Repchinuck
------------------------------------
Michael Bruce Repchinuck
its: Trustee
/s/ John T. Sawyer
------------------------------------
John T. Sawyer
J&J INVESTMENTS, LLC
A Nevada limited liability company
By: /s/ Brian Sweeney
------------------------------------
Brian Sweeney
its: General Manager
/s/ Kevin Sheridan
------------------------------------
Kevin Sheridan
/s/ Bruce F. Varney
------------------------------------
Bruce F. Varney
"NON-MANAGEMENT STOCKHOLDERS"
NATIONAL CHRISTIAN CHARITABLE FOUNDATION, INC.,
A 501(3) PUBLIC NONPROFIT GEORGIA CORPORATION
By: /s/ Terrill A. Parker
-----------------------------------------
Terrill A. Parker
General Counsel
THE SERVANTS' CHARITABLE TRUST,
A 501(3) Charitable Trust
By: /s/ Roger C. Stull
-----------------------------------------
Roger C. Stull
Trustee
ROGER C. STULL and ANN R. STULL, TRUSTEES UNDER
DECLARATION OF TRUST DATED JANUARY 19, 1984
By: /s/ Roger C. Stull
-----------------------------------------
Roger C. Stull
Trustee
66
<PAGE>
B-R INVESTORS/PENHALL I, L.P., a California
limited partnership
By: B-R Investors, Inc., a California
corporation, its general partner
By: /s/ William L. Rogers
-----------------------------------------
William L. Rogers
President
/s/ Floyd E. Skor by Roger C. Stull,
attorney-in-fact
-----------------------------------------
Floyd E. Skor
CHARLES D. STEICHEN AND MARTHA L. STEICHEN TRUST
dated September 21, 1989
By: /s/ Charles Steichen
-----------------------------------------
Charles D. Steichen
Trustee
GREGORY J. STULL FAMILY TRUST
By: /s/ Gregory J. Stull
---------------------------------------
Gregory J. Stull
Trustee
KEVIN C. MCTAVISH FAMILY TRUST
By: /s/ Kimberlie R. McTavish
---------------------------------------
Kimberlie R. McTavish
Trustee
CHRISTINE MARIE STULL TRUST
By: /s/ Christine Marie (Stull) Kiser
---------------------------------------
Christine Marie (Stull) Kiser
Trustee
/s/ Nicole Lynn Stull
---------------------------------------
Nicole Lynn Stull
67
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PHOENIX CONCRETE CUTTING, INC.
PHOENIX CONCRETE CUTTING, INC., a corporation organized and existing
under the laws of the State of Arizona, hereby adopts the following Amended and
Restated Articles of Incorporation and certifies as follows:
1. The date of filing of Phoenix Concrete Cutting, Inc.'s original
Articles of Incorporation with the Arizona Corporation Commission was May
31,1989.
2. This Amended and Restated Articles of Incorporation restates and
amends the Articles of Incorporation of this Corporation in its entirety, such
that the text of the Articles of Incorporation shall now read as follows:
ARTICLE I
Name and Known Place of Business. The name of the Corporation
is Penhall International Corp. (the "Corporation"). The known place of business
of the Corporation is 3639 E. Superior, Phoenix, Arizona 85040.
ARTICLE II
Statutory Agent. The name and address of the statutory agent
of the Corporation is:
C. George Bush
3301 E. Wood Street
Phoenix, AZ 85040
ARTICLE III
Purpose. The purpose of this Corporation is to transact any or
all lawful business for which corporations may be incorporated under the laws of
the State of Arizona, as they may be amended from time to time.
Initial Business. The business that the Corporation initially
intends to conduct is the ownership and operation of an operated equipment
rental business, and the transaction of any or all lawful business for which
corporations may be incorporated under the laws of the State of Arizona, as they
may be amended from time to time.
<PAGE>
ARTICLE IV
Authorized Capital. The aggregate number of shares which the
Corporation is authorized to issue is 5,250,000 shares, divided into two (2)
classes consisting of (i) 5,000,000 shares of Common Stock, par value $0.01 per
share ("Common Stock"), and (ii) 250,000 shares of Preferred Stock, par value
$0.01 per share ("Preferred Stock").
The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class and upon the shares of
each series of Preferred Stock.
(A) COMMON STOCK
(1) Dividends. Holders of Common Stock will
be entitled to receive such dividends as may be declared by
the Board of Directors.
(2) Transfers. The Corporation will not
close its books against the transfer of any share of Common
Stock.
(3) Distribution of Assets. In the event of
the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, holders of Common Stock will be
entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders
after all amounts to which the holders of Preferred Stock are
entitled have been paid or set aside in cash for payment.
(4) Voting Rights. The holders of Common
Stock shall have the general right to vote for all purposes,
including the election of directors, as provided by law. Each
holder of Common Stock shall be entitled to one vote for each
share thereof held.
(B) PREFERRED STOCK
(1) Issue in Series. Preferred Stock may be
issued from time to time in one or more series, each such
series to have the terms stated herein and in the resolution
of the Board of Directors of the Corporation providing for its
issue. All shares of any one series of Preferred Stock will be
identical, but shares of different series of Preferred Stock
need not be identical or rank equally except insofar as
provided by law or herein.
(2) Creation of Series. The Board of
Directors will have authority by resolution to cause to be
created one or more series of Preferred Stock, and to
determine and fix with respect to each series prior to the
issuance of any shares of the series to which such resolution
relates:
2
<PAGE>
(a) The distinctive designation of the
series and the number of shares which will constitute
the series, which number may be increased or
decreased (but not below the number of shares then
outstanding) from time to time by action of the Board
of Directors;
(b) The dividend rate and the times
of payment of dividends on the shares of the series,
whether dividends will be cumulative, and if so, from
what date or dates;
(c) The price or prices at which,
and the terms and conditions on which, the shares of
the series may be redeemed at the option of the
Corporation;
(d) Whether or not the shares of
the series will be entitled to the benefit of a
retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if so
entitled, the amount of such fund and the terms and
provisions relative to the operation thereof;
(e) Whether or not the shares of
the series will be convertible into, or exchangeable
for, any other shares of stock of the Corporation or
other securities, and if so convertible or
exchangeable, the conversion price or prices, or the
rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and
any other terms and conditions of such conversion or
exchange;
(f) The rights of the shares of the
series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation;
(g) Whether or not the shares of
the series will have priority over or be on a parity
with or be junior to the shares of any other series
or class in any respect or will be entitled to the
benefit of limitations restricting the issuance of
shares of any other series or class having priority
over or being on a parity with the shares of such
series in any respect, or restricting the payment of
dividends on or the making of other distributions in
respect of shares of any other series or class
ranking junior to the shares of the series as to
dividends or assets, or restricting the purchase or
redemption of the shares of any such junior series or
class, and the terms of any such restriction;
(h) Whether the series will have
voting rights, in addition to any voting rights
provided by law, and, if so, the terms of such voting
rights; and
3
<PAGE>
(i) Any other preferences,
qualifications, privileges, options and other
relative or special rights and limitations of that
series.
(3) Dividends. Holders of Preferred Stock
shall be entitled to receive, when and as declared by the
Board of Directors, out of funds legally available for the
payment thereof, dividends at the rates fixed by the Board of
Directors for the respective series, and no more, before any
dividends shall be declared and paid, or set apart for
payment, on Common Stock with respect to the same dividend
period.
(4) Preference on Liquidation. In the event
of the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, holders of each series of
Preferred Stock will be entitled to receive the amount fixed
for such series plus, in the case of any series on which
dividends will have been determined by the Board of Directors
to be cumulative, an amount equal to all dividends accumulated
and unpaid thereon to the date of final distribution whether
or not earned or declared before any distribution shall be
paid, or set aside for payment, to holders of Common Stock. If
the assets of the Corporation are not sufficient to pay such
amounts in full, holders of all shares of Preferred Stock will
participate in the distribution of assets ratably in
proportion to the full amounts to which they are entitled or
in such order or priority, if any, as will have been fixed in
the resolution or resolutions providing for the issue of the
series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other
corporation, nor a sale, transfer or lease of all or part of
its assets, will be deemed a liquidation, dissolution or
winding up of the Corporation within the meaning of this
paragraph except to the extent specifically provided for
herein.
(5) Redemption. The Corporation, at the
option of the Board of Directors, may redeem all or part of
the shares of any series of Preferred Stock on the terms and
conditions fixed for such series.
(6) Voting Rights. Except as otherwise
required by law or as otherwise provided herein, the holders
of Preferred Stock shall have no voting rights and shall not
be entitled to any notice of meeting of stockholders.
ARTICLE V
Prohibitions and Restrictions Imposed by Indebtedness. To the
extent that any action required to be taken by the Corporation under this
Amended and Restated Articles of Incorporation shall be prohibited or restricted
by the terms of any contract or instrument to which the Corporation is a party
in respect of the incurrence of indebtedness, such Corporation's actions shall
be delayed until such time as such prohibition or restriction is no longer in
force.
ARTICLE VI
4
<PAGE>
Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the By-Laws of the Corporation, except as otherwise
specifically provided therein, may be adopted, amended or repealed by the
affirmative vote of the majority of the Board of Directors of the Corporation or
by the vote of the holders of record of a majority of the outstanding voting
stock of the Corporation.
ARTICLE VII
Consent of Stockholders in Lieu of Meeting. Any action
required to be taken, or which may be taken, at any meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of shares of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares of stock entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its statutory
place of business in the State of Arizona, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded; provided that prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE VIIII
Number and Election of Directors. The affairs of this
Corporation shall be conducted by a Board of Directors of not less than three
and no more than seven persons, each of whom shall hold office for such terms
and be elected in such manner as shall be designated in the By-Laws of the
Corporation. The number of directors from time to time shall be fixed by, or in
the manner provided by, the By-Laws of the Corporation, the initial size of the
Board shall be three and the following persons shall be the directors until the
next annual meeting of shareholders, or until their successors are elected and
qualified:
Bruce C. Bruckmann
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Harold O. Rosser II
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
John T. Sawyer
c/o Penhall Rental Corp.
1801 Penhall Way
Anaheim, California 92803
5
<PAGE>
ARTICLE IX
Right to Amend. The Corporation reserves the right to amend
any provision contained in this Amended and Restated Articles of Incorporation
and in any articles of amendment amendatory hereof as may from time to time be
in effect in the manner now or hereafter prescribed by law, and all rights
conferred on stockholders or others hereunder are granted subject to such
reservation.
ARTICLE X
Limitation on Liability. The Directors of the Corporation
shall be entitled to the benefits of all limitations on the liability of
directors generally that are now or hereafter become available under the Arizona
Business Corporation Act. Without limiting the generality of the foregoing, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for any action taken or any failure to take
any action as a director, except liability for any of the following:
(i) the amount of a financial benefit received by a director
to which the director is not entitled;
(ii) an intentional infliction to harm on the Corporation or
its stockholders;
(iii) a violation of Section 10-833 of the Arizona Business
Corporation Act; or
(iv) an intentional violation of criminal law.
Any repeal or modification of this Article X shall be
prospective only, and shall not affect, to the detriment of any Director, any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
6
<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this Amended
and Restated Articles of Incorporation to be signed by its President and
attested by its Secretary, and has caused its corporate seal to be affixed
hereto, this 4th day of August 1998.
PHOENIX CONCRETE CUTTING, INC.
By: /s/ C. George Bush
-------------------------------------
C. George Bush
President
(Corporate Seal)
ATTEST:
By: /s/ David Neal
--------------------------------
David Neal
Secretary
7
<PAGE>
Exhibit 3.2
BY-LAWS
OF
PENHALL ACQUISITION CORP.
ARTICLE I
Stockholders
SECTION 1. Annual Meetings. Subject to change by resolution of the
Board of Directors, the annual meeting of the stockholders of the Corporation
for the purpose of electing directors and for the transaction of such other
business as may be brought before the meeting shall be held on the third
Thursday of May of each year, if not a legal holiday, and if a legal holiday,
then on the next succeeding day not a legal holiday. The meeting may be held at
such time and such place within or without the State of Arizona as shall be
fixed by the Board of Directors and stated in the notice of the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may
be called at any time by the Board of Directors, by the Chairman of the Board,
by the President or by any number of stockholders owning an aggregate of not
less than twenty-five percent of the number of outstanding shares of capital
stock entitled to vote. Special meetings shall be held on the date and at the
time and place either within or without the State of Arizona as specified in the
notice thereof.
SECTION 3. Notice of Meetings. Except as otherwise expressly required
by law or the Certificate of Incorporation of the Corporation, written notice
stating the place and time of the meeting and, in the case of a special meeting,
the purpose or purposes of such meeting, shall be given by the Secretary to each
stockholder entitled to vote thereat at his address as it appears on the records
of the Corporation not less than ten nor more than sixty days prior to the
meeting. Notice of any meeting of stockholders shall not be required to be given
to any stockholder who shall attend such meeting in person or by proxy; and if
any stockholder shall, in person or by attorney thereunto duly authorized, waive
notice of any meeting, in writing or by telegraph, cable or wireless, whether
before or after such meeting be held, the notice thereof need not be given to
him. The attendance of any stockholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by him. Notice of any
adjourned meeting of stockholders need not be given except as provided in
SECTION 5 of this ARTICLE I.
SECTION 4. Quorum. Subject to the provisions of law and to provisions
of the Certificate of Incorporation in respect of the vote that shall be
required for a specific action, the number of shares the holders of which shall
be present or represented by proxy at any meeting of stockholders in order to
constitute a quorum for the transaction of any business shall be a majority of
all the shares issued and outstanding and entitled to vote at such meeting.
1
<PAGE>
SECTION 5. Adjournment. At any meeting of stockholders, whether or not
there shall be a quorum present, the holders of a majority of shares voting at
the meeting, whether present in person at the meeting or represented by proxy at
the meeting, may adjourn the meeting from time to time. Except as provided by
law, notice of such adjourned meeting need not be given otherwise than by
announcement of the time and place of such adjourned meeting at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the original meeting.
SECTION 6. Organization. The Chairman of the Board or, in his absence
or non-election, the President or, in the absence of both of the foregoing
officers, a Vice President shall call meetings of the stockholders to order and
shall act as Chairman of such meetings. In the absence of the Chairman of the
Board, the President, or a Vice President, the holders of a majority in number
of the shares of the capital stock of the Corporation present in person or
represented by proxy and entitled to vote at such meeting shall elect a
Chairman, who may be the Secretary of the Corporation. The Secretary of the
Corporation shall act as secretary of all meetings of the stockholders, but in
the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
SECTION 7. Voting. Each stockholder shall, except as otherwise provided
by law or by the Certificate of Incorporation, at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock entitled to vote held by such stockholder, but no proxy shall be
voted on after three years from its date, unless said proxy provides for a
longer period. Upon the demand of any stockholder, the vote for directors and
the vote upon any matter before the meeting shall be by ballot. Except as
otherwise provided by law, the Certificate of Incorporation or these By-laws,
all elections for directors shall be decided by plurality vote; all other
matters shall be decided by a majority of the votes cast thereon.
SECTION 8. Stockholders List. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order,
with the address of each and the number of shares held by each, 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 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 thereof
and may be inspected by any stockholder who is present.
SECTION 9. Addresses of Stockholders. Each stockholder shall designate
to the Secretary of the Corporation an address at which notices of meetings and
all other corporate notices may be served upon or mailed to him, and if any
stockholder shall fail to designate such address, corporate notices may be
served upon him by mail directed to him at his last known post office address.
SECTION 10. Inspectors of Election. The Board of Directors may at any
time appoint
2
<PAGE>
one or more persons to serve as Inspectors of Election at the next succeeding
annual meeting of stockholders or at any other meeting or meetings and the Board
of Directors may at any time fill any vacancy in the office of Inspector. If the
Board of Directors fails to appoint Inspectors, or if any Inspector appointed is
absent or refuses to act or if his office becomes vacant and is not filled by
the Board of Directors, the Chairman of any meeting of the stockholders may
appoint one or more temporary Inspectors for such meeting. All proxies shall be
filed with the Inspectors of Election of the meeting before being voted upon.
SECTION 11. Action by Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any meeting of
stockholders, or any action which may be taken at any meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote if a consent in writing, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 2. Number, Qualification and Term of Office. The number of
directors shall be such as the Board of Directors may by resolution direct from
time to time. Each director shall hold office for the term for which he is
appointed or elected and until his successor shall have been elected and shall
qualify, or until his death or until he shall resign or shall have been removed
in the manner hereinafter provided. The Chairman of the Board, if one be
elected, shall be chosen from among the directors.
SECTION 3. Quorum and Manner of Action. Except as otherwise provided by
law, the Certificate of Incorporation, or these By-laws, a majority of the Board
of Directors shall be required to constitute a quorum for the transaction of
business at any meeting, and the act of a majority of the directors present and
voting at any meeting at which a quorum is present shall be the act of the Board
of Directors. In the absence of a quorum, a majority of the directors present
may adjourn any meeting from time to time until a quorum be had. Notice of any
adjourned meeting need not be given. The directors shall act only as a board and
individual directors shall have no power as such.
SECTION 4. Place of Meeting, etc. The Board of Directors may hold its
meetings, have one or more offices and keep the books and records of the
Corporation at such place or places within or without the State of Arizona as
the Board may from time to time determine or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
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SECTION 5. Regular Meetings. A regular meeting of the Board of
Directors shall be held for the election of officers and the transaction of
other business as soon as practicable after each annual meeting of stockholders,
and other regular meetings of said Board shall be held at such times and places
as said Board shall direct. No notice shall be required for any regular meeting
of the Board of Directors but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every director at least
three days before the first meeting held in pursuance thereof.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, a Vice President or
any two directors, by a sole remaining director or by the stockholders of the
Corporation at the next annual meeting or any special meeting called for that
purpose. In case all the directors shall die or resign or be removed or
disqualified, any stockholder having voting powers may call a special meeting of
the stockholders, upon notice given as herein provided for the meetings of the
stockholders, at which directors may be elected. The Secretary or any Assistant
Secretary shall give notice of the time and place of each special meeting by
mailing a written notice of the same to each director at his last known post
office address at least two days before the meeting or by causing the same to be
delivered personally or to be transmitted by telegraph, cable, wireless,
telephone or orally at least twenty-four hours before the meeting to each
director.
SECTION 7. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
SECTION 8. Organization. At each meeting of the Board of Directors, the
Chairman of the Board or, in his absence or non-election, a director chosen by a
majority of the directors present shall act as Chairman. The Secretary or, in
his absence, an Assistant Secretary or, in the absence of both the Secretary and
an Assistant Secretary, any person appointed by the Chairman shall act as
secretary of the meeting.
SECTION 9. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors, the President or
the Secretary of the Corporation. The resignation of any director shall take
effect at the time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. Removal of Directors. Except as otherwise provided by law
or the Certificate of Incorporation, any director may be removed, either with or
without cause, at any time by the affirmative vote of a majority in interest of
the holders of record of the stock having voting power at an annual meeting or
at a special meeting of the stockholders called for that purpose; and the
vacancy in the Board caused by any such removal may be filled by the
stockholders at such meeting or by the Board of Directors in the manner provided
in SECTION 11 of this ARTICLE II.
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SECTION 11. Vacancies. Any vacancy in the Board of Directors caused by
death, resignation, removal (whether or not for cause), disqualification, an
increase in the number of directors or any other cause may be filled by the
majority vote of the remaining directors of the Corporation at the next annual
meeting, any regular meeting or any special meeting called for the purpose. Each
director so elected shall hold office for the unexpired term or for such lesser
term as may be designated and until his successor shall be duly elected and
qualified, or until his death or until he shall resign or shall have been
removed in the manner herein provided. In case all the directors shall die or
resign or be removed or disqualified, any stockholder having voting powers may
call a special meeting of the stockholders, upon notice given as herein provided
for meetings of the stockholders, at which directors may be elected for the
unexpired term.
SECTION 12. Compensation of Directors. Directors may receive such sums
for their services and expenses as may be directed by resolution of the Board;
provided that nothing herein contained shall be construed to 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 their services and expenses.
SECTION 13. Committees. By resolution or resolutions passed by a
majority of the whole Board at any meeting of the Board of Directors, the
directors may designate one or more committees, each committee to consist of one
or more directors. To the extent provided in said resolution or resolutions,
unless otherwise provided by law, such committee or committees shall have and
may exercise all of the powers of the Board of Directors in the management of
the business and affairs of the Corporation, including the power and authority
to authorize the seal of the Corporation to be affixed to all papers which may
require it. In no event, however, shall any action that requires the approval of
100% of the directors then in office be taken by a committee consisting of less
than all the directors then in office. Further, the Board of Directors may
designate one or more directors as alternate members of a committee who may
replace an absent or disqualified member at any meeting. A committee may make
such rules for the conduct of its business and may appoint such committees and
assistants as it shall from time to time deem necessary. A majority of the
members of a committee shall constitute a quorum for the transaction of business
of such committee. Regular meetings of a committee shall be held at such times
as such committee shall from time to time by resolution determine. No notice
shall be required for any regular meeting of a committee but a copy of every
resolution fixing or changing the time or place of regular meetings shall be
mailed to every member of such committee at least three days before the first
meeting held in pursuance thereof. Special meetings of a committee may be called
by the chairman of such committee or the secretary of such committee, or any two
members thereof. The Secretary of the Corporation or the secretary of such
committee shall give notice of the time and place of each Special Meeting by
mail at least two days before such meeting or by telegraph, cable, wireless,
telephone or orally at least twenty-four hours before the meeting to each member
of such committee.
SECTION 14. Participation in Meetings. Members of the Board of
Directors or of any committee may participate in any meeting of the Board or
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all
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persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
ARTICLE III
Officers
SECTION 1. Number. The officers of the Corporation shall be a
President, a Treasurer and a Secretary. In addition, the Board may elect a
Chairman of the Board, and one or more Vice Presidents and such other officers
as may be appointed in accordance with the provisions of SECTION 3 of this
ARTICLE III. Any number of offices may be held by the same person.
SECTION 2. Election, Term of Office and Qualification. The officers
shall be elected annually by the Board of Directors at their first meeting after
each annual meeting of the stockholders of the Corporation. Each officer, except
such officers as may be appointed in accordance with the provisions of SECTION 3
of this ARTICLE III, shall hold office until his successor shall have been duly
elected and qualified, or until his death or until he shall have resigned or
shall have become disqualified or shall have been removed in the manner
hereinafter provided.
SECTION 3. Subordinate Officers. The Board of Directors or the
President may from time to time appoint such other officers, including one or
more Assistant Treasurers and one or more Assistant Secretaries, and such agents
and employees of the Corporation as may be deemed necessary or desirable. Such
officers, agents and employees shall hold office for such period and upon such
terms and conditions, have such authority and perform such duties as in these
By-laws provided or as the Board of Directors or the President may from time to
time prescribe. The Board of Directors or the President may from time to time
authorize any officer to appoint and remove agents and employees and to
prescribe the powers and duties thereof.
SECTION 4. Removal. Any officer may be removed, either with or without
cause, by the Board of Directors or, except in case of any officer elected by
the Board of Directors, by any committee or superior officer upon whom the power
of removal may be conferred by the Board of Directors or by these By-laws.
SECTION 5. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Any
such resignation shall take effect at the date of receipt of such notice or at
any later time specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws for
regular election or appointment to such office.
SECTION 7. Chairman of the Board . The Chairman of the Board shall
preside, if present, at all meetings of the stockholders and at all meetings of
the Board of Directors and shall
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perform such other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors or prescribed by these By-laws.
SECTION 8. President. The President shall have general direction of the
affairs of the Corporation and general supervision over its several officers,
subject, however, to the control of the Board of Directors. The President shall
at each annual meeting and from time to time report to the stockholders and the
Board of Directors all matters within his knowledge which the interest of the
Corporation may require to be brought to their notice, may sign with the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
any or all certificates of stock of the Corporation, shall preside, in the
absence of the Chairman of the Board, at all meetings of the stockholders and at
all meetings of the Board of Directors, shall have the power to sign and execute
in the name of the Corporation all contracts or other instruments authorized by
the Board of Directors, except in cases where the signing and execution thereof
shall be expressly delegated or permitted by the Board or by these By-laws to
some other officer or agent of the Corporation, and in general shall perform all
duties, and have such powers incident to the office of President and perform
such other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors or the Chairman of the Board or
prescribed by these By-laws.
SECTION 9. Vice Presidents. Each Vice President shall have such powers
and shall perform such duties as may from time to time be assigned to him by the
Board of Directors or by the President, and shall have the power to sign and
execute in the name of the Corporation all contracts or other instruments
authorized by the Board of Directors, except where the Board or the By-laws
shall expressly delegate or permit some other officer to do so. A Vice President
may also sign with the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary certificates of stock of the Corporation and shall have
such other powers and shall perform such other duties as from time to time may
be assigned to him by the Board of Directors, the Chairman of the Board or the
President or prescribed by these By-laws.
SECTION 10. Secretary. The Secretary shall keep or cause to be kept, in
books provided for the purpose, the minutes of the meetings of the stockholders,
the Board of Directors and any committee when so required, shall see that all
notices are duly given in accordance with the provisions of these By-laws and as
required by law, shall be custodian of the records and the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-laws, shall keep or cause to be kept
a register of the post office address of each stockholder, may sign with the
President or any Vice President certificates of stock of the Corporation, and in
general shall perform such duties and have such powers incident to the office of
Secretary and shall perform such other duties and have such other powers as from
time to time may be assigned to him by the Board of Directors, the Chairman of
the Board or the President or prescribed by these By-laws.
SECTION 11. Assistant Secretaries. Any Assistant Secretary shall, at
the request of the Secretary or in his absence or disability, perform the duties
of the Secretary and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the Secretary and shall perform such other duties
and have such other powers as from time to time may be assigned to
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him by the President, the Secretary or the Board of Directors or prescribed by
these By-laws.
SECTION 12. Treasurer. The Treasurer shall have charge and custody of,
and be responsible for, all funds and securities of the Corporation, and deposit
all such funds in the name of the Corporation in such banks, trust companies or
other depositaries as shall be selected in accordance with the provisions of
these By-laws, shall at all reasonable times exhibit his books of account and
records, and cause to be exhibited the books of account and records of any
corporation controlled by the Corporation to any of the directors of the
Corporation upon application during business hours at the office of the
Corporation, or such other corporation where such books and records are kept,
shall render a statement of the condition of the finances of the Corporation at
all regular meetings of the Board of Directors and a full financial report at
the annual meeting of the stockholders, shall, if called upon to do so, receive
and give receipts for moneys due and payable to the Corporation from any source
whatsoever, may sign with the President or any Vice President certificates of
stock of the Corporation, and in general shall perform such duties and have such
powers incident to the office of Treasurer and such other duties and have such
other powers as from time to time may be assigned to him by the Board of
Directors or the President or prescribed by these By-laws.
SECTION 13. Assistant Treasurers. Any Assistant Treasurer shall, at the
request of the Treasurer or in his absence or disability, perform the duties of
the Treasurer and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the Treasurer and shall perform such duties and have
such other powers as from time to time may be assigned to him by the President,
the Treasurer or the Board of Directors or prescribed by these By-laws.
SECTION 14. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE IV
Contracts Checks, Drafts, Bank Accounts, Etc.
SECTION 1. Contracts, etc., How Executed. Except as otherwise provided
in these By-laws, the Board of Directors may authorize any officer or officers,
employee or employees or agent or agents of the Corporation to enter into any
contract or execute and deliver any instrument, on behalf and in the name of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors or by a committee
appointed in accordance with the provisions of these By-laws or otherwise by
these By-laws, no officer, employee or agent shall have any power or authority
to bind the Corporation by any contract or engagement or to pledge its credit or
render it liable for any purpose or amount.
SECTION 2. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, employee or
employees or agent or agents of the Corporation
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as shall from time to time be determined by resolution of the Board of
Directors.
SECTION 3. Deposits. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositaries as the Board of Directors or committee appointed
by the Board of Directors may designate from time to time or as may be
designated from time to time by any officer or officers, employee or employees
or agent or agents of the Corporation to whom such power may be delegated by the
Board of Directors; and for the purpose of such deposit, the Chairman of the
Board, the President, or a Vice President, or the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
SECTION 4. General and Special Bank Accounts. The Board of Directors or
committee appointed by the Board of Directors may authorize from time to time
the opening and keeping with such banks, trust companies or other depositaries
as it may designate of general and special bank accounts and may make such
special rules and regulations with respect thereto, not inconsistent with the
provisions of these By-laws, as it may deem expedient.
SECTION 5. Proxies. Except as otherwise provided in these By-laws or in
the Certificate of Incorporation of the Corporation, and unless otherwise
provided by resolution of the Board of Directors, the President may from time to
time appoint an attorney or attorneys, or agent or agents, of the Corporation,
on behalf and in the name of the Corporation, to cast the votes which the
Corporation may be entitled to cast as a stockholder or otherwise in any other
corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf and in the name of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE V
Shares and Their Transfer
SECTION 1. Certificates of Stock. Certificates for shares of the
capital stock of the Corporation shall be in such form not inconsistent with law
as shall be approved by the Board of Directors. They shall be numbered in order
of their issue and shall be signed by the Chairman of the Board, the President
or any Vice President and the Treasurer or any Assistant Treasurer, or the
Secretary or any Assistant Secretary of the Corporation, and the seal of the
Corporation shall be affixed thereto. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature shall have been placed upon
any such certificate or certificates shall cease to be such officer, transfer
agent or registrar whether because of death, resignation or otherwise, before
such certificate or certificates shall have been issued, such certificate or
certificates may nevertheless be issued by
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the Corporation as though the person or persons who signed such certificate or
certificates or whose facsimile signature shall have been used thereon had not
ceased to be such officer or officers of the Corporation.
SECTION 2. Transfer of Stock. Transfer of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by his attorney thereunto authorized by a power of attorney
duly executed and filed with the Secretary of the Corporation, or a transfer
agent of the Corporation, if any, and on surrender of the certificate or
certificates for such shares properly endorsed. A person in whose name shares of
stock stand on the books of the Corporation shall be deemed the owner thereof as
regards the Corporation, and the Corporation shall not be bound to recognize any
equitable or other claim to, or interest in, such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Arizona.
SECTION 3. Lost, Destroyed and Mutilated Certificates. The holder of
any stock issued by the Corporation shall immediately notify the Corporation of
any loss, destruction or mutilation of the certificate therefor or the failure
to receive a certificate of stock issued by the Corporation, and the Board of
Directors or the Secretary of the Corporation may, in its or his discretion,
cause to be issued to such holder a new certificate or certificates of stock,
upon compliance with such rules, regulations and/or procedures as may be
prescribed or have been prescribed by the Board of Directors with respect to the
issuance of new certificates in lieu of such lost, destroyed or mutilated
certificate or certificates of stock issued by the Corporation, including the
posting with the Corporation of a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. Transfer Agent and Registrar; Regulations. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in the charge of a transfer agent
designated by the Board of Directors, where the shares of the capital stock of
the Corporation shall be directly transferable, and also one or more registry
offices, each in the charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares of
the capital stock of the Corporation, in respect of which a Registrar and/or
Transfer Agent shall have been designated, shall be valid unless countersigned
by such Transfer Agent and registered by such Registrar, if any. The Board of
Directors shall also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the Corporation.
SECTION 5. Fixing Date for Determination of Stockholders of Record. 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, to express
consent to corporate action in writing without a meeting, to receive payment of
any dividend or other distribution or allotment of any rights, 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 nor less than ten days before
the date of such meeting, nor
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more than sixty days prior to any other action, and only such stockholders as
shall be stockholders of record of the date so fixed shall be entitled to such
notice of and to vote at such meeting and any adjournment thereof, to express
consent to any such corporate action, to receive payment of such dividend or to
receive such allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
ARTICLE VI
Seal
The Board of Directors shall provide a suitable seal containing the
name of the Corporation, which seal shall be in the charge of the Secretary and
which may be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced. If and when so directed by the Board
of Directors, a duplicate of the seal may be kept and be used by an officer of
the Corporation designated by the Board.
ARTICLE VII
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end on
January 31 of each year unless and until changed by resolution of the Board of
Directors.
SECTION 2. Waivers of Notice. Whenever any notice of any nature is
required by law, the provisions of the Certificate of Incorporation or these
By-laws to be given, 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.
SECTION 3. Qualifying in Foreign Jurisdiction. The Board of Directors
shall have the power at any time and from time to time to take or cause to be
taken any and all measures which they may deem necessary for qualification to do
business as a foreign corporation in any one or more foreign jurisdictions and
for withdrawal therefrom.
SECTION 4. Indemnification. The Corporation shall, to the full extent
permitted by the laws of the State of New York, as amended from time to time,
indemnify all directors and officers whom it has the power to indemnify pursuant
thereto.
ARTICLE VIII
Amendments
These By-laws shall be subject to amendment, alteration or repeal, and
new By-laws not
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inconsistent with any provision of the Certificate of Incorporation of the
Corporation or any provision of law, may be made, either by (i) the affirmative
vote of the holders of record of a majority of the outstanding shares of the
Common Stock of the Corporation entitled to vote in respect thereof, given at an
annual meeting or at any special meeting, provided that notice of the proposed
alteration or repeal or of the proposed new By-laws be included in the notice of
such meeting, or (ii) the affirmative vote of a majority of the members of the
Board of Directors at any regular or special meeting.
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Exhibit 3.3
RESTATED
ARTICLES OF INCORPORATION
OF
PENHALL INTERNATIONAL, INC.
Roger C. Stull and Charles D. Steichen certify that:
1. They are the President and the Secretary, respectively, of Penhall
International, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and restated
to read as full as follows:
"ONE: The name of this corporation is Penhall Rental Corp.
TWO: The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
THREE: This corporation is authorized to issue three classes of
shares, designated as "Common Stock," "Class A Common Stock" and "Class B
Common Stock," respectively. The number of shares of each such class
authorized to be issued shall be as follows:
(i) 2,000,000 shares of Common Stock
(ii) 2,000,000 shares of Class A Common Stock
(iii) 1,000,000 shares of Class B Common Stock
Upon the amendments and restatement of the Articles of Incorporation to
read as herein set forth, each presently issued and outstanding share of
Common Stock of this corporation shall remain as one share of Common Stock.
FOUR: The rights, preferences, privileges and restrictions of
the Common Stock, Class A Common Stock and Class B Common Stock shall
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be equal and identical in all respects, except with respect to the right to
receive dividends. The holders of the Common Stock, the Class A Common
Stock and the Class B Common Stock shall be entitled to receive dividends,
when and as declared by the Board of Directors, out of funds legally
available therefor, provided that, if dividends are declared, dividends
shall be declared on all three such classes at the same time and the
amount of the dividend for the Class A Common Stock shall be 2 times the
amount of the Common Stock dividend and the amount of the dividend for the
Class B Common Stock shall be 1.5 times the amount of the Common Stock
dividend.
FIVE: The liability of the directors of this corporation
for monetary damages shall be eliminated to the fullest extent permissible
under California law. If the California General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of this
corporation shall be eliminated or limited to the fullest extent permitted
by the California General Corporation Law, as so amended. Any repeal or
modification of this provision shall not adversely affect any right or
protection of a director of this corporation existing at the time of such
repeal or modification.
SIX: This corporation is authorized to indemnify the directors
and officers of this corporation to the fullest extent permissible under
California law."
3. The foregoing amendments and restatement of Articles of Incorporation
have been duly approved by the Board of Directors.
4. The foregoing amendments and restatement of Articles of Incorporation
have been duly approved by the required vote of shareholders in accordance
with Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is 421,615. The number of shares
voting in favor of the amendments and restatement equaled of exceeded the
vote required. The percentage vote required was more than 50%.
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We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed this 28th day of July, 1998 at Anaheim, California.
/s/ Roger C. Stull
-----------------------------
Roger C. Stull, President
/s/ Charles D. Steichen
------------------------------
Charles D. Steichen, Secretary
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Exhibit 3.4
BYLAWS
OF
PENHALL INTERNATIONAL, INC.
ARTICLE I OFFICES
Section 1 Principal Offices..............................................1
Section 2 Other Offices..................................................1
ARTICLE II MEETINGS OF SHAREHOLDERS
Section 1 Place of Meetings..............................................1
Section 2 Annual Meeting.................................................1
Section 3 Special Meetings...............................................2
Section 4 Notice of Meetings of Shareholders.............................2
Section 5 Manner of Giving Notice; Affidavit of
Notice.........................................................3
Section 6 Quorum.........................................................4
Section 7 Adjourned Meeting; Notice......................................4
Section 8 Voting.........................................................4
Section 9 Waiver of Notice or Consent by Absent
Shareholders...................................................5
Section 10 Shareholder Action by Written Consent
Without a Meeting..............................................6
Section 11 Record Date for Shareholder Notice,
Voting and Giving Consents.....................................7
Section 12 Proxies........................................................8
Section 13 Inspectors of Election.........................................8
ARTICLE III DIRECTORS
Section 1 Powers.........................................................9
Section 2 Number and Qualification of Directors..........................9
Section 3 Election and Term of Office of Directors......................10
Section 4 Vacancies.....................................................10
Section 5 Place of Meetings and Meetings by Telephone...................11
Section 6 Regular Meetings..............................................11
Section 7 Special Meetings..............................................11
Section 8 Quorum........................................................12
Section 9 Waiver of Notice..............................................12
Section 10 Adjournment...................................................12
Section 11 Notice of Adjournment.........................................12
Section 12 Action Without Meeting........................................13
Section 13 Fees and Compensation of Directors............................13
i
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ARTICLE IV COMMITTEES
Section 1 Committees of Directors.......................................13
Section 2 Meetings and Action of Committees.............................14
ARTICLE V OFFICERS
Section 1 Officers......................................................14
Section 2 Election of Officers..........................................15
Section 3 Subordinate Officers..........................................15
Section 4 Removal and Resignation of Officers...........................15
Section 5 Vacancies in Offices..........................................15
Section 6 Chairman of the Board.........................................16
Section 7 President.....................................................16
Section 8 Vice-Presidents...............................................16
Section 9 Secretary.....................................................16
Section 10 Treasurer and Chief Financial Officer.........................17
ARTICLE VI INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS..........................18
ARTICLE VII RECORDS AND REPORTS
Section 1 Maintenance and Inspection of Share
Register......................................................18
Section 2 Maintenance and Inspection of Bylaws..........................19
Section 3 Maintenance and Inspection of Other
Corporate Records.............................................19
Section 4 Inspection by Directors.......................................20
Section 5 Annual Report to Shareholders.................................20
Section 6 Financial Statements..........................................20
Section 7 Annual Statement of General Information.......................21
ARTICLE VIII GENERAL CORPORATE MATTERS
Section 1 Record Date for Purposes Other Than
Notice and Voting.............................................22
Section 2 Checks, Drafts, Evidence of Indebtedness......................22
Section 3 Execution of Corporate Contracts and
Instruments...................................................22
Section 4 Certificates for Shares.......................................23
Section 5 Lost Certificates.............................................23
Section 6 Representation of Shares of Other
Corporations..................................................23
Section 7 Construction and Definitions..................................24
ii
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ARTICLE IX AMENDMENTS
Section 1 Amendment by Shareholders.....................................24
Section 2 Amendment by Directors........................................24
CERTIFICATE OF SECRETARY.....................................................25
iii
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BYLAWS
OF
PENHALL INTERNATIONAL, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICES
---------- -----------------
The Board of Directors shall fix the location of the principal executive
office of the Corporation at any place within or outside the State of
California. If the principal executive office is located outside the State of
California and the Corporation has one or more business offices in the State
of California, the Board of Directors shall fix and designate a principal
business office in the State of California.
SECTION 2. OTHER OFFICES
---------- -------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places it may choose from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS
---------- -----------------
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence
of any such designation, meetings of shareholders shall be held at the
principal executive office of the Corporation.
SECTION 2. ANNUAL MEETING
---------- --------------
The annual meeting of shareholders shall be held on September 30 at
11:00 a.m., or at such other date and time as the Board of Directors may
determine. However, if this day falls on a legal holiday, the meeting shall
be held at the same time and place on the next succeeding full business day.
The annual meeting shall be held at the Corporation's
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principal offices or at any other location as may be determined by the Board
of Directors. At each annual meeting, directors shall be elected and any
other proper business may be transacted.
SECTION 3. SPECIAL MEETINGS
---------- ----------------
A special meeting of the shareholders may be called at any time by the
Board of Directors, the Chairman of the Board of Directors, the President, or
one or more shareholders holding shares in the aggregate entitled to cast not
less than 10% of the votes at such meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the President, any Vice-President or the Secretary of the
Corporation. The officer receiving the request shall promptly cause notice to
be given to the shareholders entitled to vote, in accordance with the
provisions of Section 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not fewer
than 35 days or more than 60 days after the receipt of the request, the
person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 3 shall be construed, fixing or
affecting the time when a meeting of shareholders called by action of the
Board of Directors may be held.
SECTION 4. NOTICE OF MEETINGS OF SHAREHOLDERS
---------- ----------------------------------
All notices of meetings of shareholders shall be sent or otherwise given
in accordance with Section 5 of this Article II not less than 10 days or more
than 60 days before the date of the meeting. Such notice shall specify the
place, date, and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, or (ii) in the
case of annual meeting, those matters that the Board of Directors, at the
time of giving the notice, intends to present for action by the shareholders.
The notice of any meeting at which directors are to be elected shall include
the name of any nominee or nominees whom, at the time of the notice,
management intends to present for election.
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If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California, (ii) an amendment of the Articles of Incorporation, pursuant to
Section 902 of such Code, (iii) a reorganization of the Corporation, pursuant
to section 1201 of such Code, (iv) an voluntary dissolution of the
Corporation, pursuant to section 1900 of such Code, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of such Code, the notice shall also state
the general nature of such proposal.
SECTION 5. MANNER OF GIVING NOTICE;
---------- ------------------------
AFFIDAVIT OF NOTICE
------------------------
Notice of any meeting of shareholders shall be given either personally
or by first-class mail or telegraphic or other written communication, charges
prepaid, addressed to each shareholder at the address of such shareholder
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. If no such address appears on the
books of the Corporation or is given, notice shall be deemed to have been
given if sent to a shareholder by first-class mail or telegraphic or other
written communication to the Corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where such office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such
shareholder, appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service is unable to deliver such
notice to such shareholder at such address, each future notice and report
shall be deemed to have been duly given without further mailing if it shall
be available to the shareholder on written demand by the shareholder at the
principal executive office of the Corporation for a period of one year from
the date of the giving of such notice or report.
A affidavit of the mailing or other means of giving any notice of any
meeting of shareholders shall be executed by the Secretary, Assistant
Secretary or any transfer agent
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of the Corporation giving the notice and shall be filed and maintained in the
minutes book of the Corporation.
SECTION 6. QUORUM
---------- ------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote at a meeting of shareholders shall constitute a quorum
for the transaction of business at such meeting. The shareholders in
attendance at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
SECTION 7. ADJOURNED MEETING; NOTICE
---------- -------------------------
Any meeting of shareholders, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at such meeting, either in person or by proxy; but in
the absence of a quorum, no other business may be transacted at such meeting,
except as provided in Section 6 of the Article II.
When any meeting of shareholders, annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed or unless
the adjournment is for more than 45 days from the date set for the original
meeting, in which case the Board of Directors shall set a new record date.
Notice of any such adjourned meeting shall be given to each shareholder of
the provisions of Section 4 and 5 of this Article II. At any adjourned
meeting, the Corporation may transact any business that might have been
transacted at the original meeting.
SECTION 8. VOTING
---------- ------
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 11 of this Article
II, subject to the provisions of Sections 702 to 704, inclusive, of the
Corporations Code of California (relating to voting shares held by a
fiduciary or in joint ownership). The shareholder's vote may be by voice vote
or ballot;
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provided, however, that any election of directors must be by ballot if
demanded by any shareholder before the voting has begun. On any matter other
than the election of directors, any shareholder may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or vote
them against the proposal; but if a shareholder fails to specify the number
of shares such shareholder is voting affirmatively, it shall be presumed
conclusively that such shareholder's approving vote is with respect to all
shares that such shareholder is entitled to vote. Except as provided in
Section 6 of this Article II, the affirmative vote of a majority of the
shares represented and voting at a duly held meeting at which a quorum is
present (which shares required quorum) shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required by
California General Corporation Law or the Articles of Incorporation.
At a meeting of shareholders at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or
more candidates a number of votes greater than the number of such
shareholder's shares) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of such shareholder's intention to
cumulate votes. If any shareholder has given notice, every shareholder
entitled to vote may cumulate votes for candidates in the number of directors
to be elected multiplied by the number of votes to which such shareholder's
shares are entitled or distribute such shareholder's votes on the same
principle among any or all of the candidates as the shareholder thinks fit.
The candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
SECTION 9. WAIVER OF NOTICE OF CONSENT BY
---------- ------------------------------
ABSENT SHAREHOLDERS
------------------------------
The transactions of any meeting of shareholders, annual or special,
however called and noticed and wherever held, shall be as valid as though
they had occurred at a meeting duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or
after such meeting, each person entitled to vote who was not present in person
or by proxy signs a written waiver of notice or a consent to a holding of
such meeting or an approval of the minutes thereof. Such waiver of notice or
consent need not specify either the business to be
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transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article
II, the waiver of notice or consent shall state the general nature of the
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of such meeting, except that when the person objects at the beginning
thereat because such meeting is not lawfully called or convened, and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of such meeting if an
objection is expressly made at such meeting.
SECTION 10. SHAREHOLDER ACTION BY WRITTEN CONSENT
----------- -------------------------------------
WITHOUT A MEETING
-------------------------------------
Any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote on such action were present and noted.
In the case of the election of directors, such a consent shall be effective
only if signed by the holders of a majority of the outstanding shares
entitled to vote for the election of directors; provided, however, that by
the written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of directors, a director may be elected at
any time to fill a vacancy on the Board of Directors that has not been filled
by the directors. All such consents shall be filed with the Secretary of the
Corporation and shall be maintained in the corporate records. Any shareholder
giving a written consent or the shareholder's proxy holders or a transferee
of the shares or a personal representative of the shareholder or their
respective proxy holders may revoke the consent by a writing received by the
Secretary of the Corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all
shareholders has not been received,
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the Secretary shall give prompt notice of the corporate action approved by
the shareholders without a meeting. Such notice shall be given in the manner
specified in Section 5 of this Article II. In the case of approval of (i)
contracts or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporation Code of
California, (ii) indemnification of agents of the Corporation, pursuant to
Section 317 of such Code, (iii) a reorganization of the Corporation, pursuant
to Section 1201 of such Code, and (iv) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant
to Section 2007 of such Code, such notice shall be given at least ten days
before the consummation of any action authorized by such approval.
SECTION 11. RECORD DATE OF SHAREHOLDER NOTICE,
----------- ----------------------------------
VOTING AND GIVING CONSENTS
----------------------------------
For purposes of determining the shareholders entitled to receive notice
of any meeting or to give consent to corporate action without a meeting, the
Board of Directors may fix in advance a record date, which shall not be more
than 60 days or less than 10 days before the date of any such meeting nor
more than 60 days before any such action without a meeting. In this event,
only shareholders of record on the date so fixed are entitled to receive
notice and to vote or to give consents, as the case may be, notwithstanding
any transfer of any shares on the books of the Corporation after the record
date, except as otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to receive
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day next
preceding the date on which the meeting is held; or
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board of Directors has been taken, shall be the day on which
the first written consent is given, or (ii) when prior action of the Board
has been taken, shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to that action or at the
close of
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business on the sixtieth day before the date of such other action, whichever
is later.
SECTION 12. PROXIES
----------- -------
Every person entitled to vote for directors or on any other matter shall
have the right to do so either in person or by one or more agents authorized
by a written proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy that does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote pursuant to such proxy, by a writing
delivered to the Corporation stating that such proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing such proxy; or (ii) written notice of the
death or incapacity of the maker of such proxy is received by the Corporation
before the vote pursuant to such proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven months from the date of
the proxy unless otherwise provided in the proxy. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by Section
705(e) and 705(f) of the Corporations Code of California.
SECTION 13. INSPECTORS OF ELECTION
----------- ----------------------
Before any meeting of shareholders, the Board of Directors may appoint
any persons other than nominees for office to act as inspectors of election
at the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election at
the meeting. The number of such inspectors shall be either one or three. If
such inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails
or refuses to act, the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
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Such inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS
---------- ------
Subject to the provisions of the California General Corporation Law and
any limitations in the Articles of Incorporation and these Bylaws relating to
action required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS
---------- -------------------------------------
The authorized number of directors of the Corporation shall be five
until changed by a duly adopted amendment to the Articles of Incorporation or
by an amendment to these Bylaws approved by the shareholders' provided,
however, that an amendment reducing the fixed number of directors to a number
less than five cannot be adopted if the votes cast against its adoption at a
meeting of the shareholder, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3 percent of the
outstanding share entitled to vote.
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SECTION 3. ELECTION AND TERM OF OFFICE
---------- OF DIRECTORS
---------------------------
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and
qualified.
SECTION 4. VACANCIES
---------- ---------
Vacancies on the Board of Directors may be filled by approval of the
Board or, if the number of directors then in office is less than a quorum, by
(1) the unanimous written consent of directors then in office, (2) the
affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice complying with Section 307 of
the Corporation Code, or (3) a sole remaining director; except that a vacancy
created by the removal a director by the vote or written consent of the
shareholders or by court order may be filled only by the vote of a majority
of the shares entitled to vote represented at a duly held meeting at which a
quorum is present, or by the written consent of holders of a majority of the
outstanding shares entitled to vote. Each director so elected shall hold
office until the next annual meeting of shareholders and until a successor
has been elected and qualified.
A vacancy or vacancies on the Board of Directors shall be deemed to
exist in the event of the death, resignation or removal of any director, or
if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or who
has been convicted of a felony, or if the authorized number of directors is
increased, or if the shareholders fail, at any meeting of shareholders at
which any director or directors are elected, to elect the number of directors
to be elected at such meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
Chairman of the Board of Directors, the President, the Secretary or the Board
of Directors, unless the notice specifies a later time for that resignation
to become effective. If the resignation of a director is effective at a later
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
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No reduction of the authorized number of directors shall have the effect
of removing any director before the expiration of such director's term of
office.
SECTION 5. PLACE OF MEETINGS AND MEETING BY
---------- --------------------------------
TELEPHONE
--------------------------------
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time
to time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
Corporation. Special meetings of the Board shall be held at any place within
or outside the State of California that has been designated in the notice of
the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the Corporation. Any meeting, regular or
special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in the meeting can hear one
another, and all such directors shall be deemed to be present in person at
the meeting.
SECTION 6. REGULAR MEETINGS
---------- ----------------
Regular meetings of the Board of Directors shall be held without call at
such time as shall from time to time be fixed by the Board of Directors. Such
regular meetings may be held without notice.
SECTION 7. SPECIAL MEETINGS
---------- ----------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the Chairman of the Board of Directors, the
president, any Vice-President, the Secretary or any two directors.
Notice of the time and place of such special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at such director's
address as is shown on the records of the Corporation. In case such notice is
mailed, it shall be deposited in the United States mail at least four days
before the time of the holding of such meeting. In case such notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least 48 hours
before the time of the holding of such meeting. Any oral notice given
personally or by
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telephone may be communicated either to the director or to a person at the
office of the director whom the person giving such notice has reason to
believe will promptly communicate it to such director. The notice need not
specify the purpose of the meeting or the place if the meeting is to be held
at the principal executive office of the Corporation.
SECTION 8. QUORUM
---------- ------
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 10 of this Article III. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the Corporation Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of such Code (as to
appointment of committees) and Section 317(e) of such Code (as to
indemnification of directors). A meeting at which a quorum initially is
present may continue to transact business notwithstanding the withdrawal of
directors, provided any action taken is approved by at least a majority of
the required quorum for such meeting.
SECTION 9. WAIVER OF NOTICE
---------- ----------------
The transactions of any meeting of the Board of Directors, however
called and noticed, and wherever held, shall be as valid as though they had
occurred at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after such meeting, each of the directors
not present signs a written waiver of notice, a consent to hold such meeting
or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of such meeting. All such waivers, consent and approvals
shall also be deemed given to any director who attends the meeting without
protesting, before or at its commencement, the lack of notice to such
director.
SECTION 10. ADJOURNMENT
----------- -----------
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
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SECTION 11. NOTICE OF ADJOURNMENT
----------- ---------------------
Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than 24 hours, in which case
notice of the time and place shall be given before the time of the adjourned
meeting in the manner specified in Section 7 of this Article III to the
directors who were not present at the time and the adjournment.
SECTION 12. ACTION WITHOUT MEETING
----------- ----------------------
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting if all members of the Board shall individually
or collectively consent in writing to such action. Such action by written
consent shall have the same force and effect as a unanimous vote of the Board
of Directors. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors.
SECTION 13. FEES AND COMPENSATION OF DIRECTORS
----------- ----------------------------------
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 13 shall not
be construed to preclude any director from serving the Corporation in any
other capacity as an officer, agent, employee or otherwise, and receiving
compensation for such service.
ARTICLE IV
COMMITTEES
SECTION 1. COMMITTEES OF DIRECTORS
---------- -----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of any
such committees, who may replace any absent member at any meeting of such
committee. Any committee, to the extent provided in such a resolution of the
Board, shall have all the authority of the Board, except with respect to:
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(a) The approval of any action that, under the California General
Corporation law, also requires shareholders' approval or approval of the
outstanding shares;
(b) The filling of vacancies of the Board of Directors or in any
committee;
(c) The fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the Board of
Directors that by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the Corporation, except at a
rate or in a periodic amount or within a price range determined by the Board
of Directors; and
(g) The appointment of any other committees of the Board of Directors
or the members of such committees.
SECTION 2. MEETINGS AND ACTION OF COMMITTEES
---------- ---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Sections 5 (place of meetings), 6
(regular meetings), 7 (special meetings), 8 (quorum), 9 (waiver of notice),
10 (adjournment), 11 (notice of adjournment), and 12 (action without meeting)
of Article III, with such changes in the context of such Bylaws as are
necessary to substitute the committee and its members for the board of
Directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee; special meetings of committees also may be
called by resolution of the Board of Directors; and notice of special
meetings of committees also shall be given to all alternate members, who
shall have the right to attend all meetings of the committee. The Board of
Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
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ARTICLE V
OFFICERS
SECTION 1. OFFICERS
---------- --------
The officers of the Corporation shall include a President, a Secretary,
and a Treasurer and Chief Financial Officer. The Corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board, one or
more Vice-Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
offices may be held by the same person.
SECTION 2. ELECTION OF OFFICERS
---------- --------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be chosen by the Board of Directors, and each shall serve at
the pleasure of the Board, subject to the rights, if any, of any officer under
contract of employment.
SECTION 3. SUBORDINATE OFFICERS
---------- --------------------
The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the Corporation may require,
each of whom shall hold office for such period, have such authority and
perform such duties as are provided in the Bylaws or as the Board of
Directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS
---------- -----------------------------------
The Board of Directors may appoint, and may subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors at any
regular or special meeting of the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
such notice or at any later time specified in such notice, the acceptance of
such resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any,
Page 15
<PAGE>
of the Corporation under any contract to which the resigning officer is a
party.
SECTION 5. VACANCIES IN OFFICES
---------- --------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these Bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD
---------- ---------------------
The Chairman of the Board of Directors, if such an officer be chosen,
shall, if present, preside at meetings of the Board of Directors and exercise
and perform such other powers and duties as from time to time may be assigned
to him by the Board of Directors or prescribed by these Bylaws. If there is
no President, the Chairman of the Board of Directors shall in addition be the
Chief Executive Officer of the Corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
SECTION 7. PRESIDENT
---------- ---------
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board of Directors, if there is such an
officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers
of the Corporation. He shall preside at all meetings of the shareholders and,
in the absence of the Chairmen of the Board or, if there is none, at all
meetings of the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of President of a
Corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
SECTION 8. VICE-PRESIDENT
---------- --------------
In the absence or disability of the President, the Vice-Presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice-President designated by the Board of Directors, shall perform
all the duties of the President and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The
Vice-Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them by the Board of Directors, the
Chairman of the Board, the President of these Bylaws.
Page 16
<PAGE>
SECTION 9. SECRETARY
---------- ---------
The Secretary shall keep or cause to be kept, at the principal executive
office or such other place as the Board of Directors may direct, a book of
minutes of all meetings and actions or directors, committees of directors and
shareholders, with the time and place of holding, whether regular or special
and, if special, how authorized, the notice given, the names of those present
at Board meetings or committee meetings, the number of shares present or
represented at meetings of shareholders and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register or a duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of shareholders and of the Board of Directors required by these Bylaws or by
law to be given, and he shall keep in safe custody the seal of the
Corporation, if one is adopted, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors of these
Bylaws.
SECTION 10. TREASURER AND CHIEF FINANCIAL OFFICER
----------- -------------------------------------
The Treasurer and Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books of account
shall at all reasonable times be open to inspection by any director.
The Treasurer and Chief Financial Officer shall deposit all money and
other valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and Directors,
Page 17
<PAGE>
whenever they request it, an account of all his transactions as Treasurer and
Chief Financial Officer and of the financial condition of the Corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
The Corporation shall, to the maximum extent permitted by the California
General Corporation Law, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was an agent of the Corporation. For purposes of this
Article VI, an "agent" of the Corporation includes any person who is or was a
director, officer, employee or other 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; or was a director, officer, employee or agent of a predecessor
corporation of the Corporation or of another enterprise at the request of
such predecessor corporation.
The indemnification provided by, or granted pursuant to, this Article VI
shall not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any Bylaws,
agreement vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office. No provision of these Bylaws shall limit or
prohibit indemnification by the Corporation to the fullest extent by
California law.
Page 18
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
SECTION 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER
---------- --------------------------------------------
The Corporation shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be designated and as
determined by resolution of the Board of Directors, a record of its
shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each shareholder.
A shareholder or shareholders of the Corporation holding at least 5% in
the aggregate of the outstanding voting shares of the Corporation may (i)
inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours, on five days' prior written demand
on the Corporation, and (ii) obtain from the transfer agent of the
Corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which such list has
been compiled or as of a date specified by such shareholder or shareholders
after the date of demand. Such list shall be made available to any such
shareholder by the transfer agent on or before the later of five days after
the demand date as of which such list is to be compiled. The record of
shareholders shall also be open to inspection on the trust certificate, at
any time during usual business interests as a shareholder or as the holder of
a voting trust certificate. Any inspection and copying under this Section 1
may be made in person or by an agent of attorney of the shareholder or a holder
of a voting trust certificate making the demand.
SECTION 2. MAINTENANCE AND INSPECTION OF BYLAWS
---------- ------------------------------------
The Corporation shall keep at its principal executive office or if its
principal executive office is not in the State of California, at its
principal business office in the State of California, the original or a copy
of these Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Page 19
<PAGE>
If the principal executive office of the Corporation is outside the State of
California and the Corporation has no principal business office in the State
of California, the Secretary shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.
SECTION 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
---------- -----------------------------------------------------
The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and any committee or committees of
the Board of Directors shall be kept at such place or places as may be
designated by the Board of Directors or, in the absence of such designation,
at the principal executive office of the Corporation. The minutes shall be
kept in written form, and the accounting books and records shall be kept
either in written form or in any other form capable of being converted into
written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as a
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make
extracts. The rights of inspection set forth in this Section 3 shall extend
to the equivalent records of each subsidiary corporation of the Corporation.
SECTION 4. INSPECTION BY DIRECTORS
---------- -----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of the Corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney,
and the right of inspection includes the right to copy and make extracts of
all documents.
SECTION 5. ANNUAL REPORT TO SHAREHOLDERS
---------- -----------------------------
The annual report to shareholders referred to in Section 1501 of the
California General Corporation Law is expressly dispensed with, but nothing
herein shall be interpreted as prohibiting the Board of Directors from
issuing annual or other periodic reports to the shareholders of the
Corporation as they consider appropriate.
Page 20
<PAGE>
SECTION 6. FINANCIAL STATEMENTS
---------- --------------------
A copy of any annual financial statement and any income statement of the
Corporation for each quarterly period of each fiscal year, and any
accompanying balance sheet of the Corporation as of the end of each such
period, that has been prepared by the Corporation shall be kept on file in
the principal executive office of the Corporation for twelve months, and each
such statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to
any such shareholder.
If a shareholder or shareholders holding at least 5% of the outstanding
shares of any class of stock of the Corporation makes a written request to
the Corporation for an income statement of the Corporation for the
three-month, six-month or nine-month period of the then-current fiscal year
ending more than 30 days before the date of the request and the balance sheet
of the Corporation as of the end of such period, the Chief Financial Officer
shall cause such statement to be prepared, and shall deliver personally or
mail such statement to the person making such request within 30 days after
the receipt of such request. If the Corporation has not sent to the
shareholders its annual report for the last fiscal year, this report shall
likewise be delivered or mailed to the shareholder or shareholders within 30
days after such request.
The Corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semiannual or quarterly
income statement that it has prepared and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
Section 6 shall be accompanied by the report, if any, of any independent
accountants engaged by the Corporation or the certificate of an authorized
officer of the Corporation that the financial statements were prepared
without audit from the books and records of the Corporation.
SECTION 7. ANNUAL STATEMENT OF GENERAL INFORMATION
---------- ---------------------------------------
The Corporation shall, within the statutorily required time period, file
with the Secretary of State of the State of California, on the prescribed
form, a statement setting forth the authorized number of directors, the names
and complete business or residence addresses, of all incumbent directors, the
names and complete business or resident
Page 21
<PAGE>
addresses of the Chief Executive Officer, Secretary and Chief Financial
Officer, the street address of its principal executive office or principal
business office in this state and the general type of business constituting
the principal business activity of the Corporation, and a designation of the
agent of the corporation for the purpose of service of process, all in
compliance with Section 1502 of the Corporation Code of California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
SECTION 1. RECORD DATE OF PURPOSES OTHER THAN NOTICE AND VOTING
---------- ----------------------------------------------------
For purposes of determining the shareholders entitled to receive any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights with respect to any other lawful action (other than
action by shareholders by written consent without a meeting), the Board of
Directors may fix, in advance, a record date, which shall not be more than 60
days before any such action, and in such case only shareholders of record on
the date so fixed are entitled to receive such dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after the record date so fixed, except as otherwise provided in the
California General Corporation Law.
If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the applicable resolution or
the sixtieth day before the date of such action, whichever is later.
SECTION 2. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS
---------- ----------------------------------------
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness issued in the name of or payable to the Corporation
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of
Directors.
Page 22
<PAGE>
SECTION 3. EXECUTION OF CORPORATE CONTRACTS
---------- --------------------------------
AND INSTRUMENTS
--------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer, officers, agent or agents to enter into any
contract or execute any instrument in the name of and for the Corporation;
such authority may be general or confined to specific instances; and, unless
so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or in any amount.
SECTION 4. CERTIFICATES FOR SHARES
---------- -----------------------
A certificate or certificates for shares of the capital stock of the
Corporation shall be issued to each shareholder when any of such shares are
fully paid; the Board of Directors may authorize the issuance of certificates
or shares as partly paid, provided that such certificates shall state the
amounts of the consideration paid and owing. All certificates shall be signed
in the name of Corporation by the Chairman of the Board or Vice-Chairman of
the Board or the President or Vice-President and by the Chief Financial
Officer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed on, 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 such person were an officer, transfer agent or registrar at the
date of issue.
SECTION 5. LOST CERTIFICATES
---------- -----------------
Except as provided in this Section 5, no new certificate for shares
shall be issued to replace an old certificate unless the latter is surrendered
to the Corporation and cancelled at the same time. The Board of Directors
may, in case any share certificate or certificate for any other security is
lost, stolen or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board may require, including
a provision for indemnification of the Corporation secured by a bond or other
adequate security sufficient to protect the
Page 23
<PAGE>
Corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
SECTION 6. REPRESENTATION OF SHARES OF OTHER
---------- ---------------------------------
CORPORATIONS
---------------------------------
The Chairman of the Board, the President, any Vice-President or any
person authorized either by the Board of Directors or by any of the foregoing
designated officers is authorized to vote on behalf of the Corporation any
and all shares of any other corporation or corporations standing in the name
of the Corporation. The authority granted to such officers to vote or
represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised by any
of such officers in person or by any person authorized to do so by proxy duly
executed by such officers.
SECTION 7. CONSTRUCTION AND DEFINITIONS
---------- ----------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the California General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, any indication of gender includes both genders and the
term "person" includes a corporation, a natural person, an association and a
partnership.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENT BY SHAREHOLDERS
---------- -------------------------
New bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the Articles of
Incorporation set forth the number of authorized directors of the
Corporation, the authorized number of directors may be changed only by an
amendment of such Articles of Incorporation.
Page 24
<PAGE>
SECTION 2. AMENDMENT BY DIRECTORS
---------- ----------------------
Subject to the rights of the shareholders as provided in Section 1 of
this Article IX, bylaws, other than a bylaw or an amendment of bylaw changing
the authorized number of directors, may be adopted, amended or repealed by
the Board of Directors.
CERTIFICATE OF SECRETARY
I DO HEREBY CERTIFY AS FOLLOWS:
That I am the duly elected, qualified and acting Secretary of Penhall
International, Inc., that the foregoing By-Laws were adopted as the By-Laws
of said Corporation on the date set forth above by the person named in the
Articles of Incorporation as the Incorporator of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal this 5th day of May, 1988.
/s/ Charles D. Steichen
-------------------------------------
Secretary
Page 25
<PAGE>
Exhibit 3.5
ARTICLES OF INCORPORATION
OF
PENHALL COMPANY
I
The name of this corporation is Penhall Company.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
III
The name and address in the State of California of this corporation's
initial agent for service of process is:
Charles D. Steichen
Vice President and Secretary
c/o Penhall International, Inc.
1801 Penhall Way
Anaheim, CA 92801
IV
The corporation is authorized to issue only one class of shares, which
shall be designated "common" shares. The total number of such shares that
this corporation is authorized to issue is 1,000,000.
V
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI
The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) whether by bylaw,
agreement, vote of shareholders or disinterested
<PAGE>
directors, or otherwise, in excess of the indemnification expressly permitted
by Section 317 of the Corporations Code for breach of duty to the corporation
and its shareholders, subject only to the applicable limits on such
indemnification set forth in Section 204(a)(11) of the Corporations Code.
DATED: April 20, 1989 /s/ Michael Futch
--------------------------------
Michael Futch, Esq., Incorporator
I hereby declare that I am the person who executed the foregoing
Articles of Incorporation, which execution is my act and deed.
/s/ Michael Futch
-------------------------------
Michael Futch, Esq., Incorporator
2
<PAGE>
Exhibit 3.6
BYLAWS
OF
PENHALL COMPANY
ARTICLE I OFFICES
Section 1 Principal Offices........................... 1
Section 2 Other Offices............................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS
Section 1 Place of Meetings........................... 1
Section 2 Annual Meeting.............................. 1
Section 3 Special Meetings............................ 2
Section 4 Notice of Meetings of Shareholders.......... 2
Section 5 Manner of Giving Notice; Affidavit of
Notice...................................... 3
Section 6 Quorum...................................... 4
Section 7 Adjourned Meeting; Notice................... 4
Section 8 Voting...................................... 4
Section 9 Waiver of Notice or Consent by Absent
Shareholders................................ 5
Section 10 Shareholder Action by Written Consent
Without a Meeting........................... 6
Section 11 Record Date for Shareholder Notice,
Voting and Giving Consents.................. 7
Section 12 Proxies..................................... 8
Section 13 Inspectors of Election...................... 8
ARTICLE III DIRECTORS
Section 1 Powers...................................... 9
Section 2 Number and Qualification of Directors....... 9
Section 3 Election and Term of Office of Directors.... 10
Section 4 Vacancies................................... 10
Section 5 Place of Meetings and Meetings by Telephone. 11
Section 6 Regular Meetings............................ 11
Section 7 Special Meetings............................ 11
Section 8 Quorum...................................... 12
Section 9 Waiver of Notice............................ 12
Section 10 Adjournment................................. 12
Section 11 Notice of Adjournment....................... 12
Section 12 Action Without Meeting...................... 13
Section 13 Fees and Compensation of Directors.......... 13
i
<PAGE>
ARTICLE IV COMMITTEES
Section 1 Committees of Directors..................... 13
Section 2 Meetings and Action of Committees........... 14
ARTICLES V OFFICERS
Section 1 Officers.................................... 14
Section 2 Election of Officers........................ 15
Section 3 Subordinate Officers........................ 15
Section 4 Removal and Resignation of Officers......... 15
Section 5 Vacancies in Offices........................ 15
Section 6 Chairman of the Board....................... 16
Section 7 President................................... 16
Section 8 Vice-Presidents............................. 16
Section 9 Secretary................................... 16
Section 10 Treasurer and Chief Financial Officer....... 17
ARTICLE VI INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS........ 18
ARTICLE VII RECORDS AND REPORTS
Section 1 Maintenance and Inspection of Share
Register.................................... 18
Section 2 Maintenance and Inspection of Bylaws........ 19
Section 3 Maintenance and Inspection of Other
Corporate Records........................... 19
Section 4 Inspection by Directors..................... 20
Section 5 Annual Report to Shareholders............... 20
Section 6 Financial Statements........................ 20
Section 7 Annual Statement of General Information..... 21
ARTICLE VIII GENERAL CORPORATE MATTERS
Section 1 Record Date for Purposes Other Than
Notice and Voting........................... 22
Section 2 Checks, Drafts, Evidence of Indebtedness.... 22
Section 3 Execution of Corporate Contracts and
Instruments................................. 22
Section 4 Certificates for Shares..................... 23
Section 5 Lost Certificates........................... 23
Section 6 Representation of Shares of Other
Corporations................................ 23
Section 7 Construction and Definitions................ 24
ii
<PAGE>
ARTICLE IX AMENDMENTS
Section 1 Amendment by Shareholders................... 24
Section 2 Amendment by Directors...................... 24
CERTIFICATE OF SECRETARY.................................... 25
iii
<PAGE>
BYLAWS
OF
PENHALL COMPANY
ARTICLE I
Section 1. Principal Offices
---------- -----------------
The Board of Directors shall fix the location of the principal executive
office of the Corporation at any place within or outside the State of
California. If the principal executive office is located outside the State of
California and the Corporation has one or more business offices in the State
of California, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 2. Other Offices
---------- -------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places it may choose from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings
---------- -----------------
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence
of any such designation, meetings of shareholders shall be held at the
principal executive office of the Corporation.
Section 2. Annual Meeting
---------- --------------
The annual meeting of shareholders shell be held on September 30 at
11:00 a.m., or at such other date and time as the Board of Directors may
determine. However, if this day falls on a legal holiday, the meeting shall
be held at the same time and place on the next succeeding full business day.
The annual meeting shall be held at the Corporation's
Page 1
<PAGE>
principal offices or at any other location as may be determined
by the Board of Directors. At each annual meeting, directors shall
be elected and any other proper business may be transacted.
Section 3. Special Meetings
---------- ----------------
A special meeting of the shareholders may be called at any time by the
Board of Directors, the Chairman of the Board of Directors, the President, or
one or more shareholders holding shares in the aggregate entitled to cast not
less than 10% of the votes at such meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the Chairman of the Board
of Directors, the President, any Vice-President or the Secretary of the
Corporation. The officer receiving the request shall promptly cause notice to
be given to the shareholders entitled to vote, in accordance with the
provisions of Section 4 and 5 of this Article II, that a meeting will be held
at the time requested by the person or persons calling the meeting, not fewer
than 35 days or more than 60 days after the receipt of the request, the
person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 3 shall be construed, fixing or
affecting the time when a meeting of shareholders called by action of the
Board of Directors may be held.
Section 4. Notice of Meetings of Shareholders
---------- ----------------------------------
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 5 of this Article II not less than 10 days
or more than 60 days before the date of the meeting. Such notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted, or (ii)
in the case of annual meeting, those matters that the Board of Directors, at
the time of giving the notice, intends to present for action by the
shareholders. The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees whom, at the time of the
notice, management intends to present for election.
Page 2
<PAGE>
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect
financial interest, pursuant to section 310 of the Corporation Code of
California, (ii) and amendment of the Articles of Incorporation, pursuant to
Section 902 of such Code, (iii) a reorganization, of the Corporation,
pursuant to section 1201 of such Code, (iv) an voluntary dissolution of the
Corporation, pursuant to section 1900 of such Code, or (v) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of such Code, the notice shall also state
the general nature of such proposal.
Section 5. Manner of Giving Notice;
---------- ------------------------
Affidavit of Notice
-------------------
Notice of any meeting of shareholders shall be given either personally
or by first-class mail or telegraphic or other written communication, charges
prepaid, addressed to each shareholder at the address of such shareholder
appearing on the books of the Corporation or given by the shareholder to the
Corporation for the purpose of notice. If no such address appears on the
books of the Corporation or is given, notice shall be deemed to have been
given if sent to a shareholder by first-class mail or telegraphic or other
written communication to the Corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where such office is located. Notice shall be deemed to have been given at
the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such
shareholder, appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service is unable to deliver such
notice to such shareholder at such address, each future notice and report
shall be deemed to have been duly given without further mailing if it shall
be available to the shareholder on written demand by the shareholder at the
principal executive office of the Corporation for a period of one year from
the date of the giving of such notice or report.
An affidavit of the mailing or other means of giving any notice of any
meeting of shareholders shall be executed by the Secretary, Assistant
Secretary or any transfer agent
Page 3
<PAGE>
of the Corporation giving the notice and shall be filed and maintained in the
minutes book of the Corporation.
Section 6. Quorum
---------- ------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote at a meeting of shareholders shall constitute a
quorum for the transaction of business at such meeting. The shareholders in
attendance at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less that a quorum, of any action taken (other
that adjournment) is approved by at least a majority of the shares required
to constitute a quorum.
Section 7. Adjourned Meeting; Notice
---------- -------------------------
Any meeting of shareholders, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at such meeting, either in person of by proxy; but in
the absence of a quorum, no other business may be transacted at such meeting,
except as provided in Section 6 of the Article II.
When any meeting of shareholders, annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed or unless
the adjournment is for more than 45 days from the date set for the original
meeting, in which case the Board of Directors shall set a new record date.
Notice of any such adjourned meeting shall be given to each shareholder of the
provisions of Section 4 and 5 of this Article II. At any adjourned meeting,
the Corporation may transact any business that might have been transacted at
the original meeting.
Section 8. Voting
---------- ------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 11 of this Article
II, subject to the provisions of Section 702 to 704, inclusive, of the
Corporation Code of California (relating to voting shares held by a fiduciary
or in joint ownership). The shareholder's vote may be by voice vote or ballot;
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provided, however, that any election of directors must be by ballot if
demanded by any shareholder before the voting has begun. On any matter other
than the election of directors, any shareholder may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or vote
them against the proposal; but if a shareholder fails to specify the number
of shares such shareholder is voting affirmatively, it shall be presumed
conclusively that such shareholder's approving vote is with respect to all
shares that such shareholder is entitled to vote. Except as provided in
Section 6 of this Article II, the affirmative vote of a majority of the
shares represented and voting at a duly held meeting at which a quorum is
present (which shares required quorum) shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required by
California General Corporation Law or the Articles of Incorporation.
At a meeting of shareholders at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or
more candidates a number of votes greater than the number of such
shareholder's shares) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of such shareholder's intention to
cumulate votes. If any shareholder has given notice, every shareholder
entitled to vote may cumulate votes for candidates in the number of directors
to be elected multiplied by the number of votes to which such shareholder's
shares are entitled or distribute such shareholder's votes on the same
principle among any or all of the candidates as the shareholder thinks fit.
The candidates receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
Section 9. Waiver of Notice of Consent by Absent Shareholders
- ---------- --------------------------------------------------
the transactions of any meeting of shareholders, annual or special,
however called and noticed and whereever held, shall be as valid as though
they had occurred at a meeting duly held after regular call and notice, if a
quorum is present either in person or by proxy, and if, either before or
after such meeting, each person entitled to vote who was not present in
person or by proxy signs a written waiver of notice or a consent to a holding
of such meeting or an approval of the minutes thereof. Such waiver of notice
or consent need not specify either the business to be
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transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article
II, the waiver of notice or consent shall state the general nature of the
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of such meeting, except that when the person objects at the beginning
thereat because such meeting is not lawfully called or convened, and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of such meeting if an
objection is expressly made at such meeting.
Section 10. Shareholder Action by Written Consent Without A Meeting
- ----------- -------------------------------------------------------
Any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present and noted. In
the case of the election of directors, such a consent shall be effective only
if signed by the holders of a majority of the outstanding shares entitled to
vote for the election of directors; provided, however, that by the written
consent of the holders of a majority of the outstanding shares entitled to
vote for the election of directors, a director may be elected at any time to
fill a vacancy on the Board of Directors that has not been filled by the
directors. All such consents shall be filed with the Secretary of the
Corporation and shall be maintained in the corporate records. Any shareholder
giving a written consent or the shareholder's proxy holders or a transferee
of the shares or a personal representative of the shareholder or their
respective proxy holders may revoke the consent by a writing received by the
Secretary of the Corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all
shareholders has not been received,
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the Secretary shall give prompt notice of the corporate action approved by
the shareholders without a meeting. Such notice shall be given in the manner
specified in Section 5 of this Article II. In the case of approval of (i)
contracts or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporation Code of
California, (ii) indemnification of agents of the Corporation, pursuant to
Section 317 of such Code, (iii) a reorganization of the Corporation, pursuant
to Section 1201 of such Code, and (iv) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant
to Section 2007 of such Code, such notice shall be given at least ten days
before the consummation of any action authorized by such approval.
Section 11. Record Date of Shareholder Notice, Voting and Giving Consents
- ----------- -------------------------------------------------------------
For purposes of determining the shareholders entitled to receive notice of
any meeting or to give consent to corporate action without a meeting, the
Board of Directors may fix in advance a record date, which shall not be more
than 60 days or less than 10 days before the date of any such meeting nor
more than 60 days before any such action without a meeting. In this event,
only shareholders of record on the date so fixed are entitled to receive
notice and to vote or to give consents, as the case may be, notwithstanding
any transfer of any shares on the books of the Corporation after the record
date, except as otherwise provided in the California General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to receive
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the business day next
preceding the date on which the meeting is held; or
(b) The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior action by
the Board of Directors has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the Board has been
taken, shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to that action or at the close of
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business on the sixtieth day before the date of such other action, whichever
is later.
Section 12. Proxies
- ----------- -------
Every person entitled to vote for directors or on any other matter shall
have the right to do so either in person or by one or more agents authorized
by a written proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy that does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it, before the vote pursuant to such proxy, by a writing
delivered to the Corporation stating that such proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in
person by, the person executing such proxy; or (ii) written notice of the
death or incapacity of the maker of such proxy is received by the Corporation
before the vote pursuant to such proxy is counted; provided, however, that no
proxy shall be valid after the expiration of eleven months from the date of
the proxy unless otherwise provided in the proxy. The revocability of a proxy
that states on its face that is is irrevocable shall be governed by Section
705(e) and 705(f) of the Corporations Code of California.
Section 13. Inspectors of Election
- ----------- ----------------------
Before any meeting of shareholders, the Board of Directors may appoint any
persons other than nominees for office to act as inspectors of election at
the meeting or its adjournment. If no inspectors of election are so
appointed, the chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election at
the meeting. The number of such inspectors shall be either one or three. If
such inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails
or refuses to act, the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
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Such inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. Powers
---------- ------
Subject to the provisions of the California General Corporation Law and
any limitations in the Articles of Incorporation and these Bylaws relating to
action required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
Section 2. Number and qualification of Directors
---------- -------------------------------------
The authorized number of directors of the Corporation shall be three (3)
until changed by a duly adopted amendment to the Articles of Incorporation or
by an amendment to these Bylaws approved by the shareholders' provided,
however, that an amendment reducing the fixed number of directors to a number
less than three cannot be adopted if the votes cast against its adoption at a
meeting of the shareholder, or the shares not consenting in the case of
action by written consent, are equal to more than 16-2/3 percent of the
outstanding share entitled to vote.
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Section 3. Election and Term of Office of Directors
---------- ----------------------------------------
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and
qualified.
Section 4. Vacancies
---------- ---------
Vacancies on the Board of Directors may be filled by approval of the
Board or, if the number of directors then in office is less than a quorum, by
(1) the unanimous written consent of directors then in office, (2) the
affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice complying with Section 307 of
the Corporation Code, or (3) a sole remaining director; except that a vacancy
created by the removal a director by the vote or written consent of the
shareholders or by court order may be filled only by the vote of a majority of
the shares entitled to vote represented at a duly held meeting at which a
quorum is present, or by the written consent of holders of a majority of the
outstanding shares entitled to vote. Each director so elected shall hold
office until the next annual meeting of shareholders and until a successor
has been elected and qualified.
A vacancy or vacancies on the Board of Directors shall be deemed to
exist in the event of the death, resignation or removal of any director, or
if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or
who has been convicted of a felony, or if the authorized number of directors
is increased, or if the shareholders fail, at any meeting of shareholders at
which any director or directors are elected, to elect the number of directors
to be elected at such meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
by written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
Chairman of the Board of Directors, the President, the Secretary or the Board
of Directors, unless the notice specifies a later time for that resignation
to become effective. If the resignation of a director is effective at a later
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
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No reduction of the authorized number of directors shall have the effect
of removing any director before the expiration of such director's term of
office.
Section 5. Place of Meetings and Meeting By Telephone
---------- ------------------------------------------
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time
to time by resolution of the Board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
Corporation. Special meetings of the Board shall be held at any place within
or outside the State of California that has been designated in the notice of
the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the Corporation. Any meeting, regular or
special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in the meeting can hear one
another, and all such directors shall be deemed to be present in person at
the meeting.
Section 6. Regular Meetings
---------- ----------------
Regular meetings of the Board of Directors shall be held without call at
such time as shall from time to time be fixed by the Board of Directors. Such
regular meetings may be held without notice.
Section 7. Special Meetings
---------- ----------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the Chairman of the Board of Directors, the
president, any Vice-President, the Secretary or any two directors.
Notice of the time and place of such special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at such director's
address as is shown on the records of the Corporation. In case such notice is
mailed, it shall be deposited in the United States mail at least four days
before the time of the holding of such meeting. In case such notice is
delivered personally, or by telephone or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least 48 hours
before the time of the holding of such meeting. Any oral notice given
personally or by
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telephone may be communicated either to the director or to a person at the
office of the director whom the person giving such notice has reason to
believe will promptly communicate it to such director. The notice need not
specify the purpose of the meeting or the place if the meeting is to be held
at the principal executive office of the Corporation.
Section 8. Quorum
---------- ------
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 10 of this Article III. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the Corporation Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of such Code (as to
appointment of committees) and Section 317(e) of such Code (as to
indemnification of directors). A meeting at which a quorum initially is
present may continue to transact business notwithstanding the withdrawal of
directors, provided any action taken is approved by at least a majority of
the required quorum for such meeting.
Section 9. Waiver of Notice
---------- ----------------
The transactions of any meeting of the Board of Directors, however
called and noticed, and wherever held, shall be as valid as though they had
occurred at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after such meeting, each of the directors
not present signs a written waiver of notice, a consent to hold such meeting
or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of such meeting. All such waivers, consent and approvals
shall also be deemed given to any director who attends the meeting without
protesting, before or at its commencement, the lack of notice to such
director.
Section 10. Adjournment
----------- -----------
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
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Section 11. Notice of Adjournment
----------- ---------------------
Notice of the time and place of holding an adjourned meeting need
not be given, unless the meeting is adjourned for more than 24 hours, in
which case notice of the time and place shall be given before the time of the
adjourned meeting in the manner specified in Section 7 of this Article III to
the directors who were not present at the time and the adjournment.
Section 12. Action Without Meeting
----------- ----------------------
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting if all members of the Board shall individually
or collectively consent in writing to such action. Such action by written
consent shall have the same force and effect as a unanimous vote of the Board
of Directors. Such written consent or consents shall be filled with the
minutes of the proceedings of the Board of Directors.
Section 13. Fees and Compensation of Directors
----------- ----------------------------------
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 13 shall
not be construed to preclude any director from serving the Corporation in any
other capacity as an officer, agent, employee or otherwise, and receiving
compensation for such service.
ARTICLE IV
COMMITTEES
Section 1. Committees of Directors
---------- -----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of any
such committee, who may replace any absent member at any meeting of such
committee. Any committee, to the extent provided in such a resolution of the
Board, shall have all the authority of the Board, except with respect to:
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(a) The approval of any action that, under the California General
Corporation law, also requires shareholders' approval or approval of the
outstanding shares;
(b) The filling of vacancies of the Board of Directors or in any
committee;
(c) The fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the Board of Directors
that by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the Corporation, except at a
rate or in a periodic amount or within a price range determined by the Board
of Directors; and
(g) The appointment of any other committees of the Board of Directors
or the members of such committees.
Section 2. Meetings and Action of Committees
---------- ---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provision of Sections 5 (place of meetings), 6
(regular meetings), 7 (special meetings), 8 (quorum), 9 (waiver of notice), 10
(adjournment), 11 (notice of adjournment), and 12 (action without meeting) of
Article III, with such changes in the context of such Bylaws as are necessary
to substitute the committee and its members for the Board of Directors and
its members, except that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee; special meetings of committees also may be called by
resolution of the Board of Directors; and notice of special meetings of
committees also shall be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may
adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
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ARTICLE V
OFFICERS
Section 1. Officers
---------- --------
The officers of the Corporation shall include a President, a Secretary,
and a Treasurer and Chief Financial Officer. The Corporation may also have,
at the discretion of the Board of Directors, a Chairman of the Board, one or
more Vice-Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article V. Any number of offices
may be held by the same person.
Section 2. Election of Officers
---------- --------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article V, shall be chosen by the Board of Directors, and each shall serve at
the pleasure of the Board, subject to the rights, if any, of any officer
under contract of employment.
Section 3. Subordinate Officers
---------- --------------------
The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the Corporation may require,
each of whom shall hold office for such period, have such authority and
perform such duties as are provided in the Bylaws or as the Board of
Directors may from time to time determine.
Section 4. Removal and Resignation of Officers
---------- -----------------------------------
The Board of Directors may appoint, and may subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors at any
regular or special meeting of the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
such notice or at any later time specified in such notice, the acceptance of
such resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any,
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of the Corporation under any contract to which the resigning officer is a
party.
Section 5. Vacancies in Offices
---------- --------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board
---------- --------------------
The Chairman of the Board of Directors, if such an officer be chosen,
shall, if present, preside at meetings of the Board of Directors and exercise
and perform such other powers and duties as from time to time may be assigned
to him by the Board of Directors or prescribed by these Bylaws. If there is
no President, the Chairman of the Board of Directors shall in addition be
the Chief Executive Officer of the Corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. President
---------- ---------
Subject to such supervisor powers, if any, as may be given by the Board
of Directors to the Chairman of the Board of Directors, if there is such an
officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers
of the Corporation. He shall preside at all meetings of the shareholders
and, in the absence of the Chairmen of the Board or, if there is none, at all
meetings of the Board of Directors. He shall have the general powers and
duties of management usually vested in the office of President of a
Corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 8. Vice-President
---------- --------------
In the absence or disability of the President, the Vice-Presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice-President designated by the Board of Directors, shall perform
all the duties of the President and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The
Vice-Presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them by the Board of Directors, the
Chairman of the Board, the President or these Bylaws.
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Section 9. Secretary
---------- ---------
The Secretary shall keep or cause to be kept, at the principal executive
office or such other place as the Board of Directors may direct, a book of
minutes of all meetings and actions or directors, committees of directors and
shareholders, with the time and place of holding, whether regular or special
and, if special, how authorized, the notice given, the names of those present
at Board meetings or committee meetings, the number of shares present or
represented at meetings of shareholders and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register or a duplicate share register showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of shareholders and of the Board of Directors required by these Bylaws or by
law to be given, and he shall keep in safe custody the seal of the
Corporation, if one is adopted, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors of these
Bylaws.
Section 10. Treasurer and Chief Financial Officer
----------- -------------------------------------
The Treasurer and Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books of account
shall at all reasonable times be open to inspection by any director.
The Treasurer and Chief Financial Officer shall deposit all money and
other valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and Directors,
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whenever they request it, an account of all his transactions as Treasurer and
Chief Financial Officer and of the financial condition of the Corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
The Corporation shall, to the maximum extent permitted by the California
General Corporation Law, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was an agent of the Corporation. For purposes of this
Article VI, an "agent" of the Corporation includes any person who is or was a
director, officer, employee or other 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; or was a director, officer, employee or agent of a predecessor
corporation of the Corporation or of another enterprise at the request of
such predecessor corporation.
The indemnification provided by, or granted pursuant to, this Article VI
shall not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any Bylaws,
agreement vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office. No provision of these Bylaws shall limit or
prohibit indemnification by the Corporation to the fullest extent by
California law.
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ARTICLE VII
RECORDS AND REPORTS
Section 1. Maintenance and Inspection of Share Register
---------- --------------------------------------------
The Corporation shall keep at its principal executive office or at the
office of its transfer agent or registrar, if either be designated and as
determined by resolution of the Board of Directors, a record of its
shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each shareholder.
A shareholder or shareholders of the Corporation holding at least 5% in
the aggregate of the outstanding voting shares of the Corporation may (i)
inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours, on five days' prior written demand
on the Corporation, and (ii) obtain from the transfer agent of the
Corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which such list
has been compiled or as of a date specified by such shareholder or
shareholders after the date of demand. Such list shall be made available to
any such shareholder by the transfer agent on or before the later of five
days after the demand date as of which such list is to be compiled. The
record of shareholders shall also be open to inspection on the trust
certificate, at any time during usual business interests as a shareholder or
as the holder of a voting trust certificate. Any inspection and copying under
this Section 1 may be made in person or by an agent or attorney of the
shareholder or a holder of a voting trust certificate making the demand.
Section 2. Maintenance and Inspection of Bylaws
---------- ------------------------------------
The Corporation shall keep at its principal executive office or if its
principal executive office is not in the State of California, at its
principal business office in the State of California, the original or a copy
of these Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Page 19
<PAGE>
If the principal executive office of the Corporation is outside the State of
California and the Corporation has no principal business office in the State
of California, the Secretary shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.
Section 3. Maintenance and Inspection of Other Corporate Records
---------- -----------------------------------------------------
The accounting books and records and minutes of proceedings of the
shareholders and the Board of Directors and any committee or committees of the
Board of Directors shall be kept at such place or places as may be designated
by the Board of Directors or, in the absence of such designation, at the
principal executive office of the Corporation. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written
form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as a
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make
extracts. The rights of inspection set forth in this Section 3 shall extend
to the equivalent records of each subsidiary corporation of the Corporation.
Section 4. Inspection by Directors
---------- -----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and the physical
properties of the Corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney,
and the right of inspection includes the right to copy and make extracts of
all documents.
Section 5. Annual Report to Shareholders
---------- -----------------------------
The annual report to shareholders referred to in Section 1501 of the
California General Corporation Law is expressly dispensed with, but nothing
herein shall be interpreted as prohibiting the Board of Directors from
issuing annual or other periodic reports to the shareholders of the
Corporation as they consider appropriate.
Page 20
<PAGE>
Section 6. Financial Statements
---------- ---------------------
A copy of any annual financial statement and any income statement of the
Corporation for each quarterly period of each fiscal year, and any
accompanying balance sheet of the Corporation as of the end of each such
period, that has been prepared by the Corporation shall be kept on file in
the principal executive office of the Corporation for twelve months, and each
such statement shall be exhibited at all reasonable times to any shareholder
demanding an examination of any such statement or a copy shall be mailed to
any such shareholder.
If a shareholder or shareholders holding at least 5% of the outstanding
shares of any class of stock of the Corporation makes a written request to
the Corporation for an income statement of the Corporation for the
three-month, six-month or nine-month period of the then-current fiscal year
ending more than 30 days before the date of the request and the balance sheet
of the Corporation as of the end of such period, the Chief Financial Officer
shall cause such statement to be prepared, and shall deliver personally or
mail such statement to the person making such request within 30 days after
the receipt of such request. If the Corporation has not sent to the
shareholders its annual report for the last fiscal year, this report shall
likewise be delivered or mailed to the shareholder or shareholders within 30
days after such request.
The Corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semiannual or quarterly
income statement that it has prepared and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
Section 6 shall be accompanied by the report, if any, of any independent
accountants engaged by the Corporation or the certificate of an authorized
officer of the Corporation that the financial statements were prepared
without audit from the books and records of the Corporation.
Section 7. Annual Statement of General Information
---------- ---------------------------------------
The Corporation shall, within the statutorily required time period, file
with the Secretary of State of the State of California, on the prescribed
form, a statement setting forth the authorized number of directors, the names
and complete business or residence addresses of all incumbent directors, the
names and complete business or resident
Page 21
<PAGE>
addresses of the Chief Executive Officer, Secretary and Chief Financial
Officer, the street address of its principal executive office or principal
business office in this state and the general type of business constituting
the principal business activity of the Corporation, and a designation of the
agent of the Corporation for the purpose of service of process, all in
compliance with Section 1502 of the Corporations Code of California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. Record Date for Purposes Other Than Notice and Voting
---------- -----------------------------------------------------
For purposes of determining the shareholders entitled to receive any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights with respect to any other lawful action (other than
action by shareholders by written consent without a meeting), the Board of
Directors may fix, in advance, a record date, which shall not be more than 60
days before any such action, and in such case only shareholders of record on
the date so fixed are entitled to receive such dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after the record date so fixed, except as otherwise provided in the
California General Corporation Law.
If the Board of Directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the applicable resolution or
the sixtieth day before the date of such action, whichever is later.
Section 2. Checks, Drafts, Evidence of Indebtedness
---------- ----------------------------------------
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness issued in the name of or payable to the Corporation
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of
Directors.
Page 22
<PAGE>
Section 3. Execution of Corporate Contracts and Instruments
---------- ------------------------------------------------
The Board of Directors, except as other wise provided in these Bylaws,
may authorize any officer, officers, agent or agents to enter into any
contract or execute any instrument in the name of and for the Corporation;
such authority may be general or confined to specific instances; and, unless
so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or in any amount.
Section 4. Certificates for Shares
---------- -----------------------
A certificate or certificates for shares of the capital stock of the
Corporation shall be issued to each shareholder when any of such shares are
fully paid; the Board of Directors may authorize the issuance of certificates
or shares as partly paid, provided that such certificates shall state the
amounts of the consideration paid and owing. All certificates shall be signed
in the name of Corporation by the Chairman of the Board or Vice-Chairman of
the Board or the President or Vice-President and by the Chief Financial
Officer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may
be facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed on, 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 such person were an officer, transfer agent or registrar at the
date of issue.
Section 5. Lost Certificates
---------- -----------------
Except as provided in this Section 5, no new certificate for shares
shall be issued to replace an old certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Board of
Directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the Board may
require, including a provision for indemnification of the Corporation secured
by a bond or other adequate security sufficient to protect the
Page 23
<PAGE>
Corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
Section 6. Representation of Shares of Other Corporations
---------- ----------------------------------------------
The Chairman of the Board, the President, any vice-President or any
person authorized either by the Board of Directors or by any of the foregoing
designated officers is authorized to vote on behalf of the Corporation any
and all shares of any other corporation or corporations standing in the name
of the Corporation. The authority granted to such officers to vote or
represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised by any
of such officers in person or by any person authorized to do so by proxy duly
executed by such officers.
Section 7. Construction and Definitions
---------- ----------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the California General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, any indication of gender includes both genders and the
term "person" includes a corporation, a natural person, an association and a
partnership.
ARTICLE IX
AMENDMENTS
Section 1. Amendment by Shareholders
---------- -------------------------
New bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the Articles of
Incorporation set forth the number of authorized directors of the
Corporation, the authorized number of directors may be changed only by an
amendment of such Articles of Incorporation.
Page 24
<PAGE>
Section 2. Amendment by Directors
---------- ----------------------
Subject to the rights of the shareholders as provided in Section 1 of
this Article IX, bylaws, other than a bylaw or an amendment of a bylaw
changing the authorized number of directors, may be adopted, amended or
repealed by the Board of Directors.
CERTIFICATE OF SECRETARY
I DO HEREBY CERTIFY AS FOLLOWS:
That I am the duly elected, qualified and acting Secretary of Penhall
Company, that the foregoing By-Laws were adopted as the By-Laws of said
corporation on the date set forth above ay the person named in the Articles
of Incorporation as the Incorporator of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal this 27th day of April, 1989.
/s/ Tai Chen
------------
Secretary
Page 25
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PENHALL ACQUISITION CORP.
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
----------------
INDENTURE
Dated as of August 1, 1998
----------------
up to $150,000,000
12% Senior Notes due 2006, Series A
12% Senior Notes due 2006, Series B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C> <C>
310(a)(1)............................................................................ 7.10
(a)(2)......................................................................... 7.10
(a)(3)......................................................................... N.A.
(a)(4)......................................................................... N.A.
(a)(5)......................................................................... 7.10
(b)............................................................................ 7.08; 7.10;
11.02
(c)............................................................................ N.A.
311(a)............................................................................... 7.11
(b)............................................................................ 7.11
(c)............................................................................ N.A.
312(a)............................................................................... 2.05
(b)............................................................................ 11.03
(c)............................................................................ 11.03
313(a)............................................................................... 7.06
(b)(1)......................................................................... N.A.
(b)(2)......................................................................... 7.06
(c)............................................................................ 7.06; 11.02
(d)............................................................................ 7.06
314(a)............................................................................... 4.06; 4.08;
11.02
(b)............................................................................ N.A.
(c)(1)......................................................................... 11.04
(c)(2)......................................................................... 11.04
(c)(3)......................................................................... N.A.
(d)............................................................................ N.A.
(e)............................................................................ 11.05
(f)............................................................................ N.A.
315(a)............................................................................... 7.01(b)
(b)............................................................................ 7.05; 11.02
(c)............................................................................ 7.01(a)
(d)............................................................................ 7.01(c)
(e)............................................................................ 6.11
316(a)(last sentence)................................................................ 2.09
(a)(1)(A)...................................................................... 6.05
(a)(1)(B)...................................................................... 6.04
(a)(2)......................................................................... N.A.
(b)............................................................................ 6.07
(c)............................................................................ 9.04
317(a)(1)............................................................................ 6.08
(a)(2)......................................................................... 6.09
(b)............................................................................ 2.04
318(a)............................................................................... 11.01
(c)............................................................................ 11.01
</TABLE>
N.A. means Not Applicable.
- -----------------
<PAGE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions............................................................1
SECTION 1.02. Incorporation by Reference of TIA.....................................28
SECTION 1.03. Rules of Construction.................................................29
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.......................................................29
SECTION 2.02. Execution and Authentication;
Aggregate Principal Amount. ......................................30
SECTION 2.03. Registrar and Paying Agent............................................32
SECTION 2.04. Paying Agent To Hold Assets in Trust..................................33
SECTION 2.05. Holder Lists..........................................................33
SECTION 2.06. Transfer and Exchange.................................................33
SECTION 2.07. Replacement Notes.....................................................34
SECTION 2.08. Outstanding Notes.....................................................35
SECTION 2.09. Treasury Notes........................................................35
SECTION 2.10. Temporary Notes.......................................................35
SECTION 2.11. Cancellation..........................................................36
SECTION 2.12. Defaulted Interest....................................................36
SECTION 2.13. CUSIP Numbers.........................................................37
SECTION 2.14. Deposit of Monies.....................................................37
SECTION 2.15. Restrictive Legends...................................................38
SECTION 2.16. Book-Entry Provisions
for Global Notes. .................................................40
SECTION 2.17. Special Transfer Provisions...........................................41
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee....................................................44
SECTION 3.02. Selection of Notes To Be Redeemed.....................................44
SECTION 3.03. Optional Redemption...................................................45
SECTION 3.04. Notice of Redemption..................................................46
</TABLE>
- -----------------
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.05. Effect of Notice of Redemption........................................47
SECTION 3.06. Deposit of Redemption Price...........................................47
SECTION 3.07. Notes Redeemed in Part................................................48
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes......................................................48
SECTION 4.02. Maintenance of Office or Agency.......................................48
SECTION 4.03. Corporate Existence...................................................49
SECTION 4.04. Payment of Taxes and Other Claims.....................................49
SECTION 4.05. Maintenance of Properties
and Insurance......................................................49
SECTION 4.06. Compliance Certificate;
Notice of Default..................................................50
SECTION 4.07. Compliance with Laws..................................................51
SECTION 4.08. Reports to Holders....................................................51
SECTION 4.09. Waiver of Stay, Extension
or Usury Laws......................................................52
SECTION 4.10. Limitation on Restricted Payments.....................................52
SECTION 4.11. Limitations on Transactions
with Affiliates....................................................55
SECTION 4.12. Limitation on Incurrence
of Additional Indebtedness.........................................56
SECTION 4.13. Limitation on Dividend and
Other Payment Restrictions
Affecting Subsidiaries.............................................57
SECTION 4.14. Change of Control.....................................................58
SECTION 4.15. Limitation on Asset Sales.............................................60
SECTION 4.16. Limitation on Preferred
Stock of Restricted Subsidiaries...................................62
SECTION 4.17. Limitation on Liens...................................................63
SECTION 4.18. Additional Subsidiary Guarantees......................................64
SECTION 4.19. Conduct of Business...................................................64
SECTION 4.20. No Restrictions on Consummation of the Recapitalization...............64
SECTION 4.21. Additional Equity Contributions.......................................64
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation
and Sale of Assets.................................................65
SECTION 5.02. Successor Corporation Substituted.....................................66
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE SIX
REMEDIES
Page
----
<S> <C> <C>
SECTION 6.01. Events of Default.....................................................67
SECTION 6.02. Acceleration..........................................................69
SECTION 6.03. Other Remedies........................................................70
SECTION 6.04. Waiver of Past Defaults...............................................70
SECTION 6.05. Control by Majority...................................................70
SECTION 6.06. Limitation on Suits...................................................71
SECTION 6.07. Right of Holders To Receive Payment...................................71
SECTION 6.08. Collection Suit by Trustee............................................71
SECTION 6.09. Trustee May File Proofs of Claim......................................72
SECTION 6.10. Priorities............................................................72
SECTION 6.11. Undertaking for Costs.................................................73
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.....................................................73
SECTION 7.02. Rights of Trustee.....................................................75
SECTION 7.03. Individual Rights of Trustee..........................................76
SECTION 7.04. Trustee's Disclaimer..................................................76
SECTION 7.05. Notice of Default.....................................................76
SECTION 7.06. Reports by Trustee to Holders.........................................77
SECTION 7.07. Compensation and Indemnity............................................77
SECTION 7.08. Replacement of Trustee................................................78
SECTION 7.09. Successor Trustee by Merger, Etc......................................79
SECTION 7.10. Eligibility; Disqualification.........................................80
SECTION 7.11. Preferential Collection of
Claims Against Company.............................................80
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations..................................80
SECTION 8.02. Application of Trust Money............................................83
SECTION 8.03. Repayment to the Company..............................................83
SECTION 8.04. Reinstatement.........................................................84
SECTION 8.05. Acknowledgment of Discharge
by Trustee.........................................................84
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE NINE
MODIFICATION OF THE INDENTURE
Page
----
<S> <C> <C>
SECTION 9.01. Without Consent of Holders............................................85
SECTION 9.02. With Consent of Holders...............................................85
SECTION 9.03. Compliance with TIA...................................................87
SECTION 9.04. Revocation and Effect of Consents.....................................87
SECTION 9.05. Notation on or Exchange of Notes......................................88
SECTION 9.06. Trustee To Sign Amendments, Etc.......................................88
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Unconditional Guarantee...............................................88
SECTION 10.02. Limitations on Guarantees.............................................90
SECTION 10.03. Execution and Delivery of Guarantee...................................90
SECTION 10.04. Release of Guarantors.................................................91
SECTION 10.05. Waiver of Subrogation.................................................92
SECTION 10.06. Immediate Payment.....................................................92
SECTION 10.07. Obligations Continuing................................................93
SECTION 10.08. Obligations Reinstated................................................93
SECTION 10.09. Obligations Not Affected..............................................93
SECTION 10.10. Waiver................................................................93
SECTION 10.11. No Obligation To Take Action
Against the Company................................................94
SECTION 10.12. Dealing with the Company and Others...................................94
SECTION 10.13. Default and Enforcement...............................................94
SECTION 10.14. Amendment, Etc........................................................95
SECTION 10.15. Acknowledgment........................................................95
SECTION 10.16. Costs and Expenses....................................................95
SECTION 10.17. No Waiver; Cumulative
Remedies...........................................................95
SECTION 10.18. Survival of Obligations...............................................95
SECTION 10.19. Guarantee in Addition to Other
Obligations........................................................96
SECTION 10.20. Severability..........................................................96
SECTION 10.21. Successors and Assigns................................................96
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls..........................................................96
SECTION 11.02. Notices...............................................................97
SECTION 11.03. Communications by Holders
with Other Holders.................................................98
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.04. Certificate and Opinion as
to Conditions Precedent............................................98
SECTION 11.05. Statements Required in
Certificate or Opinion.............................................98
SECTION 11.06. Rules by Trustee, Paying
Agent, Registrar...................................................99
SECTION 11.07. Legal Holidays........................................................99
SECTION 11.08. Governing Law.........................................................99
SECTION 11.09. No Adverse Interpretation
of Other Agreements................................................99
SECTION 11.10. No Personal Liability................................................100
SECTION 11.11. Successors...........................................................100
SECTION 11.12. Duplicate Originals..................................................100
SECTION 11.13. Severability.........................................................100
SECTION 11.14. Independence of Covenants............................................100
</TABLE>
<TABLE>
<S> <C> <C>
Exhibit A - Form of Initial Note..........................................................A-1
Exhibit B - Form of Exchange Note.........................................................B-1
Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to
Non-QIB Accredited Investors..............................................C-1
Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers
Pursuant to Regulation S..................................................D-1
Exhibit E - Form of Guarantee.............................................................E-1
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture
v
<PAGE>
INDENTURE, dated as of August 1, 1998, between PENHALL
ACQUISITION CORP., an Arizona corporation (the "Company"), and UNITED STATES
TRUST COMPANY OF NEW YORK, a New York banking corporation, as Trustee (the
"Trustee").
The Company has duly authorized the creation of an issue of
12% Senior Notes due 2006, Series A, and 12% Senior Notes due 2006, Series B, to
be issued in exchange for the 12% Senior Notes due 2006, Series A, pursuant to a
Registration Rights Agreement (as defined) and, to provide therefor, the Company
has duly authorized the execution and delivery of this Indenture. All things
necessary to make the Notes (as defined), when duly issued and executed by the
Company and authenticated and delivered hereunder, the valid and binding
obligations of the Company and to make this Indenture a valid and binding
agreement of the Company have been done.
Each party hereto agrees as follows for the benefit of the
other parties and for the equal and ratable benefit of the Holders of the
Company's 12% Senior Notes due 2006, Series A and Series B:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any
of its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any
other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative of the foregoing.
<PAGE>
"Affiliate Transaction" has the meaning provided in Section
4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means (a) an Investment by the Company or
any Restricted Subsidiary of the Company in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or any
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprise any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
the Company of (a) any Capital Stock of any Restricted Subsidiary of the
Company; or (b) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business;
provided, however, that Asset Sales shall not include (i) a transaction or
series of related transactions for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $1,000,000, (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under Section 5.01, (iii)
disposals or replacements of obsolete or outdated equipment in the ordinary
course of business and (iv) a disposition consisting of a Permitted Investment
or Restricted Payment permitted under Section 4.10.
"Authenticating Agent" has the meaning provided in Section
2.02.
"Bank Credit Facility" means the New Credit Facility and any
other agreement or agreements between the Company and/or one or more of the
Guarantors and a financial institution or institutions, providing for the making
of loans, on a
2
<PAGE>
term or revolving basis, the issuance of letters of credit and/or the creation
of bankers' acceptances.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of
directors of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification, and delivered to
the Trustee.
"Borrowing Base" means the sum of (i) 85% of the net book
value of the accounts receivable of the Company and the Restricted Subsidiaries
of the Company and (ii) 50% of the net book value of the inventory of the
Company and the Restricted Subsidiaries of the Company.
"BRS" means Bruckmann, Rosser, Sherril & Co., L.P.
"Business Day" means any day other than a Saturday, Sunday or
any other day on which commercial banking institutions in the City of New York
are required or authorized by law or other governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and including any
warrants, options or rights to acquire any of the foregoing and instruments
convertible into any of the foregoing, and (ii) with respect to any Person that
is not a corporation, any and all partnership or other equity interests of such
Person.
"Capitalized Lease Obligations" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance
with GAAP.
3
<PAGE>
"Cash Equivalents" means (i) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's; (iii) commercial paper
maturing no more than one year from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Certificated Securities" means Notes in definitive registered
form.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture) (other than a Person or Group controlled by a Permitted Holder); (ii)
the approval by the holders of Capital Stock of the Company of any plan or
proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of this Indenture); (iii) any Person
or Group (other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares of Capital Stock of the Company
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; (iv) Permitted Holders
cease to beneficially own shares of Capital Stock of the Company representing
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more than 35% of the aggregate ordinary voting power represented by the issued
and outstanding Capital Stock of the Company, and any Person or Group (other
than Permitted Holders), directly or indirectly, beneficially or of record, owns
shares of Capital Stock having more of the aggregate ordinary voting power of
the Capital Stock of the Company than the aggregate ordinary voting power
represented by shares of Capital Stock of the Company owned by Permitted
Holders; or (v) the replacement of a majority of the Board of Directors of the
Company over a two-year period from the directors who constituted the Board of
Directors of the Company at the beginning of such period, and such replacement
shall not have been approved by a vote of at least a majority of the Board of
Directors of the Company then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning provided in Section
4.14.
"Change of Control Payment Date" has the meaning provided in
Section 4.14.
"Closing Fee" means the $2.0 million payment due from the
Company to Bruckmann, Rosser, Sherrill & Co., Inc. as of the Closing Date.
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of, such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Company" means Penhall Acquisition Corp., an Arizona
corporation.
"Consolidated EBITDA" means, with respect to any Person, for
any period, the sum (without duplication) of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges less any non-cash
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items increasing Consolidated Net Income for such period, (D) fees and expenses
of the HSI Acquisition and the Transactions (as defined in the Offering
Memorandum), including but not limited to capitalization of costs and expenses
related thereto, and (E) nonrecurring severance and transaction costs incurred
in connection with any acquisition, all as determined on a consolidated basis in
accordance with GAAP for such Person and its Restricted Subsidiaries.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to any Person, the ratio of Consolidated EBITDA of such Person during the four
full fiscal quarters (the "Four Quarter Period") ending on or prior to the date
of the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for such Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis (including any pro forma expense and cost reductions calculated on a
basis consistent with Regulation S-X under the Securities Act) for the period of
such calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If such Person or any of its
Restricted Subsidiaries
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directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness; provided, however, that where
such Person and one or more of its Restricted Subsidiaries is, or two or more of
such Person's Restricted Subsidiaries, are, liable for the same Indebtedness,
whether as principal or guarantor, the above sentence shall be calculated to
avoid duplication. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person
for any period, the sum, without duplication, of (i) Consolidated Interest
Expense, plus (ii) to the extent not included in Consolidated Interest Expense,
the product of (x) the amount of all dividend payments actually paid in cash in
such period on any series of Preferred Stock of such Person or its Restricted
Subsidiaries (other than dividends paid by any Restricted Subsidiary to the
Company or any other Restricted Subsidiary) and (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any
Person for any period, the sum of, without duplication: (i) the aggregate of the
interest expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP (excluding any
accrued and unpaid interest on the Junior Subordinated Notes; provided, that
such interest is not payable in cash prior to
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<PAGE>
the maturity of the Notes), including without limitation, (a) any amortization
of debt discount and amortization or write-off of deferred financing costs, (b)
the net costs under Interest Swap Obligations, (c) all capitalized interest and
(d) the interest portion of any deferred payment obligation; and (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person,
for any period, the aggregate net income (or loss) of such Person and its
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; provided, that aggregate net income (or loss) of such
Person and its Restricted Subsidiaries for such period shall be determined
before any reduction in respect of accrued and unpaid Preferred Stock dividends
and before any reduction for accrued and unpaid interest on the Junior
Subordinated Notes that is not payable in cash prior to the maturity of the
Notes; and provided, further, that there shall be excluded from aggregate net
income (or loss) of such Person and its Restricted Subsidiaries for such period
(a) after-tax gains or losses from Asset Sales (less fees and expenses related
thereto) or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) for purposes of
Section 4.10 only, the net income (or loss) of any Person acquired in a "pooling
of interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with the referent
Person or any Restricted Subsidiary of the referent Person, (d) the net income
(but not loss) of any Restricted Subsidiary of the referent Person to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, except to the extent of cash dividends or distributions paid to the
referent Person or to a Restricted Subsidiary of the referent Person by such
Person, (e) the net income (or loss) of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Restricted Subsidiary of the
referent Person by such Person, (f) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date, (g) income
or loss attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), and (h) for the purpose of Section 4.10 only, in
the case of a successor to the referent Person by consolidation
8
<PAGE>
or merger or as a transferee of the referent Person's assets, any earnings (or
losses) of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any
Person, for any period, the aggregate depreciation, amortization and other
non-cash charges or expenses of such Person and its Restricted Subsidiaries
reducing Consolidated Net Income of such Person and its Restricted Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP
(excluding any such charges constituting an extraordinary item or loss or any
such charge which requires an accrual of or a reserve for cash charges for any
future period).
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 114 West 47th Street, New York, New York 10036, except that with respect to
presentation of Notes for payment or for registration of transfer or exchange,
such term shall mean any office or agency of the Trustee at which, at any
particular time, its corporate agency business shall be conducted.
"Covenant Defeasance" has the meaning set forth in Section
8.01.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary of the Company against
fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which
is, or with the lapse of time or the giving of notice or both would be, an Event
of Default.
"Depository" means The Depository Trust Company, its nominees
and successors.
"Disqualified Capital Stock" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
9
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thereof on or prior to the final maturity date of the Notes, other than Capital
Stock of the Company which certain management stockholders have the right to put
to the Company pursuant to the terms of the Stockholders' Agreement.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Notes" means the 12% Senior Notes due 2006, Series
B, to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement or, with respect to Initial Notes issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.02, a registration rights
agreement substantially identical to the Registration Rights Agreement.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Registration Statement" means the registration
statement filed by the Company pursuant to the Registration Rights Agreement.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of the Company.
"Foreign Subsidiary" means any Subsidiary of the Company which
(i) is not organized under the laws of the United States, any state thereof or
the District of Columbia and (ii) conducts substantially all of its business
operations in a country other than the United States of America.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
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"Global Note" has the meaning provided in Section 2.01.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantee" means the guarantee of the Notes by the
Guarantors.
"Guarantor" means (i) each of the Subsidiaries of the Company
on the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of this Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of this Indenture. Notwithstanding the above, no direct or indirect
Foreign Subsidiary of the Company will be considered a Guarantor.
"Holder" means the Person in whose name a Note is registered
on the Registrar's books.
"HSI Acquisition" means the acquisition by Penhall Company, a
California company, of substantially all of the assets of Highway Services Inc.
prior to the Issue Date.
"HSI Note" means the $3.7 million secured promissory note
incurred by Penhall Company in connection with the HSI Acquisition.
"incur" has the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of
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any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person, and (ix) all Disqualified Capital Stock issued by
such Person with the amount of Indebtedness represented by such Disqualified
Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any date
on which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance on such date of all unconditional
Obligations as described above, and the maximum liability upon the occurrence of
the contingency giving rise to the Obligation, on any contingent Obligations at
such date; provided, however, that the amount outstanding at any time of any
Indebtedness incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Notes" means, collectively, (i) the 12% Senior Notes
due 2006, Series A, of the Company issued on the Issue
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Date and (ii) one or more series of 12% Senior Notes due 2006 that are issued
under this Indenture subsequent to the Issue Date pursuant to Section 2.02, in
each case for so long as such securities constitute Restricted Securities.
"Initial Purchasers" means BT Alex. Brown Incorporated and
Credit Suisse First Boston Corporation.
"interest" when used with respect to any Note means the amount
of all interest accruing on such Note, including any applicable defaulted
interest pursuant to Section 2.12 and any Liquidated Damages pursuant to the
Registration Rights Agreement.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Notes.
"Interest Swap Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of Section 4.10, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated
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a Restricted Subsidiary and (ii) the amount of any Investment (other than as
specified in clause (i) above) shall be the original cost of such Investment
plus the cost of all additional Investments by the Company or any of its
Restricted Subsidiaries, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment,
reduced by the payment of dividends, distributions, interest payments, or
repayments of loans or advances in connection with such Investment or any other
amounts received in respect of such Investment; provided that no such payment of
dividends, distributions, interest payments, or repayments of loans or advances
or receipt of any such other amounts shall reduce the amount of any Investment
if such payment of dividends, distributions, interest payments, or repayments of
loans or advances or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, it ceases to be a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means August 4, 1998.
"Junior Subordinated Notes" means the Company's 10.5% Junior
Subordinated Notes due 2007 which may be issued in exchange for Senior
Exchangeable Preferred Stock.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 11.07.
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Liquidated Damages" shall have the meaning set forth in the
Registration Rights Agreement.
"Management Agreement" means the Management Services Agreement
that becomes effective upon the consummation of the Recapitalization Merger
among Bruckmann, Rosser, Sherrill & Co., Inc. and the Company, as in effect on
the Issue Date.
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"Maturity Date" means August 1, 2006.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section
4.15.
"Net Proceeds Offer Amount" has the meaning set forth in
Section 4.15.
"Net Proceeds Offer Payment Date" has the meaning set forth in
Section 4.15.
"Net Proceeds Offer Trigger Date" has the meaning set forth in
Section 4.15.
"New Credit Facility" means the Credit Agreement dated as of
the Issue Date, between the Company, the lenders party thereto in their
capacities as lenders thereunder, Bankers Trust Company, as Administrative
Agent, and Credit Suisse First Boston, as Syndication Agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time,
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including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder or adding or deleting Restricted Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Notes" means, collectively, the Initial Notes, the Private
Exchange Notes, if any, and the Exchange Notes, treated as a single class of
securities, as amended or supplemented from time to time in accordance with the
terms of this Indenture, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the confidential Offering
Memorandum dated July 28, 1998 of the Company relating to the offering of the
Notes.
"Officer" means, with respect to any Person, the Chairman of
the Board of Directors, any Vice Chairman of the Board of Directors, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller, or the Secretary of such Person, or any
other officer designated by the Board of Directors serving in a similar
capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee complying with the
requirements of Sections 11.04 and 11.05, as they relate to the giving of an
Opinion of Counsel, and delivered to the Trustee.
"Paying Agent" has the meaning provided in Section 2.03.
"Permitted Holders" means the Principals and their Related
Parties.
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"Permitted Indebtedness" means, without duplication, each of
the following:
(i) Indebtedness under the Notes issued in the offering and the
Guarantees thereof;
(ii) Indebtedness incurred pursuant to any Bank Credit Facility in an
aggregate principal amount at any time outstanding not to exceed an
amount equal to (x) $20 million plus (y) the greater of $30 million,
less the amount of any required permanent repayments of Bank Credit
Facilities made in accordance with Section 4.15 (which are accompanied
by a corresponding permanent commitment reduction) or (ii) the
Borrowing Base;
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; provided, however, that
such Interest Swap Obligations are entered into to protect the Company
and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with this Indenture to the extent
the notional principal amount of such Interest Swap Obligation does not
exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary of the Company to the
Company or to a Restricted Subsidiary of the Company, in each case
subject to no Lien (other than a Lien in connection with a Bank Credit
Facility) held by a Person other than the Company or a Restricted
Subsidiary of the Company for so long as such Indebtedness is held by
the Company or a Restricted Subsidiary of the Company; provided that if
as of any date any Person other than the Company or a Restricted
Subsidiary of the Company owns or holds any such Indebtedness or holds
a Lien in respect of such Indebtedness (other than a Lien in connection
with a
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Bank Credit Facility), such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted
Subsidiary of the Company, in each case subject to no Lien (other than
a Lien in connection with a Bank Credit Facility); provided that (a)
any Indebtedness of the Company to any Restricted Subsidiary of the
Company is unsecured and subordinated in right of payment, pursuant to
a written agreement, to the Company's obligations under this Indenture
and the Notes and (b) if as of any date any Person other than a
Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness
(other than a Lien in connection with a Bank Credit Facility), such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course
of business; provided, however, that such Indebtedness is extinguished
within five business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security
for workers' compensation claims, payment obligations in connection
with self-insurance or similar requirements in the ordinary course of
business;
(x) Refinancing Indebtedness;
(xi) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $5,000,000
at any one time outstanding (which may, but need not be incurred under
a Bank Credit Facility);
(xii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary of the Company in the ordinary course of business, in
accordance with customary industry practice, in amounts and for
purposes customary in the Company's industry;
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(xiii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for adjustment of
purchase price, earn out or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets
or a Restricted Subsidiary of the Company or any of its Restricted
Subsidiaries, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and the Restricted Subsidiaries in connection
with such disposition;
(xiv) Guarantees of Indebtedness permitted to be incurred under this
Indenture and guarantees of third-party loans to employees or officers
of the Company or its Restricted Subsidiaries permitted by clause (vii)
of the definition of "Permitted Investments;"
(xv) Capitalized Lease Obligations and Purchase Money Obligations of
the Company or any of its Restricted Subsidiaries in an aggregate
principal amount not to exceed $5,000,000 at any one time outstanding;
(xvi) Indebtedness of the Company or any of its Restricted Subsidiaries
that is subordinate to the Notes and is incurred in order to repurchase
Capital Stock of the Company from employees, officers or directors of
the Company or any of its Subsidiaries upon the death, disability or
termination of employment of such employees, officers or directors or
as otherwise required by existing employment agreements in an aggregate
principal amount not to exceed $1,000,000 in any calendar year; and
(xvii) Indebtedness incurred as a result of accrued and unpaid interest
being added to the principal amount of the Junior Subordinated Notes in
accordance with the terms of such Junior Subordinated Notes; provided
that such interest is not payable in cash prior to the maturity of the
Notes.
"Permitted Investments" means (i) Investments by the Company
or any Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Restricted Subsidiary of the
Company; (ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing
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such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and this Indenture; (iii)
investments in cash and Cash Equivalents; (iv) Currency Agreements and Interest
Swap Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with this
Indenture; (v) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vi) Investments
made by the Company or its Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with Section 4.15;
(vii) loans and advances to, or guarantees of third-party loans to, employees
and officers of the Company and its Restricted Subsidiaries for relocation
expenses and purchasing Capital Stock of the Company not in excess of $2.0
million at any one time outstanding; (viii) Investments the payment for which
consists exclusively of Qualified Capital Stock of the Company; (ix) guarantees
of Indebtedness permitted to be incurred under this Indenture; and (x)
additional Investments not to exceed $2.5 million at any time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(ii) statutory Liens of landlords or of mortgagees of landlords and
Liens of carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen and other Liens imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations
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(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation or other property subject to a Permitted Lien held by the
lienholder of such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets (including the
cost of construction) of the Company or any Restricted Subsidiary of
the Company acquired in the ordinary course of business; provided,
however, that (A) the related purchase money Indebtedness shall not
exceed the cost of such property or assets (including the cost of
construction) and shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired or constructed and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition or construction;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods or construction;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of
offset and set-off;
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(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
this Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
Section 4.12; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and (B) such Liens do not extend
to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those
securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company;
(xiv) Liens securing Indebtedness under any Bank Credit Facility;
(xv) Liens arising out of consignment or similar arrangements for the
sale of goods in the ordinary course of business;
(xvi) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xvii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xviii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(xix) Liens securing Indebtedness under the HSI Note; and
(xx) Liens incurred in the ordinary course of business of the Company
or any Restricted Subsidiary of the
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Company with respect to obligations that do not exceed $2.5 million at
any one time outstanding.
"Person" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"plan of liquidation" means, with respect to any Person, a
plan (including by operation of law) that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (a) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Person otherwise
than as an entirety or substantially as an entirety and (b) the distribution of
all or substantially all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means
the principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Principal" means (i) Bruckmann, Rosser, Sherrill & Co., Inc.,
a Delaware corporation, and any of its Affiliates, and (ii) Messrs. Bruckmann,
Rosser, Sherrill and Edwards, each of whom is a principal on the Issue Date of
Bruckmann, Rosser, Sherrill & Co., Inc.
"Private Exchange Notes" has the meaning set forth in the
Registration Rights Agreement.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth in Section 2.15.
"pro forma" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act, as
determined by the Board of Directors of the Company in consultation with its
independent public accountants.
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"Pro Forma Basis" has the meaning given to such term in the
Offering Memorandum.
"Public Equity Offering" means an underwritten public offering
of Qualified Capital Stock of the Company pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
"Purchase Money Obligations" of any Person means any
obligations of such Person or any of its Subsidiaries to any seller or any other
person incurred or assumed in connection with the purchase, installation,
construction or improvement of real or personal property to be used in the
business of such Person or any of its Subsidiaries within 180 days of such
purchase, installation, construction or improvement.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Recapitalization" means the recapitalization of Penhall
International, Inc., a California corporation, as contemplated by the Offering
Memorandum.
"Recapitalization Merger" means the merger of the Company with
and into Phoenix Concrete Cutting, Inc., an Arizona corporation, with Phoenix
Concrete Cutting, Inc. continuing as the surviving corporation.
"Record Date" means the Record Date specified in the Notes.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
"redemption price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption, including principal and
premium, if any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness,
to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness
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in whole or in part. "Refinanced" and "Refinancing" shall have correlative
meanings.
"Refinancing Indebtedness" means any Refinancing by the
Company or any Restricted Subsidiary of the Company of Indebtedness incurred in
accordance with Section 4.12 (other than pursuant to clause (ii), (iv), (v),
(vi), (vii), (viii), (ix), (xii), (xiii), (xiv) or (xvi) of the definition of
Permitted Indebtedness), in each case that does not (1) result in an increase in
the aggregate principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing (plus the amount of any premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness solely of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date among the Company, the Guarantors and the
Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Related Party" means, with respect to any Principal, (A) any
spouse or immediate family member (in the case of an individual) of such
Principal or (B) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners or Persons beneficially holding a 66 2/3%
or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A).
"Replacement Assets" means assets of a kind used or usable in
the business of the Company and its Restricted Subsidiaries as conducted on the
date of the relevant Asset Sale.
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"Representative" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; provided that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Payment" shall have the meaning set forth in
Section 4.10.
"Restricted Security" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee
shall be entitled to request and conclusively rely on an Opinion of Counsel with
respect to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" of any Person means any Subsidiary of
such Person which at the time of determination is not an Unrestricted
Subsidiary.
"Revolving Credit Facility" means one or more revolving credit
facilities under a Bank Credit Facility.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"S&P" means Standard & Poor's Rating Services, a division of
The McGraw Hill Companies, Inc., and its successors.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Senior Exchangeable Preferred Stock" means the Company's
10.5% Senior Exchangeable Preferred Stock, par value $.01 per share.
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"Significant Subsidiary" shall have the meaning set forth in
Rule 1.02(w) of Regulation S-X under the Securities Act.
"Stockholders' Agreement" means that Securities Holders
Agreement, dated the Issue Date, among the Company and the stockholders of the
Company.
"Subsidiary", with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"Surviving Entity" shall have the meaning set forth in Section
5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03.
"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer this Indenture, or in the case of
a successor trustee, an officer assigned to the department, division or group
performing the corporate trust work of such successor and assigned to administer
this Indenture.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" of any Person means (i) any
Subsidiary of such Person that at the time of determination shall be or continue
to be designated an Unrestricted Subsidiary by the Board of Directors of such
Person in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any Restricted Subsidiary of the Company;
provided that (x) the Company certifies to the Trustee that such designation
complies with Section 4.10 and (y) each Subsidiary to be so designated and each
of its Subsidiaries has not at the time
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of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x)
immediately after giving effect to such designation, the Company is able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.12 and (y) immediately before and
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a
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part of, this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the Indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision; and
(6) any reference to a statute, law or regulation means that
statute, law or regulation as amended and in effect from time to time
and includes any successor statute, law or regulation; provided,
however, that any reference to the Bankruptcy Law shall mean the
Bankruptcy Law as applicable to the relevant case.
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ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit A.
The Exchange Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form of Exhibit B. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. If required, the
Notes may bear the appropriate legend regarding any original issue discount for
federal income tax purposes. Each Note shall be dated the date of its issuance
and shall show the date of its authentication. Each Note shall have an executed
Guarantee from each of the Guarantors endorsed thereon substantially in the form
of Exhibit E hereto.
The terms and provisions contained in the Notes, annexed
hereto as Exhibits A and B, shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more permanent global Notes in registered form, substantially in
the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee,
as custodian for the Depository, duly executed by the Company (and having an
executed Guarantee from each of the Guarantors endorsed thereon) and
authenticated by the Trustee as hereinafter provided and shall bear all the
legends set forth in Section 2.15. The aggregate principal amount of the Global
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Notes issued in exchange for interests in a Global Note
pursuant to Section 2.16 may be issued in the form of permanent certificated
Notes in registered form in substantially the form set forth in Exhibit A (the
"Physical Notes") and shall bear the first legend set forth in Section 2.15. All
Notes offered and sold in reliance on Regulation S shall remain
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in the form of a Global Note until the consummation of the Exchange Offer
pursuant to the Registration Rights Agreement; provided, however, that all of
the time periods specified in the Registration Rights Agreement to be complied
with by the Company have been so complied with.
SECTION 2.02. Execution and Authentication;
Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer or an Assistant Secretary (each of whom shall, in each
case, have been duly authorized by all requisite corporate actions) shall attest
to, the Notes for the Company, and the Guarantees for the Guarantors, by manual
or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note or a Guarantee, as the case may be, was an Officer or Assistant Secretary
at the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Initial Notes for original
issue in the aggregate principal amount not to exceed $150,000,000 in one or
more series, provided that the aggregate principal amount of Initial Notes on
the Issue Date shall not exceed $100,000,000, and further provided that the
Company complies with Section 4.12 of this Indenture, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Exchange Notes from time to time only in exchange for (A) a like
principal amount of Initial Notes or (B) a like principal amount of Private
Exchange Notes, in each case upon a written order of the Company in the form of
an Officers' Certificate of the Company. Each such written order shall specify
the amount of Notes to be authenticated and the date on which the Notes are to
be authenticated, whether the Notes are to be Initial Notes, Private Exchange
Notes or Exchange Notes and whether (subject to Section 2.01) the Notes are to
be issued as Physical Notes or Global Notes or such other information as the
Trustee may reasonably request. In addition, with respect to authentication
pursuant to clause (iii) of the first sentence of this paragraph, the first such
written order from the Company shall be accompanied by an Opinion of Counsel of
the Company in a form reasonably satisfactory to the Trustee stating that the
issuance
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of the Exchange Notes does not give rise to an Event of Default, complies with
this Indenture and has been duly authorized by the Company. The aggregate
principal amount of Notes outstanding at any time may not exceed $150,000,000,
except as provided in Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee
shall authenticate any Notes issued under this Indenture subsequent to the Issue
Date pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable efforts to obtain the
same "CUSIP" number for such Notes as is printed on the Notes outstanding at
such time; provided, however, that if any series of Notes issued under this
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel of the Company in a form satisfactory to the Trustee to be a different
class of security than the Notes outstanding at such time for federal income tax
purposes, the Company may obtain a "CUSIP" number for such Notes that is
different than the "CUSIP" number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
Authenticating Agent. An Authenticating Agent has the same rights as an Agent to
deal with the Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where (a) Notes may be presented or surrendered for registration of transfer or
for exchange ("Registrar"), (b) Notes may be presented or surrendered for
payment ("Paying Agent") and (c) notices and demands to or upon the Company in
respect of the Notes and this Indenture may be
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served. The office or agency in respect of clauses (a) and (b) shall be the
Trustee, 114 West 47th Street, New York, New York 10036, Attn: Corporate Trust
Administration, and the office or agency in respect of clause (c) shall be the
Trustee, 114 West 47th Street, New York, New York 10036, Attn: Corporate Trust
Administration, unless in either case the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company, upon prior written notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents acceptable to the
Trustee. The term "Paying Agent" includes any additional Paying Agent. The
Company may act as its own Paying Agent, except that for the purposes of
payments on the Notes pursuant to Sections 4.14 and 4.15, neither the Company
nor any Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which agreement shall incorporate
the provisions of the TIA and implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar,
Paying Agent and agent for service of demands and notices in connection with the
Notes, until such time as the Trustee has resigned or a successor has been
appointed. Any of the Registrar, the Paying Agent or any other agent may resign
upon 30 days' notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, premium, if any, or interest on, the Notes (whether
such assets have been distributed to it by the Company or any other obligor on
the Notes), and the Company and the Paying Agent shall notify the Trustee of any
Default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default, upon
written request to a
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Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Holders. If the Trustee is not the Registrar, the Company shall
furnish or cause the Registrar to furnish to the Trustee five (5) Business Days
before each Interest Payment Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as the Trustee may
require of the names and addresses of the Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Notes or to exchange such Notes
for an equal principal amount of Notes or other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registration of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Notes (and each of the Guarantors shall execute a
Guarantee thereon). No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, fee or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchanges or transfers pursuant to Sections 2.10, 3.04, 4.14, 4.15
or 9.05, in which event the Company shall be responsible for the payment of such
taxes).
The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Note (i) during a period beginning
at the opening of business 15 days before the mailing of a notice of redemption
of Notes and ending at the close of business on the day of such mailing,(ii)
selected
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for redemption in whole or in part pursuant to Article Three, except the
unredeemed portion of any Note being redeemed in part or (iii) between a Record
Date and the next succeeding Interest Payment Date.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Note and each of the Guarantors shall execute a Guarantee thereon if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide satisfactory evidence of such loss, destruction or taking,
and an indemnity bond or other indemnity of reasonable tenor, sufficient in the
reasonable judgment of the Company, the Guarantors and the Trustee, to protect
the Company, the Guarantors, the Trustee or any Agent from any loss which any of
them may suffer if a Note is replaced. Every replacement Note shall constitute
an obligation of the Company and the Guarantors. The Company and the Trustee
each may charge such Holder for its expenses in replacing such Note.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent
holds U.S. Legal Tender or U.S. Government Obligations
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sufficient to pay all of the principal, premium, if any, and interest due on the
Notes payable on that date and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on and after that
date such Notes shall be deemed not to be outstanding and interest on them shall
cease to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver, consent or notice,
Notes owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Trust Officer of the Trustee actually knows are
so owned shall be so considered. The Company shall notify the Trustee, in
writing, when it or, to its knowledge, any of its Affiliates repurchases or
otherwise acquires Notes, of the aggregate principal amount of such Notes so
repurchased or otherwise acquired and such other information as the Trustee may
request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes and the Guarantors
shall prepare temporary Guarantees thereon upon receipt of a written order of
the Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of temporary Notes to be authenticated and the date on
which the temporary Notes are to be authenticated. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and so indicate in the
Officers' Certificate. Without unreasonable delay, the Company shall prepare and
execute, the Trustee shall authenticate, and the Guarantors shall execute
Guarantees on, upon receipt of a written order of the Company pursuant to
Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the
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Company, shall dispose, in its customary manner, of all Notes surrendered for
transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Notes to replace Notes that it has paid or delivered
to the Trustee for cancellation. If the Company shall acquire any of the Notes,
such acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Notes unless and until the same are surrendered
to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company will pay interest on overdue principal from time
to time on demand at the rate of interest then borne by the Notes. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Notes. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such defaulted interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such defaulted interest as provided in
this Section; provided, however, that in no event shall the Company deposit
monies proposed to be paid in respect of defaulted interest later than 11:00
a.m. New York City time of the proposed Default Interest Payment Date. At least
15 days before the subsequent special record date, the Company shall mail (or
cause to be mailed) to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing, any interest which is
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paid prior to the expiration of the 30-day period set forth in Section 6.01(a)
shall be paid to Holders as of the regular record date for the Interest Payment
Date for which interest has not been paid. Notwithstanding the foregoing, the
Company may make payment of any defaulted interest in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Notes may use one or more "CUSIP"
numbers, and, if so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided, however, that no
representation is hereby deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any change in the CUSIP
numbers.
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest
Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and
Net Proceeds Offer Payment Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Maturity Date, Redemption
Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the
case may be, in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date, Maturity Date, Redemption Date,
Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case
may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a
Restricted Security or is sold in compliance with Regulation S shall bear the
following legend (the "Private Placement Legend") on the face thereof until
after the second anniversary of the later of the Issue Date and the last date on
which the Company or any Affiliate of the Company was the owner of such Note (or
any predecessor security) (or such shorter period of time as permitted by Rule
144(k) under the Securities Act or any successor provision thereunder) (or such
longer period of time as may be required under the Securities Act or applicable
state securities laws in the opinion of counsel for the Company, unless
otherwise agreed by the Company and the Holder thereof):
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON
ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN
BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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Each Global Note shall also bear the following legend on the
face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR
BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE
OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS
OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE
INDENTURE GOVERNING THIS NOTE.
SECTION 2.16. Book-Entry Provisions
for Global Notes.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Section 2.15.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Notes, and the Depository may be treated by the Company, the
Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever.
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Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any Agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Note.
(b) Transfers of a Global Note shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository and the provisions of Section 2.17. In addition, Physical Notes shall
be transferred to all beneficial owners in exchange for their beneficial
interests in a Global Note if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in a Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note
to beneficial owners pursuant to paragraph (b), such Global Note shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, the Guarantors shall execute Guarantees on and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depository
in exchange for its beneficial interest in the Global Note, an equal aggregate
principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in a Global Note pursuant to paragraph (b)
or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of
Section 2.17, bear the Private Placement Legend applicable to the Physical Notes
set forth in Section 2.15.
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(f) The Holder of a Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors
and Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after the
second anniversary of the Issue Date (provided, however, that neither
the Company nor any Affiliate of the Company has held any beneficial
interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date) or (y) (1) in the case of a
transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit C and
any legal opinions and certifications required thereby or (2) in the
case of a transfer to a Non-U.S. Person, the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit D; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar
of (x) the certificate, if any, required by paragraph (i) above and (y)
written instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of such Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
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(b) Transfers to QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any
Restricted Note, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second anniversary
of the Issue Date; provided, however, that neither the Company nor any
Affiliate of the Company has held any beneficial interest in such Note,
or portion thereof, at any time on or prior to the second anniversary
of the Issue Date or (y) if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided
for on the form of Note stating, or has otherwise advised the Company
and the Registrar in writing, that it is purchasing the Note for its
own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to
Rule 144A or has determined not to request such information and that it
is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in a Global Note, upon receipt by
the Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of such Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the
Trustee shall cancel the Physical Notes so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Place-
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ment Legend, the Registrar shall deliver only Notes that bear the Private
Placement Legend unless (i) the requested transfer is after the second
anniversary of the Issue Date (provided, however, that neither the Company nor
any Affiliate of the Company has held any beneficial interest in such Note, or
portion thereof, prior to or on the second anniversary of the Issue Date), or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.16 or this Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(e) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after the
last date on which either the Company or any Affiliate of the Company was an
owner of such Note, in each case, bear a legend in substantially the form set
forth in Section 2.15, unless otherwise agreed by the Company (with written
notice thereof to the Trustee).
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5
of the Notes and Section 3.03, it shall notify the
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Trustee and the Paying Agent in writing of the Redemption Date and the principal
amount of the Notes to be redeemed.
The Company shall give each notice provided for in this
Section 3.01 at least 45 but not more than 90 days before the Redemption Date
(unless a shorter notice period shall be satisfactory to the Trustee, as
evidenced in a writing signed on behalf of the Trustee), together with an
Officers' Certificate stating that such redemption shall comply with the
conditions contained herein and in the Notes, the Redemption Date, the
redemption price and the principal amount of the Notes to be redeemed.
If the Company is required to make an offer to redeem Notes
pursuant to the provisions of Section 4.14 or 4.15 hereof, it shall furnish to
the Trustee at least 45 days but not more than 90 days before a Redemption Date
(or such shorter period as may be agreed to by the Trustee in writing), an
Officers' Certificate setting forth (i) the Section of this Indenture pursuant
to which the redemption shall occur, (ii) the Redemption Date, (iii) the
principal amount of Notes to be redeemed, (iv) the redemption price and (v) a
statement to the effect that (a) the Company or one of its Subsidiaries has
effected an Asset Sale and the conditions set forth in Section 4.15 have been
satisfied or (b) a Change of Control has occurred and the conditions set forth
in Section 4.14 have been satisfied, as applicable.
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not then
listed on a national securities exchange, on a pro rata basis or by lot or by
such other method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of U.S. $1,000 or less shall be
redeemed in part; provided, further, that if a partial redemption is made with
the proceeds of a Public Equity Offering, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to DTC procedures or
the procedures of any other depository), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
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of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to this Indenture.
SECTION 3.03. Optional Redemption.
(a) The Notes will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after August 1, 2003,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on August 1 of the years set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2003........................................................ 106.000%
2004........................................................ 104.000%
2005........................................................ 102.000%
</TABLE>
(b) At any time, or from time to time, on or prior to August
1, 2001, the Company may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to 30% of the sum of (i) the initial
aggregate principal amount of Notes issued in the offering on the Issue Date and
(ii) the respective initial aggregate principal amounts of the Notes issued
under this Indenture after the Issue Date, at a redemption price equal to 112.0%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of redemption; provided that at least 70% of the sum of (i) the
initial aggregate principal amount of the Notes issued in the offering on the
Issue Date and (ii) the respective initial aggregate principal amounts of the
Notes issued under this Indenture after the Issue Date remains outstanding
immediately after any such redemption. In order to effect the foregoing
redemption with the proceeds of any Public Equity Offering, the Company shall
make such redemption not more than 120 days after the consummation of any such
Public Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before the
Redemption Date, the Company shall mail or cause to be mailed a notice of
redemption by first class mail to each Holder
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of Notes to be redeemed at its registered address, with a copy to the Trustee
and any Paying Agent. At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense. The
Company shall provide such notices of redemption to the Trustee at least five
days before the intended mailing date. In any case, failure to give such notice
or any defect in the notice to the holder of any Note shall not affect the
validity of the proceeding for the redemption of any other Note.
Each notice of redemption shall identify (including the CUSIP
number) the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such
redemption is being made;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest,
if any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes or applicable portions thereof called for
redemption ceases to accrue on and after the Redemption Date, and the
only remaining right of the Holders of such Notes is to receive payment
of the redemption price plus accrued interest as of the Redemption
Date, if any, upon surrender to the Paying Agent of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes
in the aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(8) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption.
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No representation is made as to the accuracy of the CUSIP
numbers listed in such notice or printed on the Notes.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
purchase of Notes.
SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.04, such notice of redemption shall be irrevocable and Notes called for
redemption become due and payable on the Redemption Date and at the redemption
price plus accrued interest as of such date, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
redemption price plus accrued interest thereon to the Redemption Date, but
installments of interest, the maturity of which is on or prior to the Redemption
Date, shall be payable to Holders of record at the close of business on the
relevant record dates referred to in the Notes. Interest shall accrue on or
after the Redemption Date and shall be payable only if the Company defaults in
payment of the redemption price.
SECTION 3.06. Deposit of Redemption Price.
On or before 11:00 a.m. New York City time on the Redemption
Date and in accordance with Section 2.14, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the redemption price plus
accrued interest, if any, of all Notes to be redeemed on that date. The Paying
Agent shall promptly return to the Company any U.S. Legal Tender so deposited
which is not required for that purpose, except with respect to monies owed as
obligations to the Trustee pursuant to Article Seven.
Unless the Company fails to comply with the preceding
paragraph and defaults in the payment of such redemption price plus accrued
interest, if any, interest on the Notes to be redeemed will cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Note or Notes equal in principal
amount to the unredeemed portion of the Note surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any,
and interest on the Notes on the dates and in the manner provided in the Notes
and in this Indenture.
(b) An installment of principal of or interest on the Notes
shall be considered paid on the date it is due if the Trustee or Paying Agent
(other than the Company or any of its Affiliates) holds, prior to 11:00 a.m. New
York City time on that date, U.S. Legal Tender designated for and sufficient to
pay the installment in full and is not prohibited from paying such money to the
Holders pursuant to the terms of this Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as provided in Article Five, the Company shall do or
shall cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the corporate, partnership or other
existence of each of its Restricted Subsidiaries in accordance with the
respective organizational documents of the Company and each such Restricted
Subsidiary and the rights (charter and statutory) and material franchises of the
Company and its Restricted Subsidiaries.
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SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or any of the Subsidiaries or properties of the Company or any of the
Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of the Subsidiaries; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate negotiations or proceedings
properly instituted and diligently conducted for which adequate reserves, to the
extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties
and Insurance.
(a) The Company and each of its Subsidiaries shall cause all
material properties owned by or leased to it and used or useful in the conduct
of its business to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company or such Subsidiary may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors of the Company or of the Board of Directors
of the Subsidiary concerned, or of an officer (or other agent employed by the
Company or any of its Subsidiaries) of the Company or such Subsidiary having
managerial responsibility for any such property, desirable in the conduct of the
business of the Company or any of its Subsidiaries.
(b) The Company and the Subsidiaries shall cause to be
provided insurance (including appropriate self-insurance) against loss or damage
of the kinds that, in the good faith judgment of the respective Boards of
Directors or other governing body or Officer or other agent of the Company or
such Subsidiaries, as the case may be, are adequate and appropriate for the
conduct of the business of the Company or such Subsidiar-
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ies, as the case may be, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the good faith judgment of the respective Boards of Directors or other governing
body or Officer or other agent of the Company or such Subsidiary, as the case
may be, for companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate;
Notice of Default.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each of the Company's fiscal years, an Officers' Certificate
(signed by the principal executive officer, principal financial Officer and/or
principal accounting Officer) stating that a review of its activities and the
activities of its Restricted Subsidiaries during the preceding fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of such Officers' knowledge the
Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such obligation and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or Event of Default that has occurred and is continuing or, if such
signers do know of such Default or Event of Default, the certificate shall
describe the Default or Event of Default and its status with particularity. The
Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.08 shall be accompanied by a written report of the Company's
independent certified public accountants (who shall be a firm of established
national reputation) stating (A) that their audit examination has included a
review of the terms of this Indenture and the form of the Notes as they relate
to accounting matters, and (B) whether, in connection with their audit
examination, any Default or Event of Default has come to their attention and if
such a Default or Event of Default has come to their attention, specifying the
nature and period of existence thereof; provided, however, that, without any
restriction as to the scope of the audit examination, such independent certified
public accountants shall not be liable by reason of any failure to obtain
knowledge of any such Default or Event of Default that would not be disclosed in
the course
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of an audit examination conducted in accordance with generally accepted auditing
standards.
(c) So long as any of the Notes are outstanding (i) if any
Default or Event of Default has occurred and is continuing or (ii) if any Holder
seeks to exercise any remedy hereunder with respect to a claimed Default under
this Indenture or the Notes, the Company shall promptly deliver to the Trustee
by registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action promptly of its becoming aware of
such occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition, business or results of operations of the Company and its
Subsidiaries taken as a whole.
SECTION 4.08. Reports to Holders.
The Company shall deliver to the Trustee within 15 days after
the filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will, beginning on the earlier of the date the Exchange Registration Statement
becomes effective and 180 days after the Issue Date, file with the Commission,
to the extent permitted, and provide the Trustee and Holders with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. The Company shall also comply with the other
provisions of TIA Section 314(a).
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SECTION 4.09. Waiver of Stay, Extension
or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.10. Limitation on Restricted
Payments.
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock (other than purchases, redemptions, acquisitions or retirements of
Capital Stock of the Company otherwise allowed pursuant to the definition of
Permitted Investments), (c) make any principal payment on, purchase, defease,
redeem, prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company or a Guarantor that is subordinate or junior in
right of payment to the Notes or a Guarantee, as the case may be, or (d) make
any Investment (other than Permitted Investments) (each of the foregoing actions
set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12
or (iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended for
such purposes, if other than in
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cash, being the fair market value of such property as determined reasonably and
in good faith by the Board of Directors of the Company) shall exceed the sum of
the following amounts (without duplication): (1) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company accrued on a cumulative basis
during the period beginning on the first day of the fiscal quarter immediately
following the Issue Date and ending on the last day of the last fiscal quarter
preceding the date the Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus (2) 100% of the
aggregate net cash proceeds received by the Company from any Person (other than
a Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified Capital Stock of the
Company or any options, warrants or other rights to acquire Qualified Capital
Stock of the Company; plus (3) 100% of the aggregate net cash proceeds received
subsequent to the Issue Date by the Company from any Person (other than a
Subsidiary of the Company) from the issuance or sale of debt securities or
shares of Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock, together with the aggregate cash received by the
Company at the time of such conversion or exchange; plus (4) 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Qualified Capital Stock subsequent to the Issue
Date; plus (5) an amount equal to the net reduction in Investments in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary (except to the extent any such payment is otherwise
included in the calculation of Consolidated Net Income), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries, valued in each case as
provided in the definition of "Investments," not to exceed, in the case of an
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration of such dividend if the dividend
would have been permitted on the date of declaration; (2) if no Default or Event
of Default shall have occurred and be continuing, the acquisition, redemption,
repurchase or retirement of any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Restricted Subsidiary of
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the Company) of shares of Qualified Capital Stock of the Company; (3) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any Indebtedness of the Company or a Guarantor that is
subordinate or junior in right of payment to the Notes or the Guarantees, as
applicable, either (i) solely in exchange for shares of Qualified Capital Stock
of the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary of
the Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) repurchases by the Company of Capital Stock of the
Company from employees, Officers or directors of the Company or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, Officers or directors, or as
otherwise required by existing employment agreements, in an aggregate amount not
to exceed $1,000,000 in any calendar year (including any cash payments made
during such calendar year pursuant to Indebtedness incurred in order to
repurchase Capital Stock of the Company from employees, Officers or directors of
the Company) and $5,000,000 in the aggregate in each case plus (i) the aggregate
cash proceeds actually received from any reissuance during such calendar year of
Capital Stock by the Company to employees, Officers or directors of the Company
and its Subsidiaries and (ii) the aggregate cash proceeds actually received in
such calendar year from any payments on life insurance policies in which the
Company or any of its Subsidiaries is the beneficiary with respect to any
employees, officers or directors of the Company and its Subsidiaries which
proceeds are used to purchase the Capital Stock of the Company held by any such
employees, Officers or directors; provided, however, that the Company shall not
be permitted to repurchase Capital Stock pursuant to this clause (4), if (x) any
Default or Event of Default shall have occurred and be continuing or (y) on the
date of any such repurchase the Company could not incur at least $1.00 of
Indebtedness (other than Permitted Indebtedness) in compliance with Section
4.12; (5) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise price
thereof; and (6) the exchange of Senior Exchangeable Preferred Stock for Junior
Subordinated Notes; provided, that after giving effect to the exchange thereof,
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.75
to 1.0. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2)(ii),
(3)(ii)(A) and (4) of this paragraph shall be included in such calculation.
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SECTION 4.11. Limitations on Transactions
with Affiliates.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $2,500,000 shall be approved by a majority
of non-interested directors of the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such majority of non-interested directors of the
Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary of the Company
enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain an opinion that
such transaction or series of related transactions are fair to the Company or
the relevant Restricted Subsidiary, as the case may be, from a financial point
of view, from an Independent Financial Advisor and file the same with the
Trustee.
(b) The restrictions set forth in clause (a) shall not apply
to (i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees, agents or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management; (ii) transactions exclusively
between or among the Company and any of its Restricted Subsidiaries or
exclusively between or among such Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by this Indenture; (iii) any agreement
(including the Management Agreement and the payment of all fees and expenses
contemplated thereunder; provided that no payment of management fees or expenses
(other than the Closing Fee) contemplated under the Management Agreement shall
be made un-
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less (i) the Consolidated Fixed Charge Coverage Ratio during the four full
fiscal quarters ending on or prior to the date of any such payment is greater
than or equal to 1.75 to 1.0 and (ii) the Consolidated Fixed Charge Coverage
Ratio calculated solely for the one full fiscal quarter ending on or prior to
the date of any such payment is greater than or equal to 1.75 to 1.0) as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Company or its Restricted
Subsidiaries, as the case may be, in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
this Indenture; (v) any issuance of securities or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans of the Company
entered into in the ordinary course of business and approved by the Board of
Directors; (vi) loans and advances, or guarantees of loans of third parties, to
employees and officers of the Company and its Restricted Subsidiaries in the
ordinary course of business not in excess of $2.0 million at any one time
outstanding; and (vii) indemnification agreements provided for the benefit of
the Company or any Restricted Subsidiary of the Company from officers, directors
or employees of the Company or any Restricted Subsidiary.
SECTION 4.12. Limitation on Incurrence
of Additional Indebtedness.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, acquire, become liable, contingently or otherwise, with respect to,
or otherwise become responsible for payment of (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness); provided, however, that if no
Default or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of any such Indebtedness, the Company or
any of its Restricted Subsidiaries may incur Indebtedness (including, without
limitation, Acquired Indebtedness) if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than (i) 2.0 to 1.0, if
the Indebtedness is to be incurred prior to August 1, 2000, (ii) 2.25 to 1.0, if
the Indebtedness is to be incurred on or after August 1, 2000 and prior to
August 1, 2002, or (iii) 2.50 to 1.0, if the Indebtedness is to be incurred on
or after August 1, 2002; provided, further, however, that the Company shall not
be permitted to exchange any of its Senior Exchangeable Preferred Stock
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for Junior Subordinated Notes or any other instrument of Indebtedness unless,
after giving effect to the exchange thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than 2.75 to 1.0.
For purposes of determining compliance with this Section 4.12,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness permitted by this covenant, the Company in its
sole discretion will classify such item of Indebtedness and will only be
required to include the amount and type of each class of Indebtedness in the
test specified in the first paragraph of this covenant or in one of the clauses
of the definition of the term Permitted Indebtedness, (ii) the amount of
Indebtedness issued at a price which is less than the principal amount thereof
shall be equal to the amount of liability in respect thereof determined in
accordance with GAAP, (iii) Indebtedness incurred in connection with, or in
contemplation of, any transaction described in the definition of the term
Acquired Indebtedness shall be deemed to have been incurred by the Company or
one of its Restricted Subsidiaries, as the case may be, at the time an acquired
Person becomes such a Restricted Subsidiary (or is merged into the Company or
such a Restricted Subsidiary) or at the time of the acquisition of assets, as
the case may be, and (iv) guarantees or Liens supporting Indebtedness permitted
to be incurred under this Section 4.12 may be issued or granted if otherwise
issued or granted in accordance with the terms of this Indenture.
SECTION 4.13. Limitation on Dividend and
Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture, the Notes and the Guarantees;
(3) customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary of the Company; (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties
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or assets of the Person so acquired (and such Person's direct and indirect
Subsidiaries); (5) agreements existing on the Issue Date to the extent and in
the manner such agreements are in effect on the Issue Date; (6) a Bank Credit
Facility; (7) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4), (5) or (6) above; provided, however, that the provisions
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company or the relevant Restricted Subsidiary of
the Company in any material respect as determined by the Board of Directors of
the Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clause (2), (4), (5) or (6); (8) any restriction or encumbrance
contained in contracts for sale of assets permitted by this Indenture in respect
of the assets being sold pursuant to such contracts pending the close of such
sale, which encumbrance or restriction is not applicable to any asset other than
the assets being sold pursuant to such contracts; (9) Purchase Money Obligations
incurred in accordance with the terms of this Indenture for property acquired in
the ordinary course of business that impose restrictions of the nature described
in clause (c) above on the property so acquired; or (10) restrictions of the
nature described in clause (c) above on the transfer of assets subject to any
Lien permitted under this Indenture imposed by the holder of such Lien.
SECTION 4.14. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company purchase all or a portion of
such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase.
(b) Within 30 days following the date upon which the Change of
Control occurred, the Company shall send, by first class mail, a notice to each
Holder at such Holder's last registered address, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. The notice
to the Holders shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Change of Control Offer. Such
notice shall state:
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(i) that the Change of Control Offer is being made pursuant
to this Section 4.14 and that all Notes tendered and not withdrawn
shall be accepted for payment;
(ii) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed, other than
as may be required by law) (the "Change of Control Payment Date");
(iii) that any Note not tendered shall continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders electing to have a Note purchased pursuant
to a Change of Control Offer shall be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date;
(vi) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the second
business day prior to the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes the Holder delivered for
purchase and a statement that such Holder is withdrawing his election
to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part
shall be issued new Notes in a principal amount equal to the
unpurchased portion of the Notes surrendered; provided, however, that
each Note purchased and each new Note issued shall be in an original
principal amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such
Change of Control.
On the Change of Control Payment Date, the Company shall, to
the extent permitted by law, (i) accept for payment all Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the aggregate Change of Control Payment
in re-
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spect of all Notes or portions thereof so tendered and (iii) deliver, or cause
to be delivered, to the Trustee for cancellation the Notes so accepted together
with an Officers' Certificate stating that such Notes or portions thereof have
been tendered to and purchased by the Company. The Paying Agent shall promptly
either (x) pay to the Holder against presentation and surrender (or, in the case
of partial payment, endorsement) of the Global Notes or (y) in the case of
Certificated Securities, mail to each Holder of Notes the Change of Control
Payment for such Notes, and the Trustee shall promptly authenticate and deliver
to the Holder of the Global Notes a new Global Note or Notes or, in the case of
Physical Notes, mail to each Holder new Certificated Securities, as applicable,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any, provided that each new Certificated Security shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company shall notify the
Trustee and the Holders of the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
Neither the Board of Directors of the Company nor the Trustee
may waive the provisions of this Section 4.14 relating to the Company's
obligation to make a Change of Control Offer or a Holder's right to redemption
upon a Change of Control.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or any applicable exchange regulations
conflict with the provisions of this Section 4.14, the Company shall comply with
the applicable securities laws and regulations and exchange regulations and
shall not be deemed to have breached its obligations under the provisions of
this Section 4.14 by virtue thereof.
SECTION 4.15. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 75% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such
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disposition; provided, however, that the amount of (A) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet or
the notes thereto) of the Company or any Restricted Subsidiary that are assumed
by the transferee in such Asset Sale and from which the Company or such
Restricted Subsidiary is released and (B) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) shall be deemed to be cash for the purposes of this Section 4.15; and
(iii) upon the consummation of an Asset Sale, the Company shall apply, or cause
such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 360 days of receipt thereof either (A) to repay any
Indebtedness ranking at least pari passu with the Notes (including amounts under
Bank Credit Facilities), (B) to make an investment in properties and assets that
replace the properties and assets that were the subject of such Asset Sale or in
properties and assets that shall be used in the business of the Company and its
Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 361st day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), an amount equal to such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 45 nor more than 60 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if at
any time any consideration other than cash or Cash Equivalents received by the
Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the
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Net Cash Proceeds thereof shall be applied in accordance with this covenant. A
transfer of assets by the Company to a Wholly Owned Restricted Subsidiary or by
a Restricted Subsidiary to the Company or to a Wholly Owned Restricted
Subsidiary will not be deemed to be an Asset Sale. A transaction that is subject
to and made in compliance with Section 5.01 shall not be subject to the
application of this Section 4.15. The Company may defer the Net Proceeds Offer
until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in
excess of $5,000,000 resulting from one or more Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $5,000,000, shall be applied as required pursuant to this paragraph).
Notwithstanding the immediately preceding paragraph, the
Company and its Restricted Subsidiaries shall be permitted to consummate an
Asset Sale without complying with such paragraph to the extent (i) at least 75%
of the consideration for such Asset Sale constitutes Replacement Assets and (ii)
such Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer shall be mailed to the record Holders
as shown on the register of Holders within 30 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in this Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer Amount,
Notes of tendering Holders shall be purchased on a pro rata basis (based on
amounts tendered) unless otherwise required by law or any applicable exchange
regulations. A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations or any applicable exchange
regulations conflict with this Section 4.15, the Company shall comply with the
applicable securities laws and regulations and exchange regulations and shall
not be deemed to
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have breached its obligations under this Section 4.15 by virtue
thereof.
SECTION 4.16. Limitation on Preferred
Stock of Restricted Subsidiaries.
The Company shall not permit any of its Restricted
Subsidiaries to issue any Preferred Stock (other than to the Company or to a
Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own
any Preferred Stock of any Restricted Subsidiary of the Company unless at the
time of such issuance such Restricted Subsidiary would be entitled to create,
incur or assume Indebtedness pursuant to Section 4.12 in the aggregate amount
equal to the aggregate liquidation value, plus any accrued and unpaid dividends,
of the Preferred Stock to be issued. Notwithstanding the foregoing, nothing
contained in this Section 4.16 will prohibit the ownership of Preferred Stock
issued by a Person prior to the time (a) such Person becomes a Restricted
Subsidiary of the Company, (b) such Person merges with or into a Restricted
Subsidiary of the Company or (c) a Restricted Subsidiary of the Company merges
with or into such Person; provided that such Preferred Stock was not issued by
such Person in anticipation of a transaction contemplated by any of clauses (a),
(b) or (c) above.
SECTION 4.17. Limitation on Liens.
The Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes or any Guarantee, the
Notes and such Guarantee, as the case may be, are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Notes and the Guarantees are equally and ratably
secured, except for (A) Liens existing as of the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date; (B) Liens securing
Indebtedness incurred pursuant to Bank Credit Facilities; (C) Liens securing the
Notes and the Guarantees; (D) Liens in favor of the Company or a Restricted
Subsidiary of the Company on assets of any Subsidiary of the Company; (E) Liens
securing Refinancing Indebtedness which is incurred to Refinance any
In-
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debtedness which has been secured by a Lien permitted under this Indenture and
which has been incurred in accordance with the provisions of this Indenture;
provided, however, that such Liens (a) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (b) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.
SECTION 4.18. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers
or causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary (other than a Foreign
Subsidiary) that is not a Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another Restricted
Subsidiary (other than a Foreign Subsidiary) having total assets with a book
value in excess of $500,000, then such transferee or acquired or other
Restricted Subsidiary (other than a Foreign Subsidiary) shall (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Notes and
this Indenture on the terms set forth in this Indenture and (ii) deliver to the
Trustee an Opinion of Counsel that such supplemental indenture has been duly
authorized, executed and delivered by such Restricted Subsidiary and constitutes
a legal, valid, binding and enforceable obligation of such Restricted
Subsidiary; provided that such opinion may contain exceptions that are customary
in opinions of that type. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of this Indenture.
SECTION 4.19. Conduct of Business.
The Company and its Restricted Subsidiaries shall not engage
in any businesses which are not the same, similar or related to the businesses
in which the Company and its Restricted Subsidiaries are engaged on the Issue
Date.
SECTION 4.20. No Restrictions on Consummation
of the Recapitalization.
Notwithstanding any provision contained in this Indenture to
the contrary, the consummation of the Recapitalization will not be prohibited.
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SECTION 4.21. Additional Equity Contributions.
If the Company's Consolidated EBITDA for the quarter ended
June 30, 1998 is less than $5.6 million on a Pro Forma Basis, BRS or any other
Principal will purchase, with cash or Cash Equivalents, Qualified Capital Stock
of the Company in an amount equal to the difference between (x) $5.6 million and
(y) the amount of the Company's Consolidated EBITDA for the quarter ended June
30, 1998. Any purchase of Qualified Capital Stock required pursuant to this
Section 4.21 shall occur on or prior to September 30, 1998 and no other
provision of this Indenture will prohibit the issuance of such Qualified Capital
Stock.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation
and Sale of Assets.
(a) The Company shall not, in a single transaction or series
of related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, this Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired In-
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debtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.12; (iii) immediately before
and immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including, without limitation, giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and (iv) the Company or the Surviving Entity shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the applicable
provisions of this Indenture and that all conditions precedent in this Indenture
relating to such transaction have been satisfied.
(b) For purposes of this Section 5.01, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(c) Each Guarantor (other than any Guarantor whose Guarantee
is to be released in accordance with the terms of the Guarantee and this
Indenture in connection with any transaction complying with the provisions of
Section 4.15) shall not, and the Company shall not cause or permit any Guarantor
to, consolidate with or merge with or into any Person other than the Company or
any other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee; and (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing. Any merger or consolidation of a Restricted
Subsidiary with and into the Company (with the Company being the surviving
entity) or Guarantor need only comply with clause (iv) of the first paragraph of
Section 5.01(a).
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SECTION 5.02. Successor Corporation
Substituted.
Upon any consolidation, combination or merger or any transfer
of all or substantially all of the assets of the Company in accordance with
Section 5.01, in which the Company is not the continuing corporation, the
Surviving Entity formed by such consolidation or into which the Company is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under and the Company shall be discharged from its Obligations under this
Indenture, the Notes, and the Registration Rights Agreement with the same effect
as if such surviving entity had been named as such.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) the failure to pay interest on any Notes when the same
becomes due and payable and the default continues for a period of 30
days;
(b) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a Default in the observance or performance of any other
covenant or agreement contained in this Indenture which Default
continues for a period of 30 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to Section 5.01, which shall constitute an Event
of Default with such notice requirement but without such passage of
time requirement);
(d) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the
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Company or any Restricted Subsidiary of the Company, which failure
continues for a period of 20 days or more, or the acceleration of the
final stated maturity of any such Indebtedness (which acceleration is
not rescinded, annulled or otherwise canceled within 20 days of
receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration) if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity
or which has been accelerated, in each case with respect to which the
20-day period described above has passed, aggregates $5,000,000 or
more at any time;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 (excluding judgments to the extent covered by insurance by
one or more reputable insurers and as to which such insurers have
acknowledged coverage for) shall have been rendered against the Company
or any of its Restricted Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable;
(f) the Company or any of its Significant Subsidiaries
pursuant to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its property;
(iv) makes a general assignment for the benefit of
its creditors; or
(v) shall generally not pay its debts when such
debts become due or shall admit in writing its inability to
pay its debts generally;
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case or proceeding,
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(ii) appoints a Custodian of the Company or any of
its Significant Subsidiaries for all or substantially all of
their properties taken as a whole, or
(iii) orders the liquidation of the Company, the
Company or any of their Significant Subsidiaries,
and in each case the order or decree remains unstayed and in effect for
60 days; or
(h) any Guarantee of a Significant Subsidiary ceases to be in
full force and effect or any Guarantee of a Significant Subsidiary is
declared to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is found to be invalid or any Guarantor that is
a Significant Subsidiary denies its liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with this
Indenture); provided, however, that an Event of Default will also be
deemed to occur with respect to Subsidiaries that are not Significant
Subsidiaries ("Insignificant Subsidiaries") if the Guarantees of such
Insignificant Subsidiaries cease to be in full force and effect or are
declared null and void and unenforceable or such Insignificant
Subsidiaries deny their liability under their Guarantees, if when
aggregated and taken as a whole, the Insignificant Subsidiaries subject
to this clause (h) would meet the definition of a Significant
Subsidiary.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default
specified in Section 6.01 (f) or (g) relating to the Company) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a declaration of
acceleration, and the same shall become immediately due and payable. If an Event
of Default specified in Section 6.01 (f) or (g) relating to the Company occurs
and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect
to the Notes as described in the preceding paragraph, the Holders of a majority
in principal amount of the Notes may rescind and cancel such declaration and its
consequences (a) if
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the rescission would not conflict with any judgment or decree, (b) if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration,
(c) to the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, (d) if the Company has
paid the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (e) in the event of the cure or waiver
of an Event of Default of the type described in Section 6.01(f) or (g), the
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
that such Event of Default has been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
(a) If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy by proceeding at law or in equity to
collect the payment of the principal of, premium, if any, or interest on the
Notes or to enforce the performance of any provision of the Notes or this
Indenture.
(b) All rights of action and claims under this Indenture or
the Notes may be enforced by the Trustee even if it does not possess any of the
Notes or does not produce any of them in the proceeding. A delay or omission by
the Trustee or any Holder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Prior to the acceleration of the Notes, the Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may, on behalf of the Holders of all the Notes, waive any
existing Default or Event of Default and its consequences under this Indenture,
except a Default or Event of Default specified in Section 6.01(a) or (b) or in
respect of any provision hereof which cannot be modified or amended without the
consent of the Holder so affected pursuant to Section 9.02 or the TIA. When a
Default or Event of Default is so waived, it shall be deemed cured and shall
cease to exist. This Section 6.04 shall be in lieu of ss. 316(a)(1)(B) of the
TIA and such ss. 316(a)(1)(B) of the TIA is hereby expressly
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excluded from this Indenture and the Notes, as permitted by the TIA.
SECTION 6.05. Control by Majority.
Holders of the Notes may not enforce this Indenture or the
Notes except as provided in this Article Six and under the TIA. The Holders of a
majority in aggregate principal amount of the then outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee, provided, however, that the Trustee may refuse to follow any
direction (a) that conflicts with any rule of law or this Indenture, (b) that
the Trustee, in its sole discretion, determines may be unduly prejudicial to the
rights of another Holder (it being understood that the Trustee shall have no
duty to ascertain whether or not such actions or forebearances are unduly
prejudicial to such Holders), or (c) that may expose the Trustee to personal
liability for which adequate indemnity provided to the Trustee against such
liability is not reasonably assured to it; provided, further, however, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction or this Indenture. This Section 6.05 shall be
in lieu of ss. 316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is
hereby expressly excluded from this Indenture and the Notes, as permitted by the
TIA.
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding with respect to this Indenture or the Notes or any remedy hereunder,
unless the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request, and offered reasonable indemnity,
to the Trustee to institute such proceeding as Trustee under the Notes and this
Indenture, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice, request and offer of indemnity and the Trustee,
within such 30-day period, has not received directions inconsistent with such
written request by Holders of a majority in aggregate principal amount of the
outstanding Notes.
The foregoing limitations shall not apply to a suit instituted
by a Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
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A Holder may not use this Indenture to prejudice the rights of
any other Holders or to obtain priority or preference over such other Holders.
SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture, the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, and interest on such Note, on or after the respective due dates
expressed or provided for in such Note, or to bring suit for the enforcement of
any such payment on or after the respective due dates, is absolute and
unconditional and shall not be impaired or affected without the consent of the
Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company, or any other
obligor on the Notes for the whole amount of the principal of, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum provided
for by the Notes and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due the Trustee pursuant to the provisions of Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same,
and any Custodian in any such judicial proceedings is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and coun-
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sel, and any other amounts due the Trustee under Section 7.07. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six
it shall pay out such money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
cost and expenses of collection;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
the principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to any suit by the Trustee, any suit
by a Holder pursuant to Section 6.07, or a suit by a Holder or Hold-
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ers of more than 10% in aggregate principal amount of the outstanding Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee.
(2) The Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such
certificates or opinions that by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
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(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01 and Section 7.02.
(f) The Trustee shall not be liable for interest on any money
or assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections
11.04 and 11.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel
and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in
respect to any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
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(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or
attorney and to consult with the officers and representatives of the
Company, including the Company's accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any
of its rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders have offered to the Trustee
reasonable indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with
any of their covenants hereunder (as to which the Trustee is entitled
to rely exclusively on Officers' Certificates).
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company, the
Company, or any of the Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same with
like
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rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, and it shall not be accountable for the
Company's use of the proceeds from the Notes, it shall not be responsible for
the use or application of any money received by any Paying Agent other than the
Trustee, and it shall not be responsible for any statement of the Company in
this Indenture or the Notes other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing
and if it is known to a Trust Officer, the Trustee shall mail to each Holder
notice of the uncured Default or Event of Default within 90 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Note, including an accelerated
payment, a Default in payment on the Change of Control Payment Date pursuant to
a Change of Control Offer or on the Net Proceeds Offer Payment Date pursuant to
a Net Proceeds Offer and a Default in compliance with Article Five hereof, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. The foregoing sentence of this Section 7.05 shall
be in lieu of the proviso to Section 315(b) of the TIA and such proviso to
Section 315(b) of the TIA is hereby expressly excluded from this Indenture and
the Notes, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after May 15 of each year beginning with
1999, the Trustee shall, to the extent that any of the events described in
TIA Section 313(a) occurred within the previous twelve months, but not
otherwise, mail to each Holder a brief report dated as of such date that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Sections 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the Commission and each stock
exchange, if any, on which the Notes are listed.
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The Company shall promptly notify the Trustee if the Notes
become listed on any stock exchange and the Trustee shall comply with TIA
Section 313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any
predecessor Trustee) and its agents, employees, stockholders, Affiliates and
directors and officers for, and hold them each harmless against, any and all
loss, liability, damage, claim or expense (including reasonable fees and
expenses of counsel), including taxes (other than taxes based on the income of
the Trustee) incurred by them except for such actions to the extent caused by
any negligence or willful misconduct on their part, arising out of or in
connection with the acceptance or administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their rights,
powers or duties hereunder. The Trustee shall notify the Company promptly of any
claim asserted against the Trustee for which it may seek indemnity. Failure by
the Trustee to so notify the Company shall not relieve the Company of its
Obligations hereunder except to the extent such failure shall have prejudiced
the Company. At the Trustee's sole discretion, the Company shall defend the
claim and the Trustee shall cooperate and may participate in the defense;
provided, however, that any settlement of a claim shall be approved in writing
by the Trustee if such settlement would result in an admission of liability by
the Trustee or if such settlement would not be accompanied by a full release of
the Trustee for all liability arising out of the events giving rise to such
claim. Alternatively, the Trustee may at its option have separate counsel of its
own choosing and the Company shall pay the reasonable fees and expenses of such
counsel.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Notes on all assets or money
held or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to
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pay principal of or premium, if any, or interest on particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(f) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the
termination of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the
Company. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee and appoint a successor Trustee with the Company's
consent, by so notifying the Company and the Trustee. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the outstanding Notes may appoint a successor Trustee to
replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company shall mail notice of such successor Trustee's appointment
to each Holder.
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If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in aggregate principal amount of the
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies
the requirement of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in
the case of a Trustee that is a subsidiary of another bank or a corporation
included in a bank holding company system, the related bank or bank holding
company) shall have a combined capital and surplus of at least $100,000,000
million as set forth in its most recent published annual report of condition,
and have a corporate trust office in the City of New York. In addition, if
the Trustee is a subsidiary of another bank or a corporation included in a
bank holding company system, the Trustee, independently of such bank or bank
holding company, shall meet the capital requirements of TIA Section
310(a)(2). The Trustee shall comply with TIA Section 310(b); provided,
however, that there shall be excluded from the operation of TIA Section
310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA
Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to
the Company, as obligor of the Notes.
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SECTION 7.11. Preferential Collection of
Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights or registration of transfer or
exchange of the Notes, as expressly provided for in this Indenture) as to all
outstanding Notes when (a) either (i) all Notes, theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under this Indenture by the Company;
and (c) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with.
The Company may, at its option and at any time, elect to have
its obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (a) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments
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are due, (b) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments, (c) the
rights, powers, trust, duties and immunities of the Trustee and the Company's
obligations in connection therewith and (d) the Legal Defeasance provisions of
this Section 8.01. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to covenants
contained in Sections 4.04, 4.05, 4.08 and 4.10 through 4.19 and Article Five
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event of Covenant Defeasance, those events described under
Section 6.01 (except those events described in Section 6.01(a), (b), (f) and
(g)) shall no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in United States dollars,
non-callable U.S. Government Obligations, or a combination thereof, in
such amounts as shall be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable Redemption Date, as the case may
be;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders shall not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and in
either case, and (iii) the Holders shall be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee
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confirming that the Holders shall not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant
Defeasance and shall be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
under Section 6.01(f) or (g) are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) with respect to Legal Defeasance or Covenant Defeasance need not
be delivered if all the Notes not theretofore delivered to the Trustee for
cancellation (i) have become due and payable or (ii) shall become due and
payable on the maturity date within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by such Trustee in the name,
and at the expense, of the Company.
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SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to Section
8.01, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.03. Repayment to the Company.
Subject to Sections 7.07 and 8.01, the Trustee and the Paying
Agent shall promptly pay to the Company upon request any excess U.S. Legal
Tender or U.S. Government Obligations held by them at any time and thereupon
shall be relieved from all liability with respect to such money. The Trustee and
the Paying Agent shall pay to the Company upon request any money held by them
for the payment of principal or interest that remains unclaimed for one year
after the due date for payment of such principal or interest; provided, however,
that the Company shall, if requested by the Trustee or Paying Agent, give to the
Trustee or Paying Agent, indemnification reasonably satisfactory to it against
any and all liability which may be incurred by it by reason of such paying;
provided, further, that the Trustee or such Paying Agent, before being required
to make any payment, may at the expense of the Company cause to be published
once in a newspaper of general circulation in the City of New York or mail to
each Holder entitled to such money notice that such money remains unclaimed and
that after a date specified therein which shall be at least 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining shall be repaid to the Company. After payment to the Company, Holders
entitled to such money must look to the Company for payment as general creditors
unless an applicable law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
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SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with Section 8.01 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such U.S. Legal Tender or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Company has made any payment
of interest on or principal of any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the U.S. Legal Tender or U.S. Government
Obligations held by the Trustee or Paying Agent.
SECTION 8.05. Acknowledgment of Discharge
by Trustee.
After (i) the conditions of Section 8.01 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01,
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Company, the
Guarantors and the Trustee may amend, waive or supplement this Indenture without
notice to or consent of any Holder: (a) to cure any ambiguity, defect or
inconsistency; (b) to comply with Section 5.01 of this Indenture; (c) to provide
for uncertificated Notes in addition to certificated
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Notes; (d) to comply with any requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA; or (e) to make
any change that would provide any additional benefit or rights to the Holders or
that does not adversely affect the rights of any Holder in any material respect.
Notwithstanding the foregoing, the Trustee, the Guarantors and the Company may
not make any change pursuant to this Section 9.01 that adversely affects the
rights of any Holder in any material respect under this Indenture without the
consent of such Holder. In formulating its determination on such matters, the
Trustee shall be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an Opinion of Counsel, and may not be
held liable therefor.
Upon the request of the Company and the Guarantors accompanied
by a Board Resolution authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06, the Trustee shall join with the Company and the
Guarantors in the execution of any amended or supplemental Indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee may
but shall not be obligated to enter into such amended or supplemental Indenture
which affects its own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.02. With Consent of Holders.
The Company, the Guarantors and the Trustee may amend or
supplement this Indenture or the Notes or any amended or supplemental Indenture
with the written consent of the Holders of Notes of not less than a majority in
aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company and the Guarantors accompanied
by a Board Resolution authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06, the
Trustee shall join with the Company and the Guarantors in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its sole discretion, but shall not
be obligated to, enter into such amended or supplemental Indenture.
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It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder of the Notes
affected thereby, an amendment or waiver may not, directly or indirectly: (i)
reduce the amount of Notes whose Holders must consent to an amendment; (ii)
reduce the rate of or change or have the effect of changing the time for payment
of premium, if any, and interest, including defaulted interest, on any Notes;
(iii) reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of this Indenture protecting the right of each
Holder to receive payment of premium, if any, principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of the Notes to waive
Defaults or Events of Default; (vi) after the Company's obligation to purchase
Notes arises thereunder, amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto; (vii) modify or change any
provision of this Indenture or the related definitions affecting the ranking of
the Notes or any Guarantee in a manner which adversely affects the Holders; or
(viii) release any Guarantor from any of its obligations under its Guarantee or
this Indenture otherwise than in accordance with the terms of this Indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Notes shall comply with the TIA as then in effect;
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provided, however, that this Section 9.03 shall not of itself require that this
Indenture or the Trustee be qualified under the TIA or constitute any admission
or acknowledgment by any party hereto that any such qualification is required
prior to the time this Indenture and the Trustee are required by the TIA to be
so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record
Date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a Record Date is fixed, then notwithstanding
the second sentence of the immediately preceding paragraph, those Persons who
were Holders at such Record Date (or their duly designated proxies), and only
those Persons, shall be entitled to revoke any consent previously given, whether
or not such Persons continue to be Holders after such Record Date. No such
consent shall be valid or effective for more than 90 days after such Record Date
unless consents from Holders of the requisite percentage in principal amount of
outstanding Notes required hereunder for the effectiveness of such consents
shall have also been given and not revoked within such 90 day period.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a
Note, the Trustee may require the Holder of such Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determine, the Company in exchange for the Note
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shall issue and the Trustee shall authenticate a new Note that reflects the
changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such amendment, supplement or waiver the Trustee shall
be entitled to receive indemnity reasonably satisfactory to it, and shall be
fully protected in relying upon an Opinion of Counsel and an Officers'
Certificate of the Company, stating that no Event of Default shall occur as a
result of such amendment, supplement or waiver and that the execution of such
amendment, supplement or waiver is authorized or permitted by this Indenture;
provided, however, that the legal counsel delivering such Opinion of Counsel may
rely as to matters of fact on one or more Officers' Certificates of the Company.
Such Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Unconditional Guarantee.
Subject to the provisions of this Article Ten, each Guarantor
hereby, jointly and severally, unconditionally and irrevocably guarantees, on a
senior basis (such guarantee to be referred to herein as a "Guarantee") to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes or the obligations of the Company or any other
Guarantor to the Holders or the Trustee hereunder or thereunder, that: (a) the
principal of, premium, if any, and interest on the Notes (and any Liquidated
Damages payable thereon) shall be duly and punctually paid in full when due,
whether at maturity, upon redemption at the option of Holders pursuant to the
provisions of the Notes relating thereto, by acceleration or otherwise, and
interest on the overdue principal and (to the extent permitted by law) interest,
if any, on the Notes and all other obligations of the Company or the Guarantors
to the Holders or the Trustee hereunder or thereunder (including amounts due the
Trustee under Section 7.07) and all other obligations shall be promptly
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paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, the same shall be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at maturity, by acceleration or otherwise. Failing payment when due of any
amount so guaranteed, or failing performance of any other obligation of the
Company to the Holders under this Indenture or under the Notes, for whatever
reason, each Guarantor shall be obligated to pay, or to perform or cause the
performance of, the same immediately. An Event of Default under this Indenture
or the Notes shall constitute an event of default under this Guarantee, and
shall entitle the Holders of Notes to accelerate the obligations of the
Guarantors hereunder in the same manner and to the same extent as the
obligations of the Company.
Each of the Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes, this Indenture and this
Guarantee. This Guarantee is a guarantee of payment and not of collection. If
any Holder or the Trustee is required by any court or otherwise to return to the
Company or to any Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or such Guarantor, any amount
paid by the Company or such Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor further agrees that, as between it, on the one
hand, and the Holders of Notes and the Trustee, on the other hand, (a) subject
to this Article Ten, the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (b) in the
event of any acceleration
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of such obligations as provided in Article Six, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator,
past, present or future, or any Guarantor , as such, shall have any personal
liability under this Guarantee by reason of his, her or its status as such
stockholder, officer, director, employee or incorporator.
Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor, in an
amount pro rata, based on the net assets of each Guarantor determined in
accordance with GAAP.
SECTION 10.02. Limitations on Guarantees.
The obligations of any Guarantor under its Guarantee are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of the Guarantor and payments made by or on behalf of any
other Guarantor in respect of the obligations of such Guarantor under its
Guarantee or pursuant to its contribution obligations under this Indenture, will
result in the obligations of the Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under any laws of the United
States, any state of the United States or the District of Columbia.
SECTION 10.03. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 10.01,
each Guarantor hereby agrees that a notation of such Guarantee, substantially in
the form of Exhibit E, shall be endorsed on each Note authenticated and
delivered by the Trustee. Such Guarantee shall be executed on behalf of each
Guarantor by either manual or facsimile signature of two Officers of the
Guarantor, each of whom, in each case, shall have been duly authorized to so
execute by all requisite corporate action. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Note. Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Guarantee
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is endorsed or at any time thereafter, such Guarantor's Guarantee of such Note
shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Guarantor.
SECTION 10.04. Release of Guarantors.
(a) If no Default exists or would exist under this Indenture,
upon (i) the sale or other disposition of all of the Capital Stock of any
Guarantor by the Company, or (ii) the sale or disposition of all or
substantially all of the assets of any Guarantor in compliance with all of the
terms of this Indenture, such Guarantor's Guarantee shall be released, and such
Guarantor shall be deemed released from all obligations under this Article Ten
without any further action required on the part of the Trustee or any Holder for
so long as it remains an Unrestricted Subsidiary. If such Guarantor is not so
released such Guarantor or the entity surviving such Guarantor, as applicable,
shall remain or be liable under its Guarantee as provided in this Article Ten.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of the Guarantor upon receipt of a request by the Company
or the Guarantor accompanied by an Officers' Certificate and an Opinion of
Counsel certifying as to the compliance with this Section 10.04, provided the
legal counsel delivering such Opinion of Counsel may rely as to matters of fact
on one or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested
by the Company or the Guarantor in order to evidence the release of the
Guarantor from its obligations under its Guarantee endorsed on the Notes and
under this Article Ten.
Except as set forth in Articles Four and Five and this Section
10.04, nothing contained in this Indenture or in any of the Notes shall prevent
any consolidation or merger of the Guarantor with or into the Company or shall
prevent any sale or conveyance of the property of the Guarantor as an entirety
or substantially as an entirety to the Company.
SECTION 10.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or
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other rights which it may now or hereafter acquire against the Company that
arise from the existence, payment, performance or enforcement of the Company's
obligations under the Notes or this Indenture and such Guarantor's obligations
under this Guarantee and this Indenture, in any such instance including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, and any right to participate in any claim or remedy of the
Holders against the Company, whether or not such claim, remedy or right arises
in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and any
amounts owing to the Trustee or the Holders of Notes under the Notes, this
Indenture, or any other document or instrument delivered under or in connection
with such agreements or instruments, shall not have been paid in full, such
amount shall have been deemed to have been paid to such Guarantor for the
benefit of, and held in trust for the benefit of, the Trustee or the Holders and
shall forthwith be paid to the Trustee for the benefit of itself or such Holders
to be credited and applied to the obligations in favor of the Trustee or the
Holders, as the case may be, whether matured or unmatured, in accordance with
the terms of this Indenture. Each Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated by
this Indenture and that the waiver set forth in this Section 10.05 is knowingly
made in contemplation of such benefits.
SECTION 10.06. Immediate Payment.
Each Guarantor agrees to make immediate payment to the Trustee
on behalf of the Holders of all Obligations owing or payable to the respective
Holders upon receipt of a demand for payment therefor by the Trustee to such
Guarantor in writing.
SECTION 10.07. Obligations Continuing.
The obligations of each Guarantor hereunder shall be
continuing and shall remain in full force and effect until all the obligations
have been paid and satisfied in full. Each Guarantor agrees with the Trustee
that it will from time to time deliver to the Trustee suitable acknowledgments
of this continued liability hereunder.
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SECTION 10.08. Obligations Reinstated.
The obligations of each Guarantor hereunder shall continue to
be effective or shall be reinstated, as the case may be, if at any time any
payment which would otherwise have reduced the obligations of any Guarantor
hereunder (whether such payment shall have been made by or on behalf of the
Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of
the Holders upon the insolvency, bankruptcy, liquidation or reorganization of
the Company or any Guarantor or otherwise, all as though such payment had not
been made. If demand for, or acceleration of the time for, payment by the
Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization
of the Company, all such Indebtedness otherwise subject to demand for payment or
acceleration shall nonetheless be payable by each Guarantor as provided herein.
SECTION 10.09. Obligations Not Affected.
The obligations of each Guarantor hereunder shall not be
affected, impaired or diminished in any way by any act, omission, matter or
thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Guarantor or any of
the Holders) which, but for this provision, might constitute a whole or partial
defense to a claim against any Guarantor hereunder or might operate to release
or otherwise exonerate any Guarantor from any of its obligations hereunder or
otherwise affect such obligations, whether occasioned by default of any of the
Holders or otherwise.
SECTION 10.10. Waiver.
Without in any way limiting the provisions of Section 10.01
hereof, each Guarantor hereby waives notice or proof of reliance by the Holders
upon the obligations of any Guarantor hereunder, and diligence, presentment,
demand for payment on the Company, protest or notice of dishonor of any of the
Obligations, or other notice or formalities to the Company of any kind
whatsoever.
SECTION 10.11. No Obligation To Take Action
Against the Company.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for the Obligations or against the Company or any other
Person or any property of the Company or any other Person before the Trustee is
entitled
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to demand payment and performance by any or all Guarantors of their liabilities
and obligations under their Guarantees or under this Indenture.
SECTION 10.12. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Guarantor hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(b) take or abstain from taking security or collateral from
the Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the
obligations or matters contemplated by this Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or
from any security upon such part of the Obligations as the Holders may
see fit or change any such application in whole or in part from time to
time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any security as the
Holders or the Trustee may see fit.
SECTION 10.13. Default and Enforcement.
If any Guarantor fails to pay in accordance with Section
10.06, the Trustee may proceed in its name as trustee hereunder in the
enforcement of the Guarantee of any such Guarantor and such Guarantor 's
obligations thereunder and hereunder by any remedy provided by law, whether by
legal proceedings or otherwise, and to recover from such Guarantor the
obligations.
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SECTION 10.14. Amendment, Etc.
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
SECTION 10.15. Acknowledgment.
Each Guarantor hereby acknowledges communication of the terms
of this Indenture and the Notes and consents to and approves of the same.
SECTION 10.16. Costs and Expenses.
Each Guarantor shall pay on demand by the Trustee any and all
costs, fees and expenses (including, without limitation, legal fees on a
solicitor and client basis) incurred by the Trustee, its agents, advisors and
counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
SECTION 10.17. No Waiver; Cumulative
Remedies.
No failure to exercise and no delay in exercising, on the part
of the Trustee or the Holders, any right, remedy, power or privilege hereunder
or under this Indenture or the Notes, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder or under this Indenture or the Notes preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges in the Guarantee and under this
Indenture, the Notes and any other document or instrument between a Guarantor
and/or the Company and the Trustee are cumulative and not exclusive of any
rights, remedies, powers and privilege provided by law.
SECTION 10.18. Survival of Obligations.
Without prejudice to the survival of any of the other
obligations of each Guarantor hereunder, the obligations of each Guarantor under
Section 10.01 and shall be enforceable against such Guarantor without regard to
and without giving effect to any right of offset or counterclaim available to or
which may be asserted by the Company or any Guarantor.
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SECTION 10.19. Guarantee in Addition to Other
Obligations.
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Notes (including the purchase agreement by and between the Company, the
Guarantors and the Initial Purchasers dated July 28, 1998 and the Registration
Rights Agreement).
SECTION 10.20. Severability.
Any provision of this Article Ten which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Ten.
SECTION 10.21. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit
of each Guarantor and the Trustee and the other Holders and their respective
successors and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control; provided, however,
that this Section 11.01 shall not of itself require that this Indenture or the
Trustee be qualified under the TIA or constitute any admission or acknowledgment
by any party hereto that any such qualification is required prior to the time
this Indenture and the Trustee are required by the TIA to be so qualified.
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SECTION 11.02. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company or the Guarantors:
Penhall Acquisition Corp.
1801 Penhall Way, P.O. Box 4609
Anaheim, California 92803
Facsimile No. 714-778-8437
Attention: Martin Houge
with a copy to:
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Facsimile No. 212-698-3599
Attention: Bruce B. Wood, Esq.
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Facsimile No.
Attention: Corporate Trust Administration
The Company, the Guarantors and the Trustee by written notice
to the other may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company, the Guarantors or the
Trustee shall be deemed to have been given or made as of the date so delivered
if hand delivered; when answered back, if telexed; when receipt is acknowledged,
if faxed; one (1) Business Day after mailing by reputable overnight courier and
five (5) calendar days after mailing if sent by registered or certified mail,
postage prepaid (except that a notice of change of address shall not be deemed
to have been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed
to him by first class mail or other equivalent means
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at his address as it appears on the registration books of the Registrar ten (10)
days prior to such mailing and shall be sufficiently given to him if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 11.03. Communications by Holders
with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as
to Conditions Precedent.
Upon any request or application by the Company or the
Guarantors to the Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company,
if any, provided for in this Indenture relating to the proposed action
have been complied with (which counsel, as to factual matters, may rely
on an Officers' Certificate).
SECTION 11.05. Statements Required in
Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee, Paying
Agent, Registrar.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW. Each of the
parties hereto agrees to submit to the jurisdiction of the courts of the State
of New York in any action or proceeding arising out of or relating to this
Indenture, the Notes or the Guarantees.
SECTION 11.09. No Adverse Interpretation
of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its
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Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. No Personal Liability.
No director, officer, partner, member, employee or direct or
indirect stockholder, as such, past, present or future of the Company or any
Guarantor or any other successor entity, as such, shall have any personal
liability for any obligations of the Company or any Guarantor under the Notes,
the Guarantees, this Indenture or the Registration Rights Agreement or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability and acknowledges and consents to the Transactions for purposes of
Section 506 of the California General Corporation Law and Section 10-640 of the
Arizona Business Corporation Act. The waiver and release are part of the
consideration for the issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together shall represent
the same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or
in the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes
shall be given independent effect so that if any particular
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action or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or otherwise be within the limitations
of, another covenant shall not avoid the occurrence of a Default or an Event of
Default if such action is taken or condition exists.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
PENHALL ACQUISITION CORP.,
as Issuer
By: /s/ Paul D. Kaminski
----------------------------------
Name: Paul D. Kaminski
Title: Vice President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ Christine C. Collins
----------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
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EXHIBIT A
CUSIP No.:
PENHALL ACQUISITION CORP.
12% SENIOR NOTE DUE 2006, SERIES A
No. [ ] $
PENHALL ACQUISITION CORP., an Arizona corporation (the
"Company"), for value received promises to pay to Cede & Co. or registered
assigns the principal sum of [ ] Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1, commencing
February 1, 1999
Record Dates: January 15 and July 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
PENHALL ACQUISITION CORP.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
Dated: August 4, 1998
A-1
<PAGE>
Certificate of Authentication
This is one of the 12% Senior Notes due 2006 referred to in
the within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
------------------------------
Authorized Signatory
Date of Authentication: August 4, 1998
<PAGE>
(REVERSE OF SECURITY)
12% Senior Note due 2006, Series A
1. Interest. PENHALL ACQUISITION CORP., an Arizona corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from August 4, 1998. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 1, 1999. Interest
will be computed on the basis of a 360-day year of twelve 30-day months and, in
the case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Notes are cancelled on registration of transfer or
registration of exchange (including pursuant to an Exchange Offer (as defined in
the Registration Rights Agreement)) after such Record Date. Holders must
surrender Notes to a Paying Agent to collect principal payments. The Company
shall pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by its check
payable in such U.S. Legal Tender. The Company may deliver any such interest
payment to the Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. Indenture. The Company issued the Notes under an Indenture,
dated as of August 1, 1998 (the "Indenture"), among the Company, each of the
Guarantors named therein and the Trustee. This Note is one of a duly authorized
issue of Initial Notes of the Company designated as its 12% Senior Notes due
2006, Series A (the "Initial Notes"). The Notes are limited
A-3
<PAGE>
(except as otherwise provided in the Indenture) in aggregate principal
amount to $150,000,000, which may be issued under the Indenture;
provided the principal amount of Initial Notes issued on the Issue
Date will not exceed $100,000,000. The Notes include the Initial
Notes, Private Exchange Notes and the Exchange Notes (as defined in
the Indenture) issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement. The Initial Notes and the Exchange
Notes are treated as a single class of securities under the Indenture.
Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject
to all such terms, and Holders of Notes are referred to the Indenture
and said Act for a statement of them. The Notes are general unsecured
obligations of the Company.
Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time in accordance with its terms.
5. Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after August
1, 2003, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on August 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003..................................................... 106.000%
2004..................................................... 104.000%
2005..................................................... 102.000%
</TABLE>
At any time, or from time to time, on or prior to August 1,
2001, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 30% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the offering on the Issue Date
and (ii) the respective initial aggregate principal amount of the Notes issued
under the Indenture after the Issue Date, at a redemption price equal to 112.0%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of redemption; provided that at least 70% of the sum
A-4
<PAGE>
of (i) the initial aggregate principal amount of the Notes issued in the
offering on the Issue Date and (ii) the respective initial aggregate principal
amounts of the Notes issued under the Indenture after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
6. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such redemption price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the redemption price plus accrued interest, if any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Registration Rights. Pursuant to a registration rights
agreement among the Company, the Guarantors and the Initial Purchasers, the
Company and the Guarantors will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for Exchange Notes (as defined in the Indenture), which have been
registered under the Securities Act, in like principal amount and having terms
identical in all material respects as the Initial Notes. The Holders of the
Initial Notes shall be entitled to receive certain additional interest payments
in the event such exchange offer is not consummated and upon certain other
conditions, all pursuant to and in accordance with the terms of the registration
rights agreement.
9. Denominations; Transfer; Exchange. The Notes are in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000. A Holder shall regis-
A-5
<PAGE>
ter the transfer of or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Notes or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company
at any time deposits with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption or maturity and complies with the other provisions of the Indenture
relating thereto, the Company will be discharged from certain provisions of the
Indenture and the Notes (including certain covenants, but including, under
certain circumstances, its obligation to pay the principal of and interest on
the Notes but without affecting the rights of the Holders to receive such
amounts from such deposits).
13. Amendment; Supplement; Waiver. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding, and any past Default
or Event of Default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Sub-
A-6
<PAGE>
sidiaries to, among other things, incur additional Indebtedness, pay dividends
or make certain other Restricted Payments, consummate certain Asset Sales, enter
into certain transactions with Affiliates, incur liens, impose restrictions on
the ability of a Subsidiary to pay dividends or make certain payments to the
Company and its Subsidiaries, merge or consolidate with any other Person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. Such limitations are subject to
a number of important qualifications and exceptions. Pursuant to Section 4.06 of
the Indenture, the Company must annually report to the Trustee on compliance
with such limitations.
15. Successors. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
16. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with the Company and Its Subsidiaries.
The Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
its Subsidiaries or their respective Affiliates as if it were not the Trustee.
18. No Personal Liability. No director, officer, partner,
member, employee or direct or indirect stockholder, as such, past, present or
future of the Company or any Guarantor or any other successor entity, as such,
shall have any personal liability for any obligations of the Company or any
Guarantor under the Notes, the Guarantees, this Indenture or the Registration
Rights Agreement or for any claim based on, in respect
A-7
<PAGE>
of, or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability and acknowledges and
consents to the Transactions for purposes of Section 506 of the California
General Corporation Law and Section 10-640 of the Arizona Business Corporation
Act. The waiver and release are part of the consideration for the issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
19. Guarantees. This Note will be entitled to the benefits of
certain Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Guarantors, the
Trustee and the Holders.
20. Authentication. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
21. Governing Law. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Note.
22. Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to:
A-8
<PAGE>
Penhall Acquisition Corp., 1801 Penhall Way, P.O. Box 4609,
Anaheim, California 92803, Attention: Martin Houge.
A-9
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security
or tax ID number of assignee)
and irrevocably appoint ___________________________, agent to transfer this Note
on the books of the Company. The agent may substitute another to act for him.
Dated: Signed:
------------- -------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
------------------------------------------------------------
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Note
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer:
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
A-10
<PAGE>
(3) __ to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933, as amended) that has furnished to the Trustee a signed
letter containing certain representations and agreements
(the form of which letter can be obtained from the Trustee);
or
(4) __ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act of 1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule
144 under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the
Securities Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the
registration requirements of the Securities Act of 1933, as
amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/ / The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to
register any of the Notes evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if item
(3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior
to registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
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<PAGE>
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Note in the name of any person
other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: Signed:
------------------- ----------------------------------------------
(Sign exactly as name appears on the other
side of this Note)
Signature Guarantee:
------------------------------------------------------------
A-12
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
--------------------- ---------------------------------------
NOTICE: To be executed by an executive
officer
A-13
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the
appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state
the amount you elect to have purchased:
$
--------------------
Dated:
---------------------- ----------------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Note in every particular
without alteration or enlargement
or any change whatsoever and be
guaranteed.
Signature Guarantee:
----------------------------------------------------------
A-14
<PAGE>
EXHIBIT B
CUSIP No.:
PENHALL ACQUISITION CORP.
12% SENIOR NOTE DUE 2006, SERIES B
No. [ ] $
PENHALL ACQUISITION CORP., an Arizona corporation (the
"Company"), for value received, promises to pay to Cede & Co. or registered
assigns the principal sum of [ ] Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1, commencing
February 1, 1999
Record Dates: January 15 and July 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
PENHALL ACQUISITION CORP.
By:
----------------------
Name:
Title:
By:
----------------------
Name:
Title:
Dated: August 4, 1998
B-1
<PAGE>
Certificate of Authentication
This is one of the 12% Senior Notes due 2006, Series B
referred to in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
----------------------------
Authorized Signatory
Date of Authentication: August 4, 1998
B-2
<PAGE>
(REVERSE OF SECURITY)
12% Senior Note due 2006, Series B
1. Interest. PENHALL ACQUISITION CORP., an Arizona corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from August 4, 1998. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing February 1, 1999. Interest
will be computed on the basis of a 360-day year of twelve 30-day months and, in
the case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on
overdue installments of interest from time to time on demand at the rate borne
by the Notes and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the
Notes (except defaulted interest) to the Persons who are the registered Holders
at the close of business on the Record Date immediately preceding the Interest
Payment Date even if the Notes are canceled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender Notes to
a Paying Agent to collect principal payments. The Company shall pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice to
the Holders.
4. Indenture. The Company issued the Notes under an Indenture,
dated as of August 1, 1998 (the "Indenture"), among the Company, each of the
Guarantors named therein and the Trustee. This Note is one of a duly authorized
issue of Exchange Notes of the Company designated as its 12% Senior Notes due
2006, Series B (the "Exchange Notes"). The Notes include the 12% Senior Notes
due 2006, Series A (the "Initial Notes") and the Exchange Notes, issued in
exchange for the Initial Notes pursuant to a registration rights agreement. The
Notes
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<PAGE>
are limited (except as otherwise provided in the Indenture) in aggregate
principal amount to $150,000,000, which may be issued under the Indenture;
provided the principal amount of Initial Notes issued on the Issue Date will not
exceed $100,000,000. The Initial Notes and the Exchange Notes are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Each Holder, by accepting a Note, agrees to be bound by all of
the terms and provisions of the Indenture, as the same may be amended from time
to time in accordance with its terms.
5. Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after August
1, 2003, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on August 1 of the years set
forth below, plus, in each case, accrued and unpaid interest, if any, thereon to
the date of redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003..................................................... 106.000%
2004..................................................... 104.000%
2005 .................................................... 102.000%
</TABLE>
At any time, or from time to time, on or prior to August 1,
2001, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 30% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the offering on the Issue Date
and (ii) the respective initial aggregate principal amounts of the Notes issued
under the Indenture after the Issue Date at a redemption price equal to 112.0%
of the principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of redemption; provided that at least 70% of the sum of (i) the
initial aggregate principal amount of the Notes issued in the offering on the
Issue Date and (ii) the respective initial aggregate principal amounts of the
Notes issued under the Indenture after the Issue Date remains outstanding
immedi-
B-4
<PAGE>
ately after any such redemption. In order to effect the foregoing redemption
with the proceeds of any Public Equity Offering, the Company shall make such
redemption not more than 120 days after the consummation of any such Public
Equity Offering.
6. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the
redemption of the Notes called for redemption shall have been deposited with the
Paying Agent for redemption on such Redemption Date, then, unless the Company
defaults in the payment of such redemption price plus accrued interest, if any,
the Notes called for redemption will cease to bear interest from and after such
Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the redemption price plus accrued interest, if any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture), and subject
to further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes are in
registered form, without coupons, and in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange Notes
in accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for
redemption.
9. Persons Deemed Owners. The registered Holder of a Note
shall be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for one year, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
B-5
<PAGE>
11. Discharge Prior to Redemption or Maturity. If the Company
at any time deposits with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of and interest on the Notes to
redemption and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, including, under certain
circumstances, its obligation to pay the principal of and interest on the Notes
but without affecting the rights of the Holders to receive such amounts from
such deposit).
12. Amendment; Supplement; Waiver. Subject to certain
exceptions set forth in the Indenture, the Indenture or the Notes may be amended
or supplemented with the written consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding, and any past Default
or Event of Default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, comply
with any requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA or comply with Article Five of the
Indenture or make any other change that does not adversely affect the rights of
any Holder of a Note.
13. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Company and its Subsidiaries to, among other
things, incur additional Indebtedness, pay dividends or make certain other
Restricted Payments, consummate certain Asset Sales, enter into certain
transactions with Affiliates, incur liens, impose restrictions on the ability of
a Subsidiary to pay dividends or make certain payments to the Company and its
Subsidiaries, merge or consolidate with any other Person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
14. Successors. When a successor assumes, in accordance with
the Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
B-6
<PAGE>
15. Defaults and Remedies. If an Event of Default occurs and
is continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
16. Trustee Dealings with the Company and Its Subsidiaries.
The Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
its Subsidiaries or their respective Affiliates as if it were not the Trustee.
17. No Personal Liability. No director, officer, partner,
member, employee or direct or indirect stockholder, as such, past, present or
future of the Company or any Guarantor or any other successor entity, as such,
shall have any personal liability for any obligations of the Company or any
Guarantor under the Notes, the Guarantees, this Indenture or the Registration
Rights Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability and acknowledges and consents to the
Transactions for purposes of Section 506 of the California General Corporation
Law and Section 10-640 of the Arizona Business Corporation Act. The waiver and
release are part of the consideration for the issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
18. Guarantees. This Note will be entitled to the benefits of
certain Guarantees, if any, made for the benefit of the Holders. Reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations thereunder of the Guarantors, the
Trustee and the Holders.
B-7
<PAGE>
19. Authentication. This Note shall not be valid until the
Trustee or Authenticating Agent manually signs the certificate of authentication
on this Note.
20. Governing Law. This Note and the Indenture shall be
governed by and construed in accordance with the laws of the State of New York,
as applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Note.
21. Abbreviations and Defined Terms. Customary abbreviations
may be used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes as a convenience to the Holders
of the Notes. No representation is made as to the accuracy of such numbers as
printed on the Notes and reliance may be placed only on the other identification
numbers printed hereon.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note. Requests may be made to: Penhall Acquisition Corp., 1801 Penhall Way, P.O.
Box 4609, Anaheim, California 92803, Attention: Martin Houge.
B-8
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID number
of assignee)
and irrevocably appoint _____________________________________________________,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------------- ----------------------------
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:
B-9
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, check the
appropriate box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased
by the Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state
the amount you elect to have purchased:
$
-------------------
Dated: _______________ _________________________________
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in every
particular without alteration or
enlargement or any change whatso-
ever and be guaranteed.
Signature Guarantee:_________________________
B-10
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of 12% Senior Notes
due 2006 (the "Notes") of Penhall Acquisition Corp., an Arizona corporation (the
"Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated July 28, 1998, relating to the Notes and
such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Transfer Restrictions" of such
Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture relating to the Notes (the "Indenture") as described in the
Offering Memorandum and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Notes except in compliance
with, such restrictions and conditions and the Securities Act of 1933,
as amended (the "Securities Act"), and all applicable State securities
laws.
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to the Company or any subsidiary thereof, (ii)
inside the United States in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined in Rule
144A promulgated under the Securities Act),
C-1
<PAGE>
(iii) inside the United States to an institutional "accredited
investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to the
Trustee (as defined in the Indenture) a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of the Notes (the form of which letter can be obtained from
the Trustee), (iv) outside the United States in accordance with Rule
904 of Regulation S promulgated under the Securities Act to non-U.S.
persons, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (vi) pursuant to
an effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing any of the Notes
from us a notice advising such purchaser that resales of the Notes are
restricted as stated herein.
4. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and
the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or their
investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
C-2
<PAGE>
You, the Company, the Trustee and others are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
----------------------------
Name:
Title:
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<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[ ], [ ]
[ ]
[ ]
[ ]
Re: Penhall Acquisition Corp. (the "Company")
12% Senior Notes due 2006 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
You, the Company and counsel for the Company are entitled to
rely upon this letter and are irrevocably authorized
D-1
<PAGE>
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------
Authorized Signature
D-2
<PAGE>
EXHIBIT E
FORM OF GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Note the cash payments in United States dollars of principal of, premium, if
any, and interest on this Note (and including Liquidated Damages payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Note, if lawful, and
the payment or performance of all other obligations of the Company under the
Indenture (as defined below) or the Notes, to the Holder of this Note and the
Trustee, all in accordance with and subject to the terms and limitations of this
Note, Article Ten of the Indenture and this Guarantee. This Guarantee will
become effective in accordance with Article Ten of the Indenture and its terms
shall be evidenced therein. The validity and enforceability of any Guarantee
shall not be affected by the fact that it is not affixed to any particular Note.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Indenture dated as of August 1, 1998, among Penhall Acquisition
Corp., an Arizona corporation, as Company (the "Company") and United States
Trust Company of New York, as Trustee (the "Trustee"), as amended or
supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
E-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to
be duly executed.
Date:______________
[ ], as
Guarantor
By:________________
Name:
Title:
By:________________
Name:
Title:
E-2
<PAGE>
Exhibit 4.2
PENHALL INTERNATIONAL CORP.
as Issuer
PENHALL RENTAL CORP.
and
PENHALL COMPANY
as Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
-------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of August 4, 1998
to
INDENTURE
Dated as of August 1, 1998
between
PENHALL ACQUISITION CORP., as Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
-------------------
up to $150,000,000
12% Senior Notes due 2008, Series A
12% Senior Notes due 2008, Series B
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of August 4, 1998,
between PENHALL INTERNATIONAL CORP., an Arizona corporation formerly known as
Phoenix Concrete Cutting, Inc. ("Penhall"), PENHALL RENTAL CORP., a California
corporation ("Penhall Corp.") and PENHALL COMPANY, a California corporation
("Penhall Co.") and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the
"Trustee").
WHEREAS, PENHALL ACQUISITION CORP., an Arizona, corporation
("Penhall Acquisition"), has heretofore executed and delivered to the Trustee an
Indenture dated as of August 1, 1998 (the "Indenture"), providing for the
issuance of up to $150,000,000 aggregate principal amount of Penhall
Acquisition's 12% Senior Notes due 2006, Series A (the "Initial Notes") and
Penhall Acquisition's 12% Senior Notes due 2006, Series B (the "Exchange Notes"
and, together with the Initial Notes, the "Notes"); and
WHEREAS, Penhall Acquisition has merged with and into Penhall
and, in connection therewith, Penhall has assumed by operation of law all of
Penhall Acquisition's debts, liabilities, duties and obligations, including
Penhall Acquisition's obligations in respect of the Notes and under the
Indenture; and
WHEREAS, Penhall desires by this First Supplemental Indenture,
pursuant to and as contemplated by Sections 5.01, 5.02 and 9.01 of the
Indenture, to expressly assume the covenants, agreements and undertakings of
Penhall Acquisition, in the Indenture and under the Notes; and
WHEREAS, each of Penhall Corp. and Penhall Co. is required
pursuant to Section 4.18 of the Indenture to become a party thereto and to
guarantee (the "Guarantees") the obligations of Penhall in respect of the Notes
and under the Indenture as Guarantors; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture and the notes evidencing the Initial Notes and the Exchange Notes have
been authorized by a resolution of the Board of Directors of Penhall; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture and the Guarantee of the Notes has been authorized by a resolution of
the Board of Directors of each of Penhall Corp. and Penhall Co.; and
<PAGE>
WHEREAS, all conditions and requirements necessary to make
each of this First Supplemental Indenture and the Notes a valid, binding and
legal instrument in accordance with its terms upon Penhall and the Trustee, and
each of this First Supplemental Indenture and the Guarantees a valid, binding
and legal instrument in accordance with its terms upon each of Penhall Corp. and
Penhall Co. and the Trustee, have been performed and fulfilled by the applicable
parties hereto and the execution and delivery thereof have been in all respects
duly authorized by the applicable parties hereto.
NOW, THEREFORE, in consideration of the above premises, each
party agrees, for the benefit of the others and for the equal and ratable
benefit of the Holders of the Notes, as follows:
ARTICLE ONE
ASSUMPTION OF OBLIGATIONS
SECTION 1.01. Assumption of Obligations
of Penhall Acquisition Co.
(a) Penhall hereby expressly and unconditionally assumes each
and every covenant, agreement and undertaking of Penhall Acquisition in the
Indenture as if Penhall had been the original issuer of the Notes, and also
hereby expressly and unconditionally assumes each and every covenant, agreement
and undertaking in each Note outstanding on the date of this First Supplemental
Indenture and any Notes delivered hereafter. Any Notes delivered after the date
of this First Supplemental Indenture, including Notes delivered in substitution
or exchange for any outstanding Notes, as provided in the Indenture, shall be
executed and delivered by Penhall in its own name, with such notations, legends
or endorsements required by law, stock exchange rules or usage, and each Note
shall constitute the obligation of Penhall.
(b) Promptly following the execution and delivery of this
First Supplemental Indenture, the Trustee shall, upon the written order of
Penhall in the form of an Officers' Certificate of Penhall, authenticate and
deliver Initial Notes substantially in the form of Exhibit A to the Indenture in
exchange for the outstanding Initial Notes.
2
<PAGE>
SECTION 1.02. Assumption of Obligations
of the Guarantors.
Each of Penhall Corp. and Penhall Co. hereby expressly and
unconditionally assume each and every covenant, agreement and undertaking of a
Guarantor under the Indenture and also hereby expressly and unconditionally
assume each and every covenant, agreement and undertaking relating to the
Guarantors in each Note outstanding on the date of this First Supplemental
Indenture.
ARTICLE TWO
MISCELLANEOUS PROVISIONS
SECTION 2.01. Terms Defined.
For all purposes of this First Supplemental Indenture, except
as otherwise defined or unless the context otherwise requires, terms used in
capitalized form in this First Supplemental Indenture and defined in the
Indenture have the meanings specified in the Indenture.
SECTION 2.02. Indenture.
Except as amended hereby, the Indenture, the Notes and the
Guarantees are in all respects ratified and confirmed and all the terms shall
remain in full force and effect.
SECTION 2.03. Governing Law.
THIS FIRST SUPPLEMENTAL INDENTURE, THE NOTES AND THE
GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT
OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS SUPPLEMENTAL INDENTURE, THE NOTES OR THE GUARANTEES.
SECTION 2.04. Successors.
All agreements of Penhall, Penhall Corp. and Penhall Co. in
this First Supplemental Indenture, the Notes and the Guarantees shall bind their
respective successors. All agree-
3
<PAGE>
ments of the Trustee in this First Supplemental Indenture shall bind its
successors.
SECTION 2.05. Duplicate Originals.
All parties may sign any number of copies of this First
Supplemental Indenture. Each signed copy shall be an original, but all of them
together shall represent the same agreement.
SECTION 2.06. Trustee Disclaimer.
The Trustee accepts the amendment of the Indenture effected by
this First Supplemental Indenture and agrees to execute the trust created by the
Indenture as hereby amended, but only upon the terms and conditions set forth in
the Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture as hereby amended and,
without limiting the generality of the foregoing, the Trustee shall not be
responsible in any manner whatsoever for or with respect to any of the recitals
or statements contained herein, all of which recitals or statements are made
solely by Penhall, Penhall Corp. and Penhall Co., or for or with respect to (i)
the validity of the terms of this First Supplemental Indenture or any of the
terms or provisions hereof, (ii) the proper authorization hereof by Penhall,
Penhall Corp. and Penhall Co. by corporate action or otherwise, (iii) the due
execution hereof by Penhall, Penhall Corp. and Penhall Co. or (iv) the
consequences (direct or indirect and whether deliberate or inadvertent) of any
amendment herein provided for, and the Trustee makes no representation with
respect to any such matters.
[Signature Page Follows]
4
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
PENHALL INTERNATIONAL CORP.,
as Issuer
By: /s/ Martin W. Houge
----------------------------------------
Name: Martin W. Houge
Title: Vice President - Finance
PENHALL RENTAL CORP.,
as Guarantor
By: /s/ Martin W. Houge
----------------------------------------
Name: Martin W. Houge
Title: Vice President - Finance
PENHALL COMPANY,
as Guarantor
By: /s/ Martin W. Houge
----------------------------------------
Name: Martin W. Houge
Title: Vice President - Finance
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ Christine C. Collins
----------------------------------------
Name: Christine C. Collins
Title: Assistant Vice President
<PAGE>
Exhibit 4.3
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT (this "Agreement"), dated as of August 4,
1998, is by Penhall International Corp., an Arizona corporation formerly known
as Phoenix Concrete Cutting, Inc. (the "Company"), Penhall Rental Corp., a
California corporation ("Penhall Corp."), and Penhall Company, a California
corporation (together with Penhall Corp., the "Guarantors").
W I T N E S S E T H
WHEREAS, Penhall Acquisition Corp., an Arizona corporation
("Penhall Acquisition"), has heretofore executed and delivered to the Initial
Purchaser a purchase agreement (the "Purchase Agreement"), dated as of July 28,
1998, providing for the terms pursuant to which the Initial Purchasers will
purchase $100,000,000 aggregate principal amount of 12% Senior Notes due 2006
(the "Notes") of Penhall Acquisition;
WHEREAS, Penhall Acquisition has heretofore executed and
delivered to the Initial Purchaser a registration rights agreement (the
"Registration Rights Agreement"), dated as of August 4, 1998, providing for the
registration of the Notes of Penhall Acquisition under the Securities Act of
1933, as amended;
WHEREAS, Penhall Acquisition has been merged with and into the
Company (the "Merger") with the Company continuing as the surviving corporation;
WHEREAS, pursuant to the Purchase Agreement and the
Registration Rights Agreement, the Company upon consummation of the Merger is
required to assume all of the obligations of Penhall Acquisition under the
Purchase Agreement and the Registration Rights Agreement and to execute and
deliver this Agreement concurrently with the Merger; and
WHEREAS, pursuant to the Purchase Agreement and the
Registration Rights Agreement, immediately subsequent to the Merger, the
Guarantors are required to become parties to the Purchase Agreement and the
Registration Rights Agreement and to guarantee the obligations of the Company
with respect to the Notes thereunder;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and the Guarantors mutually
<PAGE>
covenant and agree for the benefit of the Initial Purchasers as follows:
1. ASSUMPTION. The Company hereby agrees to assume all of the
obligations of Penhall Acquisition and all of its own obligations under each of
the Purchase Agreement and the Registration Rights Agreement.
2. GUARANTORS. The Guarantors hereby agree to be deemed the
"Guarantors" for all purposes under the Purchase Agreement and the "Guarantors"
and an "Issuer" for all purposes under the Registration Rights Agreement and to
perform all obligations and duties of the Guarantors or an Issuer, as the case
may be, thereunder.
3. REPRESENTATIONS AND WARRANTIES. By execution of this
Agreement, the Company and the Guarantors hereby acknowledge and agree that they
are making all of the representations and warranties to the Initial Purchasers
that the Issuer provided in the Purchase Agreement; provided that where the
Issuer has qualified such representations and warranties as being given to their
knowledge, the Company and the Guarantors shall be deemed to have made such
representations and warranties without any such qualification (except for (i)
the knowledge qualification contained in Section 2(n) of the Purchase Agreement,
with respect to threatened matters, (ii) the second knowledge qualification
contained in the second clause of Section 2(o) of the Purchase Agreement, (iii)
the knowledge qualification found in clause (c) of Section 2(v) of the Purchase
Agreement, with respect to threatened matters, and (iv) the second knowledge
qualification in Section 2(w) of the Purchase Agreement).
4. DEFINITIONS. Capitalized terms used herein but not defined
shall have the meanings given to such terms in the Purchase Agreement and the
Registration Rights Agreement.
5. NEW YORK LAW TO GOVERN. The internal law of the State of
New York, without regard to the choice of law rules thereof, shall govern and be
used to construe this Agreement.
6. COUNTERPARTS. The parties may sign any number of copies of
this Agreement. Each signed copy shall be an original, but all of them together
represent the same agreement.
2
<PAGE>
7. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered, all as of the date first above
written, which is the date of the Merger.
PENHALL INTERNATIONAL CORP.
By: /s/ Martin W. Houge
-------------------------------------
Name: Martin W. Houge
Title: Chief Financial Officer
PENHALL RENTAL CORP.
By: /s/ Martin W. Houge
-------------------------------------
Name: Martin W. Houge
Title: Chief Financial Officer
PENHALL COMPANY
By: /s/ Martin W. Houge
-------------------------------------
Name: Martin W. Houge
Title: Chief Financial Officer
<PAGE>
===============================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 4, 1998
by and among
PENHALL ACQUISITION CORP.
and
BT ALEX. BROWN INCORPORATED
and
CREDIT SUISSE FIRST BOSTON CORPORATION
as Initial Purchasers
$100,000,000
12% Senior Notes due 2006
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions..........................................................................................2
2. Exchange Offer.......................................................................................6
3. Shelf Registration..................................................................................10
4. Additional Interest.................................................................................13
5. Registration Procedures.............................................................................15
6. Registration Expenses...............................................................................25
7. Indemnification.....................................................................................26
8. Rules 144 and 144A..................................................................................30
9. Underwritten Registrations..........................................................................31
10. Miscellaneous.......................................................................................31
(a) No Inconsistent Agreements................................................................31
(b) Adjustments Affecting Registrable Notes...................................................31
(c) Amendments and Waivers....................................................................32
(d) Notices...................................................................................32
(e) Successors and Assigns....................................................................33
(f) Counterparts..............................................................................34
(g) Headings..................................................................................34
(h) Governing Law.............................................................................34
(i) Severability..............................................................................34
(j) Securities Held by the Issuers, or
Their Affiliates..........................................................................34
(k) Third Party Beneficiaries.................................................................34
(l) Binding Effect............................................................................34
(m) Entire Agreement..........................................................................35
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated
as of August 4, 1998, by and among Penhall Acquisition Corp., an Arizona
corporation ("Penhall"), and BT Alex. Brown Incorporated and Credit Suisse First
Boston Corporation (each individually, an "Initial Purchaser" and collectively,
the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of July 28, 1998, by and among Penhall and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by Penhall to
the Initial Purchasers of $100,000,000 aggregate principal amount of its 12%
Senior Notes due 2006 (the "Notes"). In order to induce the Initial Purchasers
to enter into the Purchase Agreement, Penhall has agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and any subsequent holder or holders of the Notes. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.
The Notes are being sold in connection with a recapitalization
(the "Recapitalization") of Penhall Rental Corp. (formerly Penhall
International, Inc.), a California corporation ("PRC"). The Recapitalization
will be effected through the transactions contemplated by the Agreement and Plan
of Merger (the "Merger Agreement") dated July 1, 1998 by and among PRC, the
stockholders of PRC, Phoenix Concrete Cutting, Inc., an Arizona corporation
("Phoenix"), Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS") and Penhall.
Pursuant to the Merger Agreement, a newly formed, wholly owned subsidiary
("Phoenix Merger Sub") of Phoenix will be merged with and into PRC (the
"Reorganization Merger"), with PRC continuing as the surviving corporation.
Pursuant to the terms of the Merger Agreement, immediately following the
Reorganization Merger and a series of equity transfers contemplated within the
Merger Agreement, Phoenix will receive common equity in PRC such that Phoenix
will become the corporate parent and will own all the outstanding capital stock
of PRC. Immediately following the Reorganization Merger, Penhall will be merged
with and into Phoenix (the "Recapitalization Merger" and, together with the
Reorganization Merger, the "Mergers"), with Phoenix continuing as the surviving
corporation and the successor obligor on the Notes. Following the consummation
of the Recapitalization Merger, Phoenix will change its corporate name to
"Penhall International Corp." The time of the consummation of the Mergers is
referred to herein as the "Effective Time."
<PAGE>
Immediately after the Effective Time, Phoenix will execute an
assumption agreement (the "Assumption Agreement") pursuant to which Phoenix, as
survivor of the Recapitalization Merger, will assume all of the obligations of
Penhall under this Registration Rights Agreement, and PRC and Penhall Company, a
California corporation, will become party to this Registration Rights Agreement
as guarantors (the "Guarantors") and unconditionally guarantee the Notes (the
"Guarantee") on a senior unsecured basis. As used herein, the "Issuers" shall
mean Penhall prior to the Effective Time and, at and as of the Effective Time,
Phoenix and the Guarantors.
The Notes and the Guarantees are to be issued under an
indenture (the "Indenture") to be dated as of August 1, 1998 by and between the
Issuers and United States Trust Company of New York, as Trustee (the "Trustee").
Immediately after the Effective Time, Phoenix, the Guarantors and the Trustee
will enter into a first supplemental indenture to the Indenture (the
"Supplemental Indenture") providing for the express assumption by Phoenix, as
survivor of the Merger, of the covenants, agreements and undertakings of Penhall
in the Indenture and under the Notes, and the guarantee of the Notes by the
Guarantors. References to this Agreement as of and after the Effective Time will
refer to this Registration Rights Agreement together with the Assumption
Agreement and references to the Indenture as of and after the Effective Time
will refer to the Indenture and the Supplemental Indenture.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2(b) hereof.
Business Day: A day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are required by law, regulation
or executive order to remain closed.
2
<PAGE>
Effectiveness Date: With respect to (i) the Exchange Offer
Registration Statement, the 150th day after the Issue Date, (ii) the Initial
Shelf Registration Statement, the 60th day after delivery of the Shelf Notice
and (iii) all other Shelf Registration Statements, the 60th day after the filing
date thereof.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Offer Registration Statement: See Section 2(a)
hereof.
Filing Date: (A) If no Registration Statement has been filed
by the Issuers pursuant to this Agreement, the 60th day after the Issue Date;
and (B) in any other case (which may be applicable notwithstanding the
consummation of the Exchange Offer), the 60th day after the delivery of a Shelf
Notice.
Guarantors: See the introductory paragraphs hereto.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: See the introductory paragraphs hereto.
Initial Purchasers: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(o) hereof.
Issue Date: August 4, 1998, the date of original issuance of
the Notes.
3
<PAGE>
NASD: See Section 5(s) hereof.
Notes: See the introductory paragraphs hereto.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, firm, government or agency or political subdivision thereof or
other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act and any term sheet filed pursuant
to Rule 434 under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Note upon its original issuance and at
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until (i) a Registration Statement (other than, with respect
to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been, or could have
4
<PAGE>
been, exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange
Notes that may be resold without restriction under state and federal securities
laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may
be, ceases to be outstanding for purposes of the Indenture or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, may be resold
without restriction pursuant to Rule 144 under the Securities Act.
Registration Statement: Any registration statement of the
Issuers that covers any of the Registrable Notes, including, but not limited to,
the Exchange Offer Registration Statement, filed with the SEC under the
Securities Act and all amendments and supplements to any such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference or deemed to be incorporated by reference in any such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Issuers of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(b) hereof.
Shelf Registration: See Section 3(b) hereof.
Shelf Registration Statement: Any Registration Statement
relating to a Shelf Registration.
5
<PAGE>
Subsequent Shelf Registration: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: See the introductory paragraphs hereto.
Underwritten registration or underwritten offering: A
registration in which securities of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) To the extent not prohibited by applicable law or
applicable interpretation of the staff of the Division of Corporation Finance of
the SEC, the Issuers shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "Exchange Offer Registration Statement") on an
appropriate registration form with respect to a registered offer (the "Exchange
Offer") to exchange any and all of the Registrable Notes for a like aggregate
principal amount of notes (the "Exchange Notes") of Phoenix, guaranteed by the
Guarantors, that are identical in all material respects to the Notes except that
the Exchange Notes shall contain no restrictive legend thereon. The Exchange
Offer shall comply with all applicable tender offer rules and regulations under
the Exchange Act and other applicable laws. The Issuers shall use their
reasonable efforts to (x) cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act on or before the Effectiveness Date;
(y) keep the Exchange Offer open for at least 20 Business Days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to Holders; and (z) consummate the Exchange Offer on or prior to the
180th day after the Issue Date. If, after the Exchange Offer Registration
Statement is initially declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, the Exchange Offer Registration Statement shall be deemed not
to have become effective for purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be
required to represent to the Issuers in writing that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, that at
the time of the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Notes in violation of the pro-
6
<PAGE>
visions of the Securities Act, and that such Holder is not an affiliate of the
Issuers within the meaning of the Securities Act or, if such Holder is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act applicable to it, that if such Holder is a
broker-dealer, it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes, and that if such Holder is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making or other trading activities, it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply, solely
with respect to Registrable Notes that are Private Exchange Notes, Exchange
Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by
Participating Broker-Dealers, and the Issuers shall have no further obligation
to register Registrable Notes (other than Private Exchange Notes and other than
in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies)
pursuant to Section 3 hereof. No securities other than the Exchange Notes shall
be included in the Exchange Offer Registration Statement.
(b) The Issuers shall include within the Prospectus contained
in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Holders, which shall contain a
summary statement of the positions taken or policies made by the staff of the
SEC with respect to the potential "underwriter" status of any broker-dealer that
is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Notes received by such broker-dealer in the Exchange Offer or any other
Person with similar prospectus delivery requirements for use in connection with
any resale of Exchange Notes (a "Participating Broker-Dealer"), whether such
positions or policies have been publicly disseminated by the staff of the SEC or
such positions or policies represent the prevailing views of the staff of the
SEC. Such "Plan of Distribution" section shall also expressly permit, to the
extent permitted by applicable policies and regulations of the SEC, the use of
the Prospectus by all Persons subject to the prospectus delivery requirements of
the Securities Act, including, to the extent permitted by applicable policies
and regulations of the SEC, all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes in compliance with the Securities Act.
7
<PAGE>
The Issuers shall use their reasonable efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with applicable
law in connection with any resale of the Exchange Notes covered thereby;
provided, however, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof), or such
earlier date as each Participating Broker-Dealer shall have notified the Company
in writing that such Participating Broker-Dealer has resold all Exchange Notes
acquired in the Exchange Offer (the "Applicable Period").
If, prior to consummation of the Exchange Offer, any Initial
Purchaser holds any Notes acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or if any Holder is not entitled to participate in the Exchange
Offer, the Issuers upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "Private Exchange") for such Notes held by any
such Holder, a like principal amount of notes (the "Private Exchange Notes") of
Phoenix, guaranteed by the Guarantors, that are identical in all material
respects to the Exchange Notes (except that they may bear a customary legend
with respect to restrictions on transfer). The Private Exchange Notes shall be
issued pursuant to the same indenture as the Exchange Notes and bear the same
CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes
will accrue from (A) the later of (i) the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor or (ii) if the
Notes are surrendered for exchange on a date subsequent to the record date for
an interest payment date to occur on or after the date of such exchange and as
to which interest will be paid, the date of such interest payment or (B) if no
interest has been paid on the Notes, from the date of the original issuance of
the Notes.
In connection with the Exchange Offer, the Issuers shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part
of the Exchange Offer Registration
8
<PAGE>
Statement, together with an appropriate letter of transmittal and
related documents;
(2) keep the Exchange Offer open for not less than 20 Business
Days after the date that notice of the Exchange Offer is mailed to
Holders (or longer if required by applicable law);
(3) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(4) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last Business Day
on which the Exchange Offer shall remain open; provided, however, that
withdrawal rights may be terminated upon any extension of the Exchange
Offer; and
(5) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
and the Private Exchange, if any, the Issuers shall:
(1) accept for exchange all Notes validly tendered and not
validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(2) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder of Notes, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Notes of such Holder so
accepted for exchange.
The Exchange Offer and the Private Exchange shall not be
subject to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might materially impair the ability of the Issuers to proceed with the Exchange
Offer or the Private Exchange, and no material adverse development shall have
occurred in any existing action or proceeding with respect to the Issuers, and
(iii) all governmental approvals shall have been obtained,
9
<PAGE>
which approvals the Issuers deem necessary for the consummation of the Exchange
Offer or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter.
(c) If (i) because of any change in law or in currently
prevailing interpretations of the staff of the SEC, the Issuers are not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not
consummated within 180 days of the Issue Date, (iii) the Initial Purchasers or
any holder of Private Exchange Notes so requests in writing to the Issuers at
any time after the consummation of the Exchange Offer with respect to Private
Exchange Notes that are not eligible for resale without restriction under
federal securities laws, or (iv) in the case of any Holder that participates in
the Exchange Offer, such Holder does not receive Exchange Notes on the date of
the exchange that may be sold without restriction under federal securities laws
(other than due solely to the status of such Holder as an affiliate of any of
the Issuers within the meaning of the Securities Act) and so notifies the
Issuers within 30 days after such Holder first becomes aware of such
restrictions, in the case of each of clauses (i) to and including (iv) of this
sentence, then the Issuers shall promptly deliver to the Holders and the Trustee
written notice thereof (the "Shelf Notice") and shall file a Shelf Registration
pursuant to Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issuers shall file with the SEC a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Notes not permitted to be exchanged
in the Exchange Offer in accordance with the terms of this Agreement, Private
Exchange Notes and Exchange Notes as to which Section 2(c)(iv)
10
<PAGE>
is applicable (the "Initial Shelf Registration"). The Issuers shall use their
reasonable efforts to file with the SEC the Initial Shelf Registration on or
before the applicable Filing Date. The Initial Shelf Registration shall be on
Form S-1 or another appropriate form permitting registration of such Registrable
Notes for resale by Holders in the reasonable manner or manners designated by
them (including, without limitation, one or more underwritten offerings). The
Issuers shall not permit any securities other than the Registrable Notes to be
included in the Initial Shelf Registration or any Subsequent Shelf Registration
(as defined below).
The Issuers shall use their reasonable efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Issue Date, subject to extension pursuant to the last paragraph
of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending
when all Registrable Notes covered by the Shelf Registration have been sold in
the manner set forth and as contemplated in the Initial Shelf Registration or,
if applicable, a Subsequent Shelf Registration covering all of the Registrable
Notes covered by and not sold under the Initial Shelf Registration Statement or
an earlier Subsequent Shelf Registration has been declared effective under the
Securities Act; provided, however, that the Effectiveness Period in respect of
the Initial Shelf Registration shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery requirements of
Rule 174 under the Securities Act and as otherwise provided herein and shall be
reduced to the extent that the applicable provisions of Rule 144(k) are amended
or revised to reduce the two year holding period set forth therein or any
similar rule providing for a shorter holding period; provided, further, that the
Issuers may suspend the availability or effectiveness of a Shelf Registration
Statement by written notice to the Holders for a period not to exceed 40
calendar days in any consecutive 365-day period if (i) an event occurs and is
continuing as a result of which such Shelf Registration Statement would, in the
Issuers' good faith judgment, contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading and (ii) (a) the Issuers determine in good faith that the
disclosure of such event at such time would have a material adverse effect on
the business, operations or prospects of the Issuers, taken as a whole, or (b)
the disclosure otherwise relates to a previously undisclosed pending material
business transaction, the disclosure of which would impede the Issuers' ability
to consummate such
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transaction; provided, further, however, that if at the end of the Effectiveness
Period, all of the Registrable Notes covered by the Shelf Registration Statement
have not been sold, the Issuers will cause the effectiveness to be extended by
the number of days during which the Shelf Registration Statement was not usable
pursuant to the preceding proviso.
No Holder of Registrable Notes may include any of its
Registrable Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until (i) such Holder (other than an Initial Purchaser) agrees in
writing to be bound by all of the provisions of this Agreement applicable to
such Holder, and (ii) such Holder furnishes to the Issuers in writing, within 15
Business Days after receipt of a request therefor, such information as the
Issuers may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein. No Holder of
Registrable Notes shall be entitled to Additional Interest pursuant to Section 4
hereof unless and until such Holder shall have provided all such reasonably
requested information. Each Holder of Registrable Notes as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Issuers all information required to be disclosed in order to make information
previously furnished to the Issuers by such Holder not a material misstatement
or omission.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Issuers shall use
their reasonable efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall as soon as practicable after
such cessation of effectiveness amend the Initial Shelf Registration in a manner
to obtain the withdrawal of the order suspending the effectiveness thereof, or
file an additional Shelf Registration Statement pursuant to Rule 415 covering
all of the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent
Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuers
shall use their reasonable efforts to cause the Subsequent Shelf Registration to
be declared effective under the Securities Act as soon as practicable after such
filing and to keep such Shelf Registration continuously effective for a period
equal to the number of days in the Effectiveness Period (subject to reduction as
provided herein) less the aggregate number of days during which the Initial
Shelf Registration or
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any Subsequent Shelf Registration was previously continuously effective. As used
herein the term "Shelf Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the
Holders will suffer damages if the Issuers fail to fulfill their obligations
under Section 2 or Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, the Issuers
agree to pay, as liquidated damages, additional interest on the Notes
("Additional Interest") under the circumstances and to the extent set forth
below (each of which shall be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor
the Initial Shelf Registration has been filed on or prior to the
applicable Filing Date or (B) notwithstanding that the Issuers have
consummated or will consummate the Exchange Offer, the Issuers are
required to file a Shelf Registration and such Shelf Registration is
not filed on or prior to the Filing Date applicable thereto, then,
commencing on the day after any such Filing Date, Additional Interest
shall accrue on the principal amount of the Notes at a rate of 0.5% per
annum for the first 90 days immediately following such applicable
Filing Date, and such Additional Interest rate shall increase by an
additional 0.5% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor
the Initial Shelf Registration is declared effective by the SEC on or
prior to the Effectiveness Date applicable thereto or (B)
notwithstanding that the Issuers have consummated or will consummate
the Exchange Offer, the Issuers are required to file a Shelf
Registration and such Shelf Registration is not declared effective by
the SEC on or prior to the Effectiveness Date applicable to
13
<PAGE>
such Shelf Registration, then, commencing on the day after such
Effectiveness Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.5% per annum for the first 90 days
immediately following the day after such Effectiveness Date, and such
Additional Interest rate shall increase by an additional 0.5% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 30th day after the Exchange Offer Registration
Statement is declared effective or (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration
ceases to be effective at any time during the Effectiveness Period for
a period of ten consecutive days without being succeeded by an
effective Shelf Registration Statement, then Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.5% per annum
for the first 90 days commencing on the (x) 31st day after the Exchange
Offer Registration Statement is declared effective, in the case of (A)
above, or (y) the 11th day after such Shelf Registration ceases to be
effective, in the case of (B) above, and such Additional Interest rate
shall increase by an additional 0.5% per annum at the beginning of each
such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 2.0% per annum; provided, further, however,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) of this Section 4), or upon the effectiveness of the applicable Shelf
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) of this Section 4), Additional Interest on the Notes in respect of
which such events relate as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue. Additional Interest will
not accrue with respect to a Shelf Registration Statement during any period in
which the Issuers suspend the effectiveness or use of such Shelf Registration
Statement in accordance with the terms of Section 3(a) hereof.
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(b) The Issuers shall notify the Trustee within one Business
Day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on the interest payment dates specified
in the Indenture and the Notes to the holders of record as specified in the
Indenture, commencing with the first such interest payment date occurring after
any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Registrable Notes, multiplied by a fraction,
the numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
composed of twelve 30-day months and, in the case of a partial month, the actual
number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Issuers hereunder the
Issuers shall:
(a) Prepare and file with the SEC prior to the applicable
Filing Date, a Registration Statement or Registration Statements as
prescribed by Sections 2 or 3 hereof, and use its reasonable efforts to
cause each such Registration Statement to become effective and remain
effective as provided herein; provided, however, that, if (1) such
filing is pursuant to Section 3 hereof or (2) a Prospectus contained in
the Exchange Offer Registration Statement filed pursuant to Section 2
hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the
Issuers shall furnish to and afford the Holders of the Registrable
Notes covered by such Registration Statement or BT Alex. Brown
Incorporated (the "Representative") on behalf of such Participating
Broker-Dealer, as the case may be, their or its counsel and the
managing underwriters, if any, a reasonable opportunity to review
copies of all such documents (including
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copies of any documents to be incorporated by reference therein and
all exhibits thereto) proposed to be filed (in each case at least five
business days prior to such filing, or such later date as is
reasonable under the circumstances). The Issuers shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto if the Holders of a majority in aggregate principal amount of
the Registrable Notes covered by such Registration Statement, their
counsel, or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration Statement or
Exchange Offer Registration Statement, as the case may be, as may be
necessary to keep such Registration Statement continuously effective
for the Effectiveness Period or the Applicable Period or until
consummation of the Exchange Offer, as the case may be; cause the
related Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) promulgated under
the Securities Act; and comply with the provisions of the Securities
Act and the Exchange Act applicable to it with respect to the
disposition of all securities covered by such Registration Statement as
so amended or in such Prospectus as so supplemented and with respect to
the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus. The Issuers shall be
deemed not to have used their reasonable efforts to keep a Registration
Statement effective during the Effective Period or the Applicable
Period, as the case may be, relating thereto if the Issuers voluntarily
take any action that would result in selling Holders of the Registrable
Notes covered thereby or Participating Broker-Dealers seeking to sell
Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless (i) such action is required by
applicable law or (ii) the Issuers comply with this Agreement,
including without limitation, the provisions of Section 5(k) or the
last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period relating thereto from whom the Issuers have received written
notice
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<PAGE>
that it will be a Participating Broker-Dealer in the Exchange Offer,
notify the selling Holders of Registrable Notes, or the Representative
on behalf of such Participating Broker-Dealer, as the case may be,
their or its counsel and the managing underwriters, if any, promptly
(but in any event within two Business Days), and, if requested by any
such Person, confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been filed,
and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any
Holder may, upon request, obtain, at the sole expense of the Issuers,
one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference therein and
exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time
when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes or resales of Exchange
Notes by Participating Broker-Dealers the representations and
warranties of the Issuers contained in any agreement (including any
underwriting agreement) contemplated by Section 5(m) hereof cease to be
true and correct in all material respects, (iv) of the receipt by the
Issuers of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration
Statement or any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known to the Issuers that makes
any statement made in such Registration Statement or related Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of
any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact
17
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or omit to state any 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, and (vi) of
the Issuers' determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, use its reasonable efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending
the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such order is
issued, to use its reasonable efforts to obtain the withdrawal of any
such order at the earliest possible date.
(e) If a Shelf Registration is filed pursuant to Section 3
hereof and if requested by the managing underwriter or underwriters (if
any), the Holders of a majority in aggregate principal amount of the
Registrable Notes being sold in connection with an underwritten
offering or any Participating Broker-Dealer, (i) as promptly as
practicable incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or underwriters
(if any), such Holders, any Participating Broker-Dealer or counsel for
any of them reasonably request to be included therein, (ii) make all
required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuers have received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment; provided, however, that the
Issuers shall not be required to take any action hereunder that would
in the written opinion of counsel to the Issuers violate applicable
law, and (iii) supplement or make amendments to such Registration
Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Secu-
18
<PAGE>
rities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and the Representative on behalf of such
Participating Broker-Dealer and to counsel and each managing
underwriter, if any, at the sole expense of the Issuers, one conformed
copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to
be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the
Issuers, as many copies of the Prospectus or Prospectuses (including
each form of preliminary prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Issuers hereby consent to the use of such
Prospectus and each amendment or supplement thereto by each of the
selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if
any, and dealers (if any), in connection with the offering and sale of
the Registrable Notes covered by, or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use its reasonable efforts to
register or qualify, and to cooperate with the selling Holders of
Registrable Notes or the Representative on behalf of such Participating
Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with
the registration or qualification (or exemption from such registration
or qualification) of such Registrable Notes for offer and
19
<PAGE>
sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters reasonably
request in writing; provided, however, that where Exchange Notes held
by Participating Broker-Dealers or Registrable Notes are offered other
than through an underwritten offering, the Issuers agree to cause
their counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by
Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided, however, that the Issuers
shall not be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action
that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request at least two
Business Days prior to any sale of such Registrable Notes.
(j) Use its reasonable efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be reasonably
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Notes, except as may be required solely as a consequence of the nature
of such selling Holder's business, in which case the Issuers will
cooperate in all
20
<PAGE>
reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and
(subject to Section 5(a) hereof) file with the SEC, at the sole expense
of the Issuers, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes being sold
thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain 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 the light of the
circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee
with certificates for the Registrable Notes or Exchange Notes, as the
case may be, in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes or
Exchange Notes, as the case may be.
(m) In connection with any underwritten offering of
Registrable Notes pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Notes in form and substance reasonably
satisfactory to the Issuers and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in
order to expedite or facilitate the registration or the disposition of
such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters
with respect to the business of the Issuers and their subsidiaries and
the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference
21
<PAGE>
therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of debt securities similar to
the Notes, and confirm the same in writing if and when requested in
form and substance reasonably satisfactory to the Issuers; (ii) obtain
the written opinions of counsel to the Issuers and written updates
thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions reasonably
requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters;
(iii) use its reasonable efforts to obtain "cold comfort" letters and
updates thereof in form, scope and substance reasonably satisfactory
to the managing underwriter or underwriters from the independent
certified public accountants of the Issuers (and, if necessary, any
other independent certified public accountants of any subsidiary of
the Issuers or of any business acquired by the Issuers for which
financial statements and financial data are, or are required to be,
included or incorporated by reference in the Registration Statement),
addressed to the underwriter, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings of debt securities
similar to the Notes and such other matters as reasonably requested by
the managing underwriter or underwriters as permitted by the Statement
on Auditing Standards No. 72; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and
procedures no less favorable to the sellers and underwriters, if any,
than those set forth in Section 7 hereof (or such other provisions and
procedures acceptable to Holders of a majority in aggregate principal
amount of Registrable Notes covered by such Registration Statement and
the managing underwriter or underwriters or agents, if any). The above
shall be done at each closing under such underwriting agreement, or as
and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer,
as the case may be, any underwriter par-
22
<PAGE>
ticipating in any such disposition of Registrable Notes, if any,
and any attorney, accountant or other agent retained by any such
selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the
offices where normally kept, during reasonable business hours, all
financial and other records, pertinent corporate documents and
instruments of the Issuers and their subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Issuers and their subsidiaries to
supply all information reasonably requested by any such Inspector in
connection with such Registration Statement and Prospectus. Each
Inspector shall agree in writing that it will keep the Records
confidential and that it will not disclose any of the Records unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement or Prospectus,
(ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, or (iii) the
information in such Records has been made generally available to the
public; provided, however, that such Inspector shall take such actions
as are reasonably necessary to protect the confidentiality of such
information (if practicable) to the extent such action is otherwise
not inconsistent with, an impairment of or a derogation of the rights
and interests of the Holder or any Inspector. Each selling Holder of
such Registrable Notes and each such Participating Broker-Dealer will
be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the
Issuers unless and until such information is made generally available
to the public. Each selling Holder of such Registrable Notes and each
such Participating Broker-Dealer will be required to further agree
that it will, upon learning that disclosure of such Records is sought
in a court of competent jurisdiction, give notice to the Issuers and
allow the Issuers to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Issuers' expense.
(o) Provide an indenture trustee for the Registrable Notes or
the Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may
be, to be qualified under the TIA not later than the effective date of
the first
23
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Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such
indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be
so qualified in accordance with the terms of the TIA; and execute, and
use its reasonable efforts to cause such trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to their respective securityholders
earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated
under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if
such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Issuers after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods.
(q) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Issuers (or to such other Person as directed by the Issuers) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Issuers shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being cancelled in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be; in no event shall such Registrable Notes be marked as paid
or otherwise satisfied.
(r) Use its reasonable efforts to cause the Registrable Notes
covered by a Registration Statement to be rated with the appropriate
rating agencies, if so requested by the managing underwriter or
underwriters, if any.
(s) Cooperate with the managing underwriter, if any,
participating in the disposition of Registrable Notes and its counsel
in connection with any filings required to be
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<PAGE>
made with the National Association of Securities Dealers, Inc.
(the "NASD").
(t) Use its reasonable efforts to take all other steps
reasonably necessary to effect the registration of the Exchange Notes
and/or Registrable Notes covered by a Registration Statement
contemplated hereby.
The Issuers may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Issuers such
information regarding such seller and the distribution of such Registrable Notes
as the Issuers may, from time to time, reasonably request. The Issuers may
exclude from such registration the Registrable Notes of any seller so long as
such seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Issuers all information required to
be disclosed in order to make the information previously furnished to the
Issuers by such seller not to contain a material misstatement or omission.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from the Issuers of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Notes covered by such Registration Statement or Prospectus or Exchange Notes to
be sold by such Holder or Participating Broker-Dealer, as the case may be, and
the dissemination of the applicable Prospectus until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "Advice") by the Issuers that the use of the applicable
Prospectus may be resumed. In the event that the Issuers shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
25
<PAGE>
6. Registration Expenses
All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer Registration Statement or any Shelf
Registration Statement is filed or becomes effective or the Exchange Offer is
consummated, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or in respect of
Exchange Notes to be sold by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Issuers and, in the
case of a Shelf Registration, reasonable fees and disbursements of one special
counsel for all of the sellers of Registrable Notes (exclusive of any counsel
retained pursuant to Section 7 hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(m)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Issuers desire such insurance, (vii) fees and
expenses of all other Persons retained by the Issuers, (viii) internal expenses
of the Issuers (including, without limitation, all salaries and expenses of
officers and employees of the Issuers performing legal or accounting duties),
(ix) the expense of any annual audit, (x) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, and the obtaining of a rating of the securities, in each case, if
applicable, and (xi) the expenses relat-
26
<PAGE>
ing to printing, word processing and distributing all Registration Statements,
underwriting agreements, indentures and any other documents necessary in order
to comply with this Agreement. Notwithstanding the foregoing, each Holder shall
pay any underwriting discounts and commissions incurred in connection with
Registrable Notes sold on such Holder's behalf.
7. Indemnification
(a) Each of the Issuers, jointly and severally, agree to
indemnify and hold harmless each Holder of Registrable Notes and each
Participating Broker-Dealer selling Exchange Notes during the Applicable Period,
the officers and directors of each such Person, and each Person, if any, who
controls any such Person within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from
and against any and all losses, claims, damages, judgments, liabilities and
expenses (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Issuers shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the case of the
Prospectus in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses are caused by, arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Participant furnished to the Issuers
in writing by such Participant expressly for use therein; provided, however,
that the Issuers will not be liable if such untrue statement or omission or
alleged untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the final Prospectus or any amendment or supplement
thereto and any such loss, liability, claim, or damage or expense suffered or
incurred by the Participants resulted from any action, claim or suit by any
Person who purchased Registrable Notes or Exchange Notes which are the subject
thereof from such Participant and such Participant failed to deliver or provide
a copy of the final Prospectus (as amended or supplemented) to such Person with
or prior to the confirmation of the sale of such Registrable Notes or Exchange
Notes sold to such Person if required by applicable law, unless such failure to
27
<PAGE>
deliver or provide a copy of the final Prospectus (as amended or supplemented)
was a result of material noncompliance by the Issuers with Section 5 of this
Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Issuers, their respective directors, their
respective officers who sign the Registration Statement and each Person who
controls the Issuers within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Issuers to each Participant, but only with reference to information
relating to such Participant furnished to the Issuers in writing by such
Participant expressly for use in any Registration Statement or Prospectus, any
amendment or supplement thereto, or any preliminary prospectus. The liability of
any Participant under this paragraph shall in no event exceed the proceeds
received by such Participant from sales of Registrable Notes or Exchange Notes
giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Persons against whom such indemnity may be
sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons
shall be entitled to, and upon request of the Indemnified Person shall, retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Persons may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
that the failure to so notify the Indemnifying Persons shall not relieve any of
them of any obligation or liability which any of them may have hereunder or
otherwise except to the extent it is materially prejudiced by such failure. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Persons and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Persons shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both any Indemnifying Person and the Indemnified Person or any affiliate thereof
and representation of both parties by the same counsel would be inappropriate
due to actual or potential
28
<PAGE>
conflicting interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Persons shall not, in
connection with such proceeding or separate but substantially similar related
proceeding in the same jurisdiction arising out of the same general allegations,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants and shall be
reasonably acceptable to the Issuers and any such separate firm for the Issuers,
their respective directors, their respective officers and such control Persons
of the Issuers shall be designated in writing by the Issuers and shall be
reasonably acceptable to the Holders. The Indemnifying Persons shall not be
liable for any settlement of any proceeding effected without its prior written
consent (which consent shall not be unreasonably withheld or delayed), but if
settled with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify
and hold harmless each Indemnified Person from and against any loss or liability
by reason of such settlement or judgment. No Indemnifying Person shall, without
the prior written consent of the Indemnified Persons (which consent shall not be
unreasonably withheld or delayed), effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party, or indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in clauses (a) and (b)
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims,
29
<PAGE>
damages, liabilities or expenses in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the misstatements
or omissions or alleged misstatements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers, on the one hand
or such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such misstatement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages, judgments, liabilities and expenses referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses actually
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
30
<PAGE>
(f) Any losses, claims, damages, liabilities or expenses for
which an Indemnified Person is entitled to indemnification or contribution under
this Section 7 shall be paid by the Indemnifying Person to the Indemnified
Person as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Issuers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Issuers, and their respective directors, officers, employees or
agents or any person controlling the Issuers, and (ii) any termination of this
Agreement.
(g) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
The Issuers covenant and agree that, so long as Registrable
Notes remain outstanding, it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
Issuers are not required or permitted to file such reports, the Issuers will,
upon the request of any Holder or beneficial owner of Registrable Notes, make
available such information necessary to permit sales pursuant to Rules 144 and
144A under the Securities Act. The Issuers further covenant for so long as any
Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A. Notwithstanding the foregoing, nothing in this Section 8 shall be
deemed to require any of the Issuers to register any of the Securities pursuant
to the Exchange Act.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Issuers
31
<PAGE>
and shall be reasonably acceptable to the Holders of a majority in aggregate
principal amount of such Registrable Notes included in such offering.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. As of the date hereof, the
Issuers have not, and after the date hereof, shall not enter into any agreement
with respect to any of its securities that is inconsistent with the rights
granted to the Holders of Registrable Notes in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of any of the Issuers' other issued and
outstanding securities. As of the date hereof, the Issuers have not entered and
the Issuers will not enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back registration rights with
respect to any Registration Statement required to be filed by the Issuers
pursuant to this Agreement.
(b) Adjustments Affecting Registrable Notes. The Issuers shall
not, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes in a registration undertaken
pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of (I) the Issuers and (II)(A) the Holders of not less
than a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would adversely affect the
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; provided, however, that Section 7 and this Section
10(c) may not be amended, modified or supple-
32
<PAGE>
mented without the prior written consent of each Holder and each Participating
Broker-Dealer (including any person who was a Holder or Participating
Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be,
disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture, with a copy in like
manner to the Initial Purchasers as follows:
BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No: (212) 250-7200
Attention: Corporate Finance
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: Daniel J. Zubkoff, Esq.
(ii) if to the Initial Purchasers, at the address specified
in Section 10(d)(i);
(iii) if to the Issuers, at the address as follows:
33
<PAGE>
c/o Penhall International, Inc.
1801 Penhall Way
P.O. Box 4609
Anaheim, California 92803
Facsimile No.: (215) 994-2222
Attention: Chief Financial Officer
with a copy to:
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Facsimile No.: (212) 698-3599
Attention: Bruce B. Wood, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; three Business
Days after being deposited in the mail, postage prepaid, if mailed; one Business
Day after being timely delivered to a next-day air courier; and upon receiving
confirmation of receipt by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers, provided that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Notes in violation of the terms of the Purchase Agreement or the
Indenture.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY
34
<PAGE>
WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Issuers, or Their Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the Issuer,
the Issuers or any of their affiliates (as such term is defined in Rule 405
under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes
and Participating Broker-Dealers are intended third party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(l) Binding Effect. The provisions of this Agreement will not
be binding upon the Company or any of the Guarantors prior to the consummation
of the Mergers (as defined in the Purchase Agreement).
(m) Entire Agreement. This Agreement, together with the
Purchase Agreement, the Assumption Agreement, the Indenture and the Supplemental
Indenture, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchasers on
the one hand and the Issuers on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
35
<PAGE>
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
PENHALL ACQUISITION CORP.
By: /s/ Paul D. Kaminski
-------------------------------------------
Name: Paul D. Kaminski
Title: Vice President
BT ALEX. BROWN INCORPORATED
CREDIT SUISSE FIRST BOSTON
CORPORATION
as Initial Purchasers
By: BT ALEX. BROWN INCORPORATED
By: /s/ Keith Stimson
-------------------------------------------
Name: Keith Stimson
Title: Vice President
<PAGE>
Exhibit 4.6
================================================================================
CREDIT AGREEMENT
among
PENHALL INTERNATIONAL CORP.,
PENHALL ACQUISITION CORP.,
VARIOUS LENDING INSTITUTIONS,
and
BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT
and
CREDIT SUISSE FIRST BOSTON,
AS SYNDICATION AGENT
------------------------------------
Dated as of August 4, 1998
------------------------------------
$50,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Amount and Terms of Credit..............................................................................2
1.01 Commitments..........................................................................................2
1.02 Minimum Borrowing Amounts, etc.......................................................................3
1.03 Notice of Borrowing..................................................................................3
1.04 Disbursement of Funds................................................................................4
1.05 Notes................................................................................................4
1.06 Conversions..........................................................................................5
1.07 Pro Rata Borrowings..................................................................................6
1.08 Interest.............................................................................................6
1.09 Interest Periods.....................................................................................7
1.10 Increased Costs, Illegality, etc.....................................................................8
1.11 Compensation; Breakage...............................................................................9
1.12 Change of Lending Office............................................................................10
1.13 Replacement of Banks................................................................................10
SECTION 2. Letters of Credit......................................................................................11
2.01 Letters of Credit...................................................................................11
2.02 Minimum Stated Amount...............................................................................12
2.03 Letter of Credit Requests; Notices of Issuance; Reports.............................................12
2.04 Agreement to Repay Letter of Credit Drawings........................................................13
2.05 Letter of Credit Participations.....................................................................13
2.06 Increased Costs.....................................................................................16
SECTION 3. Fees; Commitments......................................................................................16
3.01 Fees 16
3.02 Voluntary Reduction of Commitments..................................................................17
3.03 Mandatory Adjustments of Commitments, etc...........................................................18
SECTION 4. Payments...............................................................................................18
4.01 Voluntary Prepayments...............................................................................18
4.02 Mandatory Repayments and Commitment Reductions......................................................19
4.03 Method and Place of Payment.........................................................................23
4.04 Net Payments........................................................................................23
SECTION 5. Conditions Precedent...................................................................................25
5.01 Execution of Agreement..............................................................................25
5.02 No Default; Representations and Warranties..........................................................26
5.03 Officer's Certificate...............................................................................26
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
5.04 Opinions of Counsel.................................................................................26
5.05 Corporate Proceedings...............................................................................26
5.06 Plans; Existing Indebtedness Agreements; Shareholders'
Agreements; Management Agreements; Employment Agreements............................................26
5.07 Adverse Change, etc.................................................................................27
5.08 Litigation..........................................................................................27
5.09 Approvals...........................................................................................28
5.10 Consummation of the Recapitalization; Equity Issuance...............................................28
5.11 Senior Notes Issuance...............................................................................29
5.12 Fees................................................................................................29
5.15 Mortgages...........................................................................................30
5.16 Solvency............................................................................................30
5.17 Insurance Policies; Bonding Requirements............................................................31
5.18 Refinanced Agreements...............................................................................31
5.19 Notice of Borrowing; Letter of Credit Request.......................................................31
5.20 Projections.........................................................................................31
SECTION 6. Representations, Warranties and Agreements.............................................................32
6.01 Corporate Status....................................................................................32
6.02 Corporate Power and Authority.......................................................................32
6.03 No Violation........................................................................................32
6.04 Litigation..........................................................................................33
6.05 Use of Proceeds; Margin Regulations.................................................................33
6.06 Governmental Approvals..............................................................................33
6.07 Investment Company Act..............................................................................33
6.08 Public Utility Holding Company Act..................................................................33
6.09 True and Complete Disclosure........................................................................33
6.10 Financial Condition; Financial Statements...........................................................34
6.11 Security Interests..................................................................................35
6.12 Representations and Warranties in Documents.........................................................35
6.13 Consummation of Transaction.........................................................................35
6.14 Tax Returns and Payments............................................................................35
6.15 Compliance with ERISA...............................................................................36
6.16 Subsidiaries; Subsidiary Restrictions...............................................................37
6.17 Patents, etc........................................................................................38
6.18 Pollution and Other Regulations.....................................................................38
6.19 Properties..........................................................................................39
6.20 Labor Relations.....................................................................................39
6.21 Existing Indebtedness...............................................................................39
6.22 Capitalization......................................................................................39
6.23 Year 2000 Representation............................................................................39
SECTION 7. Affirmative Covenants..................................................................................40
7.01 Information Covenants...............................................................................40
7.02 Books, Records and Inspections; Bank Meetings.......................................................42
</TABLE>
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7.03 Maintenance of Property; Insurance; Bonding.........................................................42
7.04 Payment of Taxes....................................................................................42
7.05 Corporate Franchises................................................................................43
7.06 Compliance with Statutes, etc.......................................................................43
7.07 ERISA...............................................................................................43
7.08 Good Repair.........................................................................................44
7.09 End of Fiscal Years; Fiscal Quarters................................................................44
7.10 Use of Proceeds.....................................................................................44
7.11 Additional Security; Further Assurances.............................................................44
7.12 Compliance with Environmental Laws..................................................................45
SECTION 8. Negative Covenants.....................................................................................46
8.01 Changes in Business.................................................................................46
8.03 Liens...............................................................................................48
8.04 Indebtedness........................................................................................50
8.05 Capital Expenditures................................................................................50
8.06 Advances, Investments and Loans.....................................................................52
8.07 Prepayments of Indebtedness; Modification of Preferred Stock and Other Agreements, etc..............53
8.08 Dividends, etc......................................................................................53
8.09 Transactions with Affiliates........................................................................54
8.10 Interest Coverage Ratio.............................................................................55
8.11 Leverage Ratio......................................................................................56
8.12 Issuance of Stock...................................................................................57
8.13 Limitation on Creation of Subsidiaries..............................................................58
8.14 Minimum Consolidated EBITDA.........................................................................58
8.15 Interest on the Junior Subordinated Exchange Notes.................................................59
SECTION 9. Events of Default......................................................................................59
9.01 Payments............................................................................................59
9.02 Representations, etc................................................................................59
9.03 Covenants...........................................................................................59
9.04 Default Under Other Agreements......................................................................60
9.05 Bankruptcy, etc.....................................................................................60
9.06 ERISA...............................................................................................60
9.07 Security Documents..................................................................................61
9.08 Subsidiary Guaranty.................................................................................61
9.09 Judgments...........................................................................................61
9.10 Change of Control...................................................................................61
SECTION 10. Definitions...........................................................................................62
SECTION 11.The Administrative Agent...............................................................................83
11.01 Appointment........................................................................................83
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11.02 Nature of Duties...................................................................................84
11.03 Lack of Reliance on the Administrative Agent.......................................................84
11.04 Certain Rights of the Administrative Agent.........................................................84
11.05 Reliance...........................................................................................85
11.06 Indemnification....................................................................................85
11.07 The Administrative Agent in Its Individual Capacity................................................85
11.08 Holders............................................................................................85
11.09 Resignation by the Administrative Agent............................................................85
SECTION 12. Miscellaneous.........................................................................................86
12.01 Payment of Expenses, etc...........................................................................86
12.02 Right of Setoff....................................................................................87
12.03 Notices............................................................................................88
12.04 Assignments; Participations; Etc...................................................................88
12.05 No Waiver; Remedies Cumulative.....................................................................90
12.06 Payments Pro Rata..................................................................................91
12.07 Calculations; Computations.........................................................................91
12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.............................92
12.09 Counterparts.......................................................................................92
12.10 Effectiveness......................................................................................93
12.11 Headings Descriptive...............................................................................93
12.12 Amendment or Waiver................................................................................93
12.13 Survival...........................................................................................94
12.14 Domicile of Loans..................................................................................94
12.15 Confidentiality....................................................................................94
12.16 Register...........................................................................................95
12.17 Release of BRS.....................................................................................95
12.18 No Personal Liability.......................................................................................95
</TABLE>
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ANNEX I -- Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Subsidiaries
ANNEX IV -- Real Property
ANNEX V -- Existing Indebtedness
ANNEX VI -- Insurance
ANNEX VII -- Existing Liens
ANNEX VIII -- Refinanced Agreements
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B-1 -- Form of Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT B-3 -- Form of Swingline Note
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EXHIBIT C -- Form of Letter of Credit Request
EXHIBIT D -- Form of 4.04(b)(ii) Certificate
EXHIBIT E -- Form of Opinion of Dechert Price & Rhoads
EXHIBIT F -- Form of Officers' Certificate
EXHIBIT G -- Form of Subsidiary Guaranty
EXHIBIT H -- Form of Pledge Agreement
EXHIBIT I -- Form of Security Agreement
EXHIBIT J -- Form of Solvency Certificate
EXHIBIT K -- Form of Assignment Agreement
</TABLE>
(v)
<PAGE>
CREDIT AGREEMENT, dated as of August 4, 1998, among PENHALL
INTERNATIONAL CORP., an Arizona corporation ("New Penhall"), Penhall Acquisition
Corp., an Arizona corporation ("Acquisition Corp."), the lending institutions
listed from time to time on Annex I (each a "Bank" and, collectively, the
"Banks"), BANKERS TRUST COMPANY as administrative agent (the "Administrative
Agent") and CREDIT SUISSE FIRST BOSTON as syndication agent (the "Syndication
Agent"). Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Banks are willing to make available to the Borrower the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01. Commitments. Subject to and upon the terms and
conditions set forth herein, each Bank with a Commitment therefor severally
agrees to make a loan or loans (each a "Loan" and, collectively, the "Loans") to
the Borrower, which Loans shall be drawn, to the extent such Bank has a
commitment under such Facility, under the Term Facility and the Revolving
Facility, as set forth below:
(a) Loans under the Term Facility (each a "Term Loan" and,
collectively, the "Term Loans"), (i) shall be made pursuant to a single
drawing which shall be on the Initial Borrowing Date, (ii) except as
hereinafter provided, may, at the option of the Borrower, be incurred
and maintained as and/or converted into Base Rate Loans or Eurodollar
Loans, provided, that (x) all Term Loans made by all Banks pursuant to
the same Borrowing shall, unless otherwise specifically provided
herein, consist entirely of Term Loans of the same Type, (y) unless the
Administrative Agent has determined that the Syndication Date has
occurred (at which time this clause (y) shall no longer be applicable),
no more than two Borrowings of Term Loans to be maintained as
Eurodollar Loans may be incurred prior to the 60th day after the
Initial Borrowing Date (each of which Borrowings of Eurodollar Loans
may only have an Interest Period of one month, and the first of which
Borrowings may only be made on a single date on or after the Initial
Borrowing Date and on or before the sixth Business Day following the
Initial Borrowing Date and the second of which Borrowings may only be
made on the last day of the Interest Period of the first such
Borrowing) and (z) all Term Loans incurred by the Borrower on the
Initial Borrowing Date and made as Eurodollar Loans on such date may
only have an Interest Period of one month and (iii) shall not exceed in
aggregate principal amount for any Bank at the time of incurrence
thereof the Term Commitment, if any, of such Bank. Once repaid, Term
Loans borrowed hereunder may not be reborrowed.
(b) Loans under the Revolving Facility (each a "Revolving
Loan" and, collectively, the "Revolving Loans"), (i) shall be made at
any time and from time to time on and after
<PAGE>
the Initial Borrowing Date and prior to the Revolving Loan Maturity
Date, (ii) except as hereinafter provided, may, at the option of the
Borrower, be incurred and maintained as, and/or converted into, Base
Rate Loans or Eurodollar Loans, provided that (x) all Revolving Loans
made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Revolving Loans of the same
Type and (y) unless the Administrative Agent has determined that the
Syndication Date has occurred (at which time this clause (y) shall no
longer be applicable), no more than two Borrowings of Revolving Loans
to be maintained as Eurodollar Loans may be incurred prior to the 60th
day after the Initial Borrowing Date (each of which Borrowings of
Eurodollar Loans may only have an Interest Period of one month, and
the first of which Borrowings may only be made on a single date on or
after the Initial Borrowing Date and on or before the sixth Business
Day following the Initial Borrowing Date and the second of which
Borrowings may only be made on the last day of the Interest Period of
the first such Borrowing), (iii) may be repaid and reborrowed in
accordance with the provisions hereof and (iv) shall not exceed for
any Bank at any time outstanding that aggregate principal amount
which, when combined with the aggregate outstanding principal amount
of all other Revolving Loans of such Bank and with such Bank's
Adjusted RC Percentage, if any, of the sum of (I) the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the outstanding
principal amount of Swingline Loans (exclusive of Swingline Loans
which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such
time, equals (1) if such Bank is a Non-Defaulting Bank, the Adjusted
Revolving Commitment, if any, of such Bank at such time and (2) if
such Bank is a Defaulting Bank, the Revolving Commitment, if any, of
such Bank at such time.
(c) Subject to and upon the terms and conditions set forth
herein, BTCo in its individual capacity agrees to make at any time and
from time to time on and after the Initial Borrowing Date and prior to
the Swingline Expiry Date, a Loan or Loans to the Borrower (each a
"Swingline Loan," and, collectively, the "Swingline Loans"), which
Swingline Loans (i) shall be made and maintained as Base Rate Loans,
(ii) may be repaid and reborrowed in accordance with the provisions
hereof, (iii) shall not exceed in aggregate principal amount at any
time outstanding, when combined with the aggregate principal amount of
all Revolving Loans made by Non-Defaulting Banks then outstanding and
the Letter of Credit Outstandings (exclusive of Unpaid Drawings which
are repaid with the proceeds of, and simultaneously with the incurrence
of, the respective incurrence of Swingline Loans) at such time, an
amount equal to the Adjusted Total Revolving Commitment then in effect
(after giving effect to any reductions to the Adjusted Total Revolving
Commitment on such date) and (iv) shall not exceed in aggregate
principal amount at any time outstanding the Maximum Swingline Amount.
BTCo will not make a Swingline Loan after it has received written
notice from the Required Banks that one or more of the applicable
conditions to Credit Events specified in Section 5 are not then
satisfied.
(d) On any Business Day, BTCo may, in its sole discretion,
give notice to the RC Banks that its outstanding Swingline Loans shall
be funded with a Borrowing of Revolving
2
<PAGE>
Loans (provided that each such notice shall be deemed to have been
automatically given upon the occurrence of an Event of Default under
Section 9.05 or upon the exercise of any of the remedies provided in
the last paragraph of Section 9), in which case a Borrowing of
Revolving Loans constituting Base Rate Loans (each such Borrowing, a
"Mandatory Borrowing") shall be made on the immediately succeeding
Business Day by all RC Banks pro rata based on each RC Bank's Adjusted
RC Percentage, and the proceeds thereof shall be applied directly to
repay BTCo for such outstanding Swingline Loans. Each RC Bank hereby
irrevocably agrees to make Base Rate Loans upon one Business Day's
notice pursuant to each Mandatory Borrowing in the amount and in the
manner specified in the preceding sentence and on the date specified
in writing by BTCo notwithstanding (i) that the amount of the
Mandatory Borrowing may not comply with the Minimum Borrowing Amount
otherwise required hereunder, (ii) whether any conditions specified in
Section 5 are then satisfied, (iii) whether a Default or an Event of
Default has occurred and is continuing, (iv) the date of such
Mandatory Borrowing and (v) any reduction in the Total Revolving
Commitment or the Adjusted Total Revolving Commitment after any such
Swingline Loans were made. In the event that any Mandatory Borrowing
cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code in respect of the Borrower), each
RC Bank (other than BTCo) hereby agrees that it shall forthwith
purchase from BTCo (without recourse or warranty) such assignment of
the outstanding Swingline Loans as shall be necessary to cause the RC
Banks to share in such Swingline Loans ratably based upon their
respective Adjusted RC Percentages, provided that all interest payable
on the Swingline Loans shall be for the account of BTCo until the date
the respective assignment is purchased and, to the extent attributable
to the purchased assignment, shall be payable to the RC Bank
purchasing same from and after such date of purchase.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal
amount of each Borrowing under a Facility shall not be less than the Minimum
Borrowing Amount for such Facility. The aggregate principal amount of each
Borrowing of Swingline Loans shall not be less than $100,000, and, if greater,
shall be in an integral multiple of $50,000. More than one Borrowing may be
incurred on any day, provided that at no time shall there be outstanding more
than eight Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
incur Loans under any Facility (excluding Borrowings of Swingline Loans and
Revolving Loans incurred pursuant to a Mandatory Borrowing), the Borrower shall
give the Administrative Agent at its Notice Office, prior to 11:00 A.M. (New
York time), at least three Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans and
at least one Business Day's prior written notice (or telephonic notice promptly
confirmed in writing) of each Borrowing of Base Rate Loans to be made hereunder.
Each such notice (each a "Notice of Borrowing") shall be in the form of Exhibit
A and shall specify (i) the Facility pursuant to which such Borrowing is being
made, (ii) the aggregate principal amount of the Loans to be made pursuant to
such Borrowing, (iii) the date of Borrowing (which shall be a Business Day) and
(iv) whether the respective Borrowing shall consist of Base Rate Loans or (to
the extent permitted) Eurodollar Loans and, if Eurodollar Loans, the Interest
Period to be initially
3
<PAGE>
applicable thereto. The Administrative Agent shall promptly give each Bank
written notice (or telephonic notice on that day promptly confirmed in writing)
of each proposed Borrowing, of such Bank's proportionate share thereof and of
the other matters covered by the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to incur a Borrowing of
Swingline Loans hereunder, the Borrower shall give BTCo, prior to 1:00 P.M. (New
York time) on the day such Swingline Loan is to be made, written notice (or
telephonic notice promptly confirmed in writing) of each Swingline Loan to be
made hereunder. Each such notice shall specify in each case (x) the date of such
Borrowing (which shall be a Business Day) and (y) the aggregate principal amount
of the Swingline Loan to be made pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice
specified in Section 1.01(d), with the Borrower irrevocably agreeing, by its
incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set
forth in such Section 1.01(d).
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New
York time) on the date specified in each Notice of Borrowing, each Bank with a
Commitment under the respective Facility will make available its pro rata share
of each Borrowing requested to be made on such date in the manner provided
below, provided that all Swingline Loans shall be made available by BTCo no
later than 3:00 P.M. (New York time) on the date so requested. All such amounts
shall be made available to the Administrative Agent in U.S. dollars and
immediately available funds at the Payment Office and the Administrative Agent
promptly will make available to the Borrower by depositing to its account at the
Payment Office the aggregate of the amounts so made available in the type of
funds received. Unless the Administrative Agent shall have been notified by any
Bank prior to the date of Borrowing that such Bank does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Bank has
made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank and the Administrative
Agent has made available same to the Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount from such Bank. If such Bank does
not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to recover
on demand from such Bank or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to the Borrower to the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (x) if paid by such Bank, the overnight Federal Funds
Effective Rate or (y) if paid by the Borrower, the then applicable rate of
interest, calculated in accordance with Section 1.08, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Bank from
its obligation to fulfill its Commitments hereunder or to prejudice any rights
which the Borrower may have against any Bank as a result of any default by such
Bank hereunder.
4
<PAGE>
1.05 Notes. (a) The Borrower's obligation to pay the principal
of, and interest on, the Loans made to it by each Bank shall be evidenced (i) if
Term Loans, by a promissory note substantially in the form of Exhibit B-1 with
blanks appropriately completed in conformity herewith (each a "Term Note" and,
collectively, the "Term Notes"), (ii) if Revolving Loans, by a promissory note
substantially in the form of Exhibit B-2 with blanks appropriately completed in
conformity herewith (each a "Revolving Note" and, collectively, the "Revolving
Notes") and (iii) if Swingline Loans, by a promissory note substantially in the
form of Exhibit B-3 with blanks appropriately completed in conformity herewith
(the "Swingline Note").
(b) The Term Note issued to each Bank that makes a Term Loan
shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank
and be dated the Initial Borrowing Date, (iii) be in a stated principal amount
equal to the Term Loans made by such Bank on the Initial Borrowing Date (or
subsequently purchased by such Bank) and be payable in the principal amount of
Term Loans evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced
thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(c) The Revolving Note issued to each Bank with a Revolving
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank and be dated the Initial Borrowing Date, (iii) be in a stated
principal amount equal to the Revolving Commitment of such Bank and be payable
in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on
the Revolving Loan Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01 and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.
(d) The Swingline Note issued to BTCo shall (i) be executed by
the Borrower, (ii) be payable to the order of BTCo and be dated the Initial
Borrowing Date, (iii) be in a stated principal amount equal to the Maximum
Swingline Amount and be payable in the principal amount of Swingline Loans
evidenced thereby, (iv) mature on the Swingline Expiry Date, (v) bear interest
as provided in Section 1.08 in respect of the Base Rate Loans evidenced thereby,
(vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(e) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation (or any error in such notation) shall not affect the Borrower's
obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to
convert on any Business Day occurring on and after the Syndication Date all or a
portion at least equal to the applicable
5
<PAGE>
Minimum Borrowing Amount of the outstanding principal amount of the Loans owing
(other than Swingline Loans, which at all times shall be maintained as Base Rate
Loans) pursuant to a single Facility into a Borrowing or Borrowings pursuant to
such Facility of another Type of Loan, provided that (i) except as otherwise
provided in Section 1.10(b), Eurodollar Loans may be converted into Base Rate
Loans only on the last day of an Interest Period applicable thereto and no
partial conversion of a Borrowing of Eurodollar Loans shall reduce the
outstanding principal amount of the Eurodollar Loans made pursuant to such
Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii)
Base Rate Loans may not be converted into Eurodollar Loans if a violation of
Section 9.01 or 9.05 or an Event of Default is in existence on the date of the
conversion and the Administrative Agent or the Required Banks have determined
that such conversion at such time would be disadvantageous to the Banks and
(iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02. Each such conversion shall be
effected by the Borrower giving the Administrative Agent at its Notice Office,
prior to 11:00 A.M. (New York time), at least three Business Days' (or one
Business Day, in the case of a conversion into Base Rate Loans) prior written
notice (or telephonic notice promptly confirmed in writing) (each a "Notice of
Conversion") specifying the Loans to be so converted, the Type of Loans to be
converted into and, if to be converted into a Borrowing of Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Bank prompt notice of any such proposed conversion affecting any
of its Loans.
1.07 Pro Rata Borrowings. All Loans under this Agreement
(other than Swingline Loans) shall be made by the Banks pro rata on the basis of
their Term Commitments or Revolving Commitments, as the case may be, provided
that Revolving Loans made pursuant to a Mandatory Borrowing shall be made by the
Banks pro rata on the basis of their Adjusted Revolving Commitments. It is
understood that no Bank shall be responsible for any default by any other Bank
in its obligation to make Loans hereunder and that each Bank shall be obligated
to make the Loans provided to be made by it hereunder, regardless of the failure
of any other Bank to fulfill its Commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base
Rate Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be the Applicable Margin plus the Base Rate in effect from time to
time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Margin plus the relevant Eurodollar Rate.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
rate which is the greater of (i) 2% in excess of the rate then borne by such
Loans (without giving effect to any increase in the rate borne by such Loans as
a result of the operation of this clause (c)) and (ii) the Base Rate then in
effect plus 2%, in each case with such interest to be payable on demand.
6
<PAGE>
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on each
Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last day
of each Interest Period applicable thereto and, in the case of an Interest
Period in excess of three months, on the date occurring three months after the
first day of such Interest Period and (iii) in respect of each Loan, on any
prepayment or conversion (other than the prepayment and conversion of Revolving
Loans that are maintained as Base Rate Loans) (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest
rate for any Borrowing of Eurodollar Loans for any Interest Period, shall
promptly notify the Borrower and the Banks thereof.
1.09 Interest Periods. (a) At the time the Borrower gives a
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, a Borrowing of Eurodollar Loans (in the case of the initial
Interest Period applicable thereto) or prior to 11:00 A.M. (New York time) on
the third Business Day prior to the expiration of an Interest Period applicable
to a Borrowing of Eurodollar Loans, the Borrower shall have the right to elect
by giving the Administrative Agent written notice (or telephonic notice promptly
confirmed in writing) of the Interest Period applicable to such Borrowing, which
Interest Period shall, at the option of the Borrower (but otherwise subject to
the provisions of Sections 1.01(a)(ii) and 1.01(b)(ii)), be a one, two, three or
six month period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of Eurodollar Loans
shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall
commence on the day on which the next preceding Interest Period
expires;
(ii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business
Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iv) no Interest Period shall extend beyond the Term Loan Maturity
Date (in the case of Term Loans) or the Revolving Loan Maturity Date
(in the case of Revolving Loans);
7
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(v) no Interest Period with respect to any Borrowing of Term Loans may
be elected that would extend beyond any date upon which a Scheduled
Repayment of Term Loans is required to be made if, after giving effect
to the selection of such Interest Period, the aggregate principal
amount of Term Loans maintained as Eurodollar Loans with Interest
Periods ending after such date would exceed the aggregate principal
amount of Term Loans permitted to be outstanding after such Scheduled
Repayment; and
(vi) no Interest Period may be elected at any time when a violation of
Section 9.01 or 9.05 or an Event of Default is then in existence and
the Administrative Agent or the Required Banks have determined that
such an election at such time would be disadvantageous to the Banks.
(b) If upon the expiration of any Interest Period, the
Borrower has failed to (or may not) elect a new Interest Period to be applicable
to the respective Borrowing of Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to convert such Borrowing into a Borrowing of
Base Rate Loans effective as of the expiration date of such current Interest
Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any Interest
Period that, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loans (other than any increased cost or
reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of Taxes) because of (x) any
change since the Effective Date in any applicable law, governmental
rule, regulation, guideline or order (or in the interpretation or
administration thereof and including the introduction of any new law
or governmental rule, regulation, guideline or order) (such as, for
example, but not limited to, a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the
Eurodollar Rate) and/or (y) other circumstances occurring after the
Effective Date affecting such Bank, the interbank Eurodollar market or
the position of such Bank in such market; or
(iii) at any time after the Effective Date, that the making or
continuance of any Eurodollar Loan has become unlawful by compliance
by such Bank in good faith with any law, governmental rule,
regulation, guideline (or would conflict with any such governmental
rule, regulation, guideline or order not having the force of law but
with which such Bank customarily complies even though the failure to
comply therewith would not be unlawful);
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then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within ten Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts receivable hereunder (a written notice as to the additional amounts owed
to such Bank, showing the basis for the calculation thereof, submitted to the
Borrower by such Bank shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) and (z) in the case of clause (iii) above, the
Borrower shall take one of the actions specified in Section 1.10(b) as promptly
as possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same date
that the Borrower was notified by a Bank pursuant to Section 1.10(a)(ii) or
(iii), or (ii) if the affected Eurodollar Loan is then outstanding, upon at
least three Business Days' notice to the Administrative Agent, require the
affected Bank to convert each such Eurodollar Loan into a Base Rate Loan,
provided that if more than one Bank is so affected at any time, then all
affected Banks must be treated the same pursuant to this Section 1.10(b).
(c) If any Bank shall have determined that after the Effective
Date, the adoption or effectiveness of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Bank (or any corporation controlling such Bank)
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Bank's (or such
controlling corporation's) capital or assets as a consequence of its commitments
or obligations hereunder to a level below that which such Bank (or such
controlling corporation) could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Bank's (or
such controlling corporation's) policies with respect to capital adequacy), then
from time to time, within 15 days after written demand by such Bank (with a copy
to the Administrative Agent and accompanied by the notice described in the last
sentence of this Section 1.10(c)), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or such controlling
corporation) for such reduction. Each Bank, upon determining in good faith that
any additional amounts will be payable pursuant to this Section
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1.10(c), will give prompt written notice thereof to the Borrower, which notice
shall set forth the basis of the calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c) upon the subsequent receipt of such notice.
1.11 Compensation; Breakage. The Borrower shall compensate
each Bank, upon its written request (which request shall set forth the basis for
requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans but excluding in any event
the loss of anticipated profits) which such Bank may sustain: (i) if for any
reason (other than a default by such Bank or the Administrative Agent) a
Borrowing of Eurodollar Loans does not occur on a date specified therefor in a
Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the
Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any
prepayment, repayment or conversion of any of its Eurodollar Loans occurs on a
date which is not the last day of an Interest Period applicable thereto; (iii)
if any prepayment of any of its Eurodollar Loans is not made on any date
specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other default by the Borrower to repay its Eurodollar
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.06 or 4.04 with respect to such Bank, it will, if requested by
the Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank) to designate another lending office for any Loans or Letters of
Credit, as the case may be, affected by such event, provided that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of any such Section.
Nothing in this Section 1.12 shall affect or postpone any of the obligations of
the Borrower or the right of any Bank provided in Section 1.10, 2.06 or 4.04.
1.13 Replacement of Banks. (x) Upon the occurrence of any
event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section
1.10(c), Section 2.06 or Section 4.04 with respect to any Bank which results in
such Bank charging to the Borrower increased costs in excess of those being
generally charged by the other Banks or becoming incapable of making Eurodollar
Loans, (y) if a Bank becomes a Defaulting Bank and/or (z) in the case of a
refusal by a Bank to consent to a proposed change, waiver, discharge or
termination with respect to this Agreement which has been approved by the
Required Banks as provided in Section 12.12(b), the Borrower shall have the
right, if no Default or Event of Default then exists, to replace such Bank (the
"Replaced Bank") with one or more other Eligible Transferee or Transferees
reasonably acceptable to the Administrative Agent, none of whom shall constitute
a Defaulting Bank at the time of such replacement (collectively, the
"Replacement Bank"), provided that (i) at the time of any replacement pursuant
to this Section 1.13, the Replacement Bank shall enter into one or more
Assignment Agreements pursuant to Section 12.04(b) (and with all fees payable
pursuant to said Section 12.04(b) to be paid by the Replacement Bank) pursuant
to which the Replacement Bank shall acquire all of the Commitments and
outstanding Loans of, and participations in Letters of Credit by, the Replaced
Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect
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thereof an amount equal to the sum of (I) an amount equal to the principal of,
and all accrued interest on, all outstanding Loans of the Replaced Bank, (II) an
amount equal to all Unpaid Drawings that have been funded by (and not reimbursed
to) such Replaced Bank, together with all then unpaid interest with respect
thereto at such time and (III) an amount equal to all accrued, but theretofore
unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01, (y) the
respective Letter of Credit Issuer an amount equal to such Replaced Bank's
Adjusted RC Percentage (for this purpose, determined as if the adjustment
described in clause (ii) of the succeeding sentence had been made with respect
to such Replaced Bank) of any Unpaid Drawing (which at such time remains an
Unpaid Drawing) to the extent such amount was not theretofore funded by such
Replaced Bank and (z) BTCo an amount equal to such Replaced Bank's Adjusted RC
Percentage (for this purpose, determined as if the adjustment described in
clause (ii) of the succeeding sentence had been made with respect to such
Replaced Bank) of any Mandatory Borrowing to the extent such amount was not
theretofore funded by such Replaced Bank, and (ii) all obligations of the
Borrower owing to the Replaced Bank (other than those specifically described in
clause (i) above in respect of which the assignment purchase price has been, or
is concurrently being, paid) shall be paid in full to such Replaced Bank
concurrently with such replacement. Upon the execution of the respective
Assignment Agreements, the payment of amounts referred to in clauses (i) and
(ii) above and, if so requested by the Replacement Bank, delivery to the
Replacement Bank of the appropriate Note or Notes executed by the Borrower, (A)
the Replacement Bank shall become a Bank hereunder and the Replaced Bank shall
cease to constitute a Bank hereunder, except with respect to indemnification
provisions applicable to the Replaced Bank under this Agreement, which shall
survive as to such Replaced Bank and (B) in the case of a replacement of a
Defaulting Bank, the Adjusted RC Percentage of the Banks shall be automatically
adjusted at such time to give effect to such replacement (and to give effect to
the replacement of a Defaulting Bank with one or more Non-Defaulting Banks).
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions set forth herein, the Borrower may request a Letter of Credit Issuer
at any time and from time to time on or after the Initial Borrowing Date and up
to thirty days prior to the Revolving Loan Maturity Date to issue a letter of
credit for the account of the Borrower and in support of (x) trade obligations
of the Borrower and/or its Subsidiaries (each such letter of credit, a "Trade
Letter of Credit" and, collectively, the "Trade Letters of Credit") and/or (y)
on a standby basis, L/C Supportable Obligations (each such letter of credit, a
"Standby Letter of Credit" and, collectively, the "Standby Letters of Credit,"
and together with the Trade Letters of Credit, the "Letters of Credit"), and
subject to and upon the terms and conditions set forth herein such Letter of
Credit Issuer agrees to issue from time to time, irrevocable Letters of Credit
in such form as may be approved by such Letter of Credit Issuer and the
Administrative Agent. Notwithstanding the foregoing, no Letter of Credit Issuer
shall be under any obligation to issue any Letter of Credit if at the time of
such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Letter of Credit Issuer from issuing such Letter of
Credit or any requirement of law applicable to such Letter of Credit
Issuer or any request or directive (whether or not having the force of
law) from any governmental authority with jurisdiction over such Letter
of Credit Issuer shall prohibit, or request that
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such Letter of Credit Issuer refrain from, the issuance of letters of
credit generally or such Letter of Credit in particular or shall
impose upon such Letter of Credit Issuer with respect to such Letter
of Credit any restriction or reserve or capital requirement (for which
such Letter of Credit Issuer is not otherwise compensated) not in
effect on the date hereof, or any unreimbursed loss, cost or expense
which was not applicable, in effect or known to such Letter of Credit
Issuer as of the date hereof and which such Letter of Credit Issuer in
good faith deems material to it; or
(ii) such Letter of Credit Issuer shall have received notice
from the Borrower, the Administrative Agent or the Required Banks prior
to the issuance of such Letter of Credit of the type described in
clause (iv) of Section 2.01(b).
(b) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued, the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed either (x) $15,000,000 or (y) when added to the aggregate principal
amount of all Revolving Loans made by Non-Defaulting Banks and Swingline Loans
then outstanding, the Adjusted Total Revolving Commitment at such time; (ii) (x)
each Standby Letter of Credit shall have an expiry date occurring not later than
one year after such Letter of Credit's date of issuance (although any Letter of
Credit may be extendable (whether automatically or otherwise) for successive
periods of up to 12 months, but not beyond ten Business Days prior to the
Revolving Loan Maturity Date), on terms acceptable to the respective Letter of
Credit Issuer and in no event shall any Standby Letter of Credit have an expiry
date occurring later than the Business Day next preceding the Revolving Loan
Maturity Date and (y) each Trade Letter of Credit shall have an expiry date
occurring no later than the earlier of (a) 180 days after the issuance thereof
or (b) 30 days prior to the Revolving Loan Maturity Date; (iii) each Letter of
Credit shall be issued on a sight basis and shall be denominated in U.S.
dollars; and (iv) no Letter of Credit Issuer shall issue any Letter of Credit
after it has received written notice from the Borrower, the Administrative Agent
or the Required Banks that a Default or an Event of Default exists until such
time as such Letter of Credit Issuer shall have received written notice of (x)
recession of such notice from the party or parties originally delivering the
same or (y) waiver of such Default or Event of Default by the Required Banks.
2.02 Minimum Stated Amount. The initial Stated Amount of each
Letter of Credit shall be not less than $20,000 or such lesser amount acceptable
to the respective Letter of Credit Issuer.
2.03 Letter of Credit Requests; Notices of Issuance; Reports.
(a) Whenever the Borrower desires that a Letter of Credit be issued, the
Borrower shall give the Administrative Agent and the respective Letter of Credit
Issuer a written request (including by way of telecopier) in the form of Exhibit
C prior to 1:00 P.M. (New York time) at least three Business Days (or such
shorter period as may be acceptable to such Letter of Credit Issuer) prior to
the proposed date (which shall be a Business Day) of issuance (each a "Letter of
Credit Request"), which Letter of Credit Request shall include any other
documents that such Letter of Credit Issuer customarily requires in connection
therewith.
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(b) The respective Letter of Credit Issuer shall, promptly
after each issuance of a Standby Letter of Credit by it, give the Administrative
Agent, each Bank and the Borrower written notice of the issuance of such Standby
Letter of Credit, accompanied by a copy of the Standby Letter of Credit or
Standby Letters of Credit issued by it.
(c) Each Letter of Credit Issuer (other than BTCo) shall, by
11:00 A.M. on the first Business Day of each week, forward to the Administrative
Agent (by way of telecopier) a report listing the aggregate daily outstanding
balances for the previous week of the Trade Letters of Credit issued by such
Letter of Credit Issuer. Each month the Administrative Agent shall forward to
each RC Bank a report listing the daily aggregate amount available to be drawn
under all Trade Letters of Credit outstanding during the previous month.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the respective Letter of Credit Issuer, by
making payment to the Administrative Agent at the Payment Office (which funds
the Administrative Agent shall promptly forward to such Letter of Credit
Issuer), for any payment or disbursement made by such Letter of Credit Issuer
under any Letter of Credit issued by it (each such amount so paid or disbursed
until reimbursed, an "Unpaid Drawing") immediately after, and in any event on
the date on which, the Borrower is notified by such Letter of Credit Issuer of
such payment or disbursement with interest on the amount so paid or disbursed by
such Letter of Credit Issuer, to the extent not reimbursed prior to 1:00 P.M.
(New York time) on the date of such payment or disbursement, from and including
the date paid or disbursed to but not including the date such Letter of Credit
Issuer is reimbursed therefor at a rate per annum which shall be the Applicable
Margin then in effect for Revolving Loans maintained as Base Rate Loans plus the
Base Rate as in effect from time to time (plus an additional 2% per annum if not
reimbursed by the third Business Day after the date of such notice of payment or
disbursement), such interest also to be payable on demand. Each Letter of Credit
Issuer shall provide the Borrower prompt notice of any payment or disbursement
made by it under any Letter of Credit issued by it, although the failure of, or
delay in, giving any such notice shall not release or diminish the obligations
of the Borrower under this Section 2.04 (a) or under any other Section of this
Agreement.
(b) The Borrower's obligation under this Section 2.04 to
reimburse the respective Letter of Credit Issuer with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against such Letter
of Credit Issuer, the Administrative Agent or any Bank, including, without
limitation, any defense based upon the failure of any payment under a Letter of
Credit to conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such payment; provided,
however, that the Borrower shall not be obligated to reimburse any Letter of
Credit Issuer for any wrongful payment made by such Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Letter of Credit Issuer as
determined by a court of competent jurisdiction.
2.05 Letter of Credit Participations. (a) Immediately upon the
issuance by any Letter of Credit Issuer of a Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each other RC
Bank, and each such RC Bank (each a "Participant") shall be
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deemed irrevocably and unconditionally to have purchased and received from such
Letter of Credit Issuer, without recourse or warranty, an undivided interest and
participation, to the extent of such Bank's Adjusted RC Percentage, in such
Letter of Credit, each substitute letter of credit, each payment made thereunder
and the obligations of the Borrower under this Agreement with respect thereto
(although the Letter of Credit Fee shall be payable directly to the
Administrative Agent for the account of the Banks as provided in Section 3.01(b)
and the Participants shall have no right to receive any portion of any Facing
Fees) and any security therefor or guaranty pertaining thereto. Upon any change
in the Revolving Commitments or Adjusted RC Percentages of the RC Banks pursuant
to Section 12.04(b) or upon a Bank Default, it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be
an automatic adjustment to the participations pursuant to this Section 2.05 to
reflect the new Adjusted RC Percentages of the assigning and assignee Bank or of
all RC Banks, as the case may be.
(b) In determining whether to pay under any Letter of Credit,
the respective Letter of Credit Issuer shall not have any obligation relative to
the Participants other than to determine that any documents required to be
delivered under such Letter of Credit have been delivered and that they
substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by any Letter of Credit Issuer
under or in connection with any Letter of Credit if taken or omitted in the
absence of gross negligence or willful misconduct, as determined by a court of
competent jurisdiction, shall not create for such Letter of Credit Issuer any
resulting liability.
(c) In the event that the respective Letter of Credit Issuer
makes any payment under any Letter of Credit and the Borrower shall not have
reimbursed such amount in full to such Letter of Credit Issuer pursuant to
Section 2.04(a), such Letter of Credit Issuer shall promptly notify the
Administrative Agent, and the Administrative Agent shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Letter
of Credit Issuer, the amount of such Participant's Adjusted RC Percentage of
such payment in U.S. dollars and in same day funds; provided, however, that no
Participant shall be obligated to pay to the Administrative Agent its Adjusted
RC Percentage of such unreimbursed amount for any wrongful payment made by such
Letter of Credit Issuer under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of
such Letter of Credit Issuer, as determined by a court of competent
jurisdiction. If the Administrative Agent so notifies any Participant required
to fund an Unpaid Drawing under a Letter of Credit prior to 11:00 A.M. (New York
time) on any Business Day, such Participant shall make available to the
Administrative Agent for the account of the respective Letter of Credit Issuer
(which funds the Administrative Agent shall promptly forward to the Letter of
Credit Issuer) such Participant's Adjusted RC Percentage of the amount of such
payment on such Business Day in same day funds. If and to the extent such
Participant shall not have so made its Adjusted RC Percentage of the amount of
such Unpaid Drawing available to the Administrative Agent for the account of
such Letter of Credit Issuer, such Participant agrees to pay to the
Administrative Agent for the account of such Letter of Credit Issuer, forthwith
on demand such amount, together with interest thereon, for each day from such
date until the date such amount is paid to the Administrative Agent for the
account of such Letter of Credit Issuer at the overnight Federal Funds Effective
Rate. The failure of any Participant to make available to the Administrative
Agent for the account of the respective Letter of Credit Issuer its Adjusted RC
Percentage of any Unpaid
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Drawing under any Letter of Credit shall not relieve any other Participant of
its obligation hereunder to make available to the Administrative Agent for the
account of the respective Letter of Credit Issuer its Adjusted RC Percentage of
any payment under any Letter of Credit on the date required, as specified above,
but no Participant shall be responsible for the failure of any other Participant
to make available to the Administrative Agent for the account of such Letter of
Credit Issuer such other Participant's Adjusted RC Percentage of any such
payment.
(d) Whenever the respective Letter of Credit Issuer receives a
payment of a reimbursement obligation as to which the Administrative Agent has
received for the account of such Letter of Credit Issuer any payments from the
Participants pursuant to clause (c) above, such Letter of Credit Issuer shall
pay to the Administrative Agent and the Administrative Agent shall promptly pay
to each Participant which has paid its Adjusted RC Percentage thereof, in U.S.
dollars and in same day funds, an amount equal to such Participant's Adjusted RC
Percentage of the principal amount thereof and interest thereon accruing at the
overnight Federal Funds Effective Rate after the purchase of the respective
participations.
(e) The obligations of the Participants to make payments to
the Administrative Agent for the account of the respective Letter of Credit
Issuer with respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever (provided that no Participant shall be required to make payments
resulting from the Letter of Credit Issuer's gross negligence or willful
misconduct, as determined by a court of competent jurisdiction) and shall be
made in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower or any of its Subsidiaries may have at any time
against a beneficiary named in a Letter of Credit, any transferee of
any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, the respective Letter of
Credit Issuer, any Bank or other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying
transaction between the Borrower or any of its Subsidiaries and the
beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or other document presented under he
Letter of Credit proving to be forged, fraudulent, invalid or
nsufficient in any respect or any statement therein being untrue or
naccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
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(f) To the extent the respective Letter of Credit Issuer is
not indemnified for same by the Borrower, the Participants will reimburse and
indemnify the Letter of Credit Issuer, in proportion to their respective
Adjusted RC Percentages, for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by such Letter of Credit Issuer in performing its respective
duties in any way relating to or arising out of its issuance of Letters of
Credit; provided that no Participant shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Letter of Credit Issuer's
gross negligence or willful misconduct, as determined by a court of competent
jurisdiction.
2.06 Increased Costs. If at any time after the Effective Date,
the adoption or effectiveness of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the respective Letter
of Credit Issuer or any Bank with any request or directive (whether or not
having the force of law) by any such authority, central bank or comparable
agency shall either (i) impose, modify or make applicable any reserve, deposit,
capital adequacy or similar requirement against Letters of Credit issued by such
Letter of Credit Issuer or such Bank's participation therein, or (ii) shall
impose on such Letter of Credit Issuer or any Bank any other conditions
affecting this Agreement, any Letter of Credit or such Bank's participation
therein; and the result of any of the foregoing is to increase the cost to such
Letter of Credit Issuer or such Bank of issuing, maintaining or participating in
any Letter of Credit, or to reduce the amount of any sum received or receivable
by such Letter of Credit Issuer or such Bank hereunder (other than any increased
cost or reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of taxes or similar charges), then, upon
demand to the Borrower by such Letter of Credit Issuer or such Bank (a copy of
which notice shall be sent by such Letter of Credit Issuer or such Bank to the
Administrative Agent), the Borrower shall pay to such Letter of Credit Issuer or
such Bank such additional amount or amounts as will compensate such Letter of
Credit Issuer or such Bank for such increased cost or reduction. A certificate
submitted to the Borrower by the respective Letter of Credit Issuer or such
Bank, as the case may be (a copy of which certificate shall be sent by such
Letter of Credit Issuer or such Bank to the Administrative Agent), setting forth
the basis for the determination of such additional amount or amounts necessary
to compensate such Letter of Credit Issuer or such Bank as aforesaid shall be
conclusive and binding on the Borrower absent manifest error, although the
failure to deliver any such certificate shall not release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section 2.06
upon the subsequent receipt thereof.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for distribution to each Non-Defaulting Bank with a
Revolving Commitment a commitment fee ("Commitment Fee") for the period from and
including the Effective Date to, and including, the Revolving Loan Maturity Date
(or such earlier date as the Total Revolving Commitment has been terminated),
computed at a rate for each day equal to 1/2 of 1% per annum on the daily
average of such Bank's Unutilized Revolving Commitment. Such Commitment Fee
shall be due and payable
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in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity
Date (or such earlier date upon which the Total Revolving Commitment is
terminated).
(b) The Borrower shall pay to the Administrative Agent for pro
rata distribution to each Non-Defaulting Bank with a Revolving Loan Commitment
(based on their respective Adjusted RC Percentages), a fee in respect of each
Letter of Credit (the "Letter of Credit Fee") computed at a rate per annum equal
to the Applicable Margin for Revolving Loans maintained as Eurodollar Loans then
in effect on the daily Stated Amount of such Letter of Credit. Accrued Letter of
Credit Fees shall be due and payable quarterly in arrears on each Quarterly
Payment Date, and upon the first day on or after the termination of the Total
Revolving Commitment upon which no Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to each Letter of Credit Issuer
a fee in respect of each Letter of Credit (the "Facing Fee") issued by such
Letter of Credit Issuer computed at the rate equal to (A) in the case of Trade
Letters of Credit, 1/4 of 1% per annum on the daily Stated Amount of such Trade
Letter of Credit, provided, that in any event, the minimum amount of the Facing
Fee payable for each Trade Letter of Credit shall be $100 and (B) in the case of
Standby Letters of Credit, 1/4 of 1% per annum on the daily Stated Amount of
such Standby Letter of Credit, provided, that in any event, the minimum amount
of the Facing Fee payable in any 12-month period for each Standby Letter of
Credit shall be $500 (it being agreed that, on each anniversary of the issuance
of any Standby Letter of Credit or upon any earlier termination or expiration of
a Standby Letter of Credit, if $500 exceeds the amount of Facing Fees
theretofore paid or then accrued with respect to such Standby Letter of Credit,
in either case after the date of the issuance thereof, or if later, after the
date of the last anniversary of the issuance thereof (but excluding any amounts
paid after such anniversary with respect to periods ending on or prior to such
anniversary, including, without limitation, as a result of the operation of this
parenthetical), the amount of such excess shall be payable on the next date upon
which accrued Facing Fees are otherwise payable with respect to Standby Letters
of Credit). Accrued Facing Fees shall be due and payable quarterly in arrears on
each Quarterly Payment Date and upon the first day on or after the termination
of the Total Revolving Commitment upon which no Letters of Credit remain
outstanding.
(d) The Borrower agrees to pay directly to the respective
Letter of Credit Issuer upon each issuance of, payment under, and/or amendment
of, a Letter of Credit issued by such Letter of Credit such amount as shall at
the time of such issuance, payment or amendment be the administrative charge and
expenses which such Letter of Credit Issuer is customarily charging for
issuances of, payments under or amendments of, letters of credit issued by it.
(e) The Borrower agrees to pay to the Administrative Agent
such other fees as agreed to between the Borrower and the Administrative Agent,
when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of
17
<PAGE>
the Banks), the Borrower shall have the right, without premium or penalty, to
terminate or partially reduce the Total Unutilized Revolving Commitment,
provided that (x) any such termination shall apply to proportionately and
permanently reduce the Revolving Commitment of each RC Bank, (y) no such
reduction shall reduce any Non-Defaulting Bank's Revolving Commitment to an
amount that is less than the sum of (I) the outstanding Revolving Loans of such
Bank plus (II) such Bank's Adjusted RC Percentage of outstanding Swingline Loans
and of Letter of Credit Outstandings and (z) any partial reduction pursuant to
this Section 3.02 shall be in the amount of at least $1,000,000.
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total
Commitment (and the Term Commitment and Revolving Commitment of each Bank) shall
terminate on August 15, 1998 unless the Initial Borrowing Date has occurred on
or before such date.
(b) The Total Term Commitment shall terminate in its entirety
on the Initial Borrowing Date (after giving effect to the making of the Term
Loans on such date).
(c) The Total Revolving Commitment (and the Revolving
Commitment of each RC Bank) shall terminate on the earlier of (x) the Revolving
Loan Maturity Date and (y) unless the Required Banks otherwise agree in writing,
the date on which any Change of Control occurs.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Commitment shall be
permanently reduced by the amount, required by Section 4.02(B)(a).
(e) Each reduction to the Total Term Commitment and the Total
Revolving Commitment pursuant to this Section 3.03 shall be applied
proportionately to reduce the Term Commitment or the Revolving Loan Commitment,
as the case may be, of each Bank with such a Commitment.
SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right
to prepay Loans in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Payment Office written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay the Loans, whether such
Loans are Term Loans, Revolving Loans or Swingline Loans, the amount of such
prepayment and (in the case of Eurodollar Loans) the specific Borrowing or
Borrowings pursuant to which made, which notice shall be given by the Borrower
at least one Business Day prior to the date of such prepayment with respect to
Base Rate Loans (other than Swingline Loans, with respect to which notice may be
given by the Borrower on the day of prepayment) and two Business Days prior to
the date of such prepayment with respect to Eurodollar Loans, which notice shall
promptly be transmitted by the Administrative Agent to each of the Banks; (ii)
(x) each partial prepayment of any Borrowing (other than a Borrowing of
Swingline Loans) shall be in an aggregate principal amount of at least $500,000
and (y) each partial prepayment of any Borrowing of Swingline Loans shall be in
an aggregate principal amount of at least $50,000, provided that no partial
prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce the
aggregate principal amount of the Loans outstanding pursuant to such Borrowing
to an amount less than the Minimum
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<PAGE>
Borrowing Amount applicable thereto; (iii) at the time of any prepayment of
Eurodollar Loans pursuant to this Section 4.01 on any date other than the last
day of the Interest Period applicable thereto, the Borrower shall pay the
amounts required pursuant to Section 1.11; (iv) each prepayment in respect of
any Loans made pursuant to a Borrowing shall be applied pro rata among the Banks
which made such Loans, provided that at the Borrower's election in connection
with any prepayment of Revolving Loans pursuant to this Section 4.01, such
prepayment shall not be applied to any Revolving Loans of a Defaulting Bank; and
(v) each prepayment of Term Loans pursuant to this Section 4.01 shall be applied
to reduce the remaining Scheduled Repayments of the Term Loans on a pro rata
basis (based upon the then remaining principal amount of each such Scheduled
Repayment).
4.02 Mandatory Repayments and Commitment Reductions.
(A) Requirements:
(a) (i) If on any date the sum of the aggregate outstanding
principal amount of Revolving Loans made by Non-Defaulting Banks, Swingline
Loans and the Letter of Credit Outstandings exceeds the Adjusted Total Revolving
Commitment as then in effect, the Borrower shall repay on such date the
principal of Swingline Loans, and if no Swingline Loans are or remain
outstanding, Revolving Loans of Non-Defaulting Banks, in an aggregate amount
equal to such excess. If, after giving effect to the repayment of all
outstanding Swingline Loans and Revolving Loans of Non-Defaulting Banks, the
aggregate amount of Letter of Credit Outstandings exceeds the Adjusted Total
Revolving Commitment, the Borrower shall pay to the Administrative Agent on such
date an amount in cash and/or Cash Equivalents equal to such excess (up to the
aggregate amount of the Letter of Credit Outstandings at such time) and the
Administrative Agent shall hold such payment as security for the obligations of
the Borrower hereunder pursuant to a cash collateral agreement to be entered
into in form and substance satisfactory to the Administrative Agent (which shall
permit certain investments in Cash Equivalents satisfactory to the
Administrative Agent, until the proceeds are applied to the secured
obligations).
(ii) If on any date the aggregate outstanding principal amount
of the Revolving Loans made by a Defaulting Bank exceeds the Revolving
Commitment of such Defaulting Bank, the Borrower shall repay on such date
principal of Revolving Loans of such Defaulting Bank in an amount equal to such
excess.
(b) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each Quarterly Payment
Date set forth below, the Borrower shall be required to repay the principal
amount of Term Loans set forth opposite such Quarterly Payment Date (each such
repayment, a "Scheduled Repayment"):
<TABLE>
<CAPTION>
Quarterly Payment Date Amount
---------------------- ------
<S> <C>
September 15, 1998 0
December 15, 1998 0
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
March 15, 1999 0
June 15, 1999 0
September 15, 1999 0
December 15, 1999 0
March 15, 2000 0
June 15, 2000 0
September 15, 2000 $750,000
December 15, 2000 $750,000
March 15, 2001 $750,000
June 15, 2001 $750,000
September 15, 2001 $1,250,000
December 15, 2001 $1,250,000
March 15, 2002 $1,250,000
June 15, 2002 $1,250,000
September 15, 2002 $1,500,000
December 15, 2002 $1,500,000
March 15, 2003 $1,500,000
June 15, 2003 $1,500,000
September 15, 2003 $1,500,000
December 15, 2003 $1,500,000
March 15, 2004 $1,500,000
June 15, 2004 $1,500,000
</TABLE>
(c) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, within 5 Business Days
following the date of receipt thereof by the
20
<PAGE>
Borrower and/or any of its Subsidiaries of Cash Proceeds from any Asset Sale, an
amount equal to 100% of the Net Cash Proceeds from such Asset Sale shall be
applied as a mandatory repayment and/or commitment reduction in accordance with
the requirements of Sections 4.02(B)(a) and (b); provided that up to an
aggregate of $5,000,000 of Net Cash Proceeds from Asset Sales shall not give
rise to a mandatory repayment (and/or commitment reduction, as the case may be)
in any fiscal year of the Borrower to the extent the Borrower elects, as
hereinafter provided, to cause such Net Cash Proceeds to be reinvested in
Reinvestment Assets (a "Reinvestment Election"). The Borrower may exercise its
Reinvestment Election (within the parameters specified in the preceding
sentence) with respect to an Asset Sale if (x) no Default or Event of Default
then exists and (y) the Borrower delivers a Reinvestment Notice to the
Administrative Agent within 3 Business Days following the date of the
consummation of the respective Asset Sale, with such Reinvestment Election being
effective with respect to the Net Cash Proceeds of such Asset Sale equal to the
Anticipated Reinvestment Amount specified in such Reinvestment Notice.
(d) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on the date of the receipt
thereof by the Borrower and/or any of its Subsidiaries, an amount equal to 100%
of the proceeds (net of underwriting discounts, commissions and taxes and other
reasonable costs associated therewith) of the incurrence of Indebtedness by the
Borrower and/or any of its Subsidiaries (other than Indebtedness permitted by
Section 8.04) shall be applied as a mandatory repayment and/or commitment
reduction in accordance with the requirements of Sections 4.02(B)(a) and (b).
(e) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on the date of the receipt
thereof by the Borrower, an amount equal to 50% of the proceeds (net of
underwriting discounts, commissions and taxes and other reasonable costs
associated therewith) of any sale or issuance of its equity (other than (u) the
issuance by the Borrower of Senior Exchangeable Preferred Stock to the Seller
pursuant to Section 8.12(v), (v) equity issued in connection with the Permitted
Acquisitions, (w) as set forth in Sections 8.07(a)(ii) and 8.08(a)(ii), (x) the
issuance by the Borrower of Junior Preferred Stock or Common Stock to the
Investors pursuant to Section 8.12(w), so long as the proceeds thereof are
applied by the Borrower to make Consolidated Capital Expenditures pursuant to
Section 8.05 and (z) equity issued to individuals who are directors, members of
management and other employees of the Borrower and its Subsidiaries (not to
exceed $1,500,000 in the aggregate)), in each case shall be applied as a
mandatory repayment and/or commitment reduction in accordance with the
requirements of Sections 4.02(B)(a) and (b).
(f) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on each date which is 90
days after the last day of each fiscal year of the Borrower, beginning with the
fiscal year of the Borrower ending on June 30, 1999, the ECF Prepayment Amount
of the Borrower and its Subsidiaries for the fiscal year then last ended shall
be applied as a mandatory repayment and/or commitment reduction in accordance
with the requirements of Sections 4.02(B)(a) and (b).
(g) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, within 30 days following
each date on which the Borrower or any of its Subsidiaries receives any proceeds
from any Recovery Event, an amount equal to 100% of the
21
<PAGE>
cash proceeds of such Recovery Event (net of reasonable costs, expenses and
taxes incurred in connection with such Recovery Event) shall be applied as a
mandatory repayment and/or commitment reduction in accordance with the
requirements of Sections 4.02(B)(a) and (b); provided that so long as no Default
or Event of Default then exists and such proceeds do not exceed $5,000,000 in
any fiscal year, such proceeds shall not be required to be so applied on such
date to the extent that the Borrower has delivered a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used or committed to be used to replace or restore any properties or assets
in respect of which such proceeds were paid or otherwise acquire productive
assets usable in the business of the Borrower and its Subsidiaries within a
period specified in such certificate not to exceed one year after the date of
receipt of such proceeds with respect to such Recovery Event (which certificate
shall set forth the estimates of the proceeds to be so expended); and provided
further, that if all or any portion of such proceeds not required to be applied
as a mandatory repayment and/or commitment reduction pursuant to the preceding
proviso are not so used within the period specified in the relevant certificate
furnished pursuant to the immediately preceding proviso, such remaining portion
not used shall be applied on the last day of such specified period as a
mandatory repayment and/or commitment reduction in accordance with the
requirements of Sections 4.02(B)(a) and (b).
(h) In addition to any other mandatory repayments or
commitment reductions pursuant to this Section 4.02, on the Reinvestment
Prepayment Date with respect to a Reinvestment Election, an amount equal to the
Reinvestment Prepayment Amount, if any, for such Reinvestment Election shall be
applied as a mandatory repayment and/or commitment reduction in accordance with
the requirements of Sections 4.02(B)(a) and (b).
(i) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be
repaid in full on the Swingline Expiry Date, (ii) all then outstanding Revolving
Loans shall be repaid in full on the Revolving Loan Maturity Date and (iii) all
then outstanding Term Loans shall be repaid in full on the Term Loan Maturity
Date.
(B) Application:
(a) Any amount required to be applied pursuant to Section
4.02(A) (other than pursuant to clause (b) thereof) shall be applied (i) first,
as a mandatory repayment of Term Loans to reduce the then remaining Scheduled
Repayments thereof on a pro rata basis (based upon the then remaining principal
amount of each such Scheduled Repayment) until all Term Loans are repaid in full
and (ii) second, to the extent in excess of the amount required to be applied
pursuant to the preceding clause (i), as a mandatory reduction to the Total
Revolving Commitment.
(b) With respect to each prepayment of Loans required by
Section 4.02, the Borrower may designate the Types of Loans which are to be
prepaid and the specific Borrowing or Borrowings under the affected Facility
pursuant to which made, provided that (i) Eurodollar Loans may so be designated
for prepayment pursuant to this Section 4.02 only on the last day of an Interest
Period applicable thereto unless all Eurodollar Loans made pursuant to such
Facility with Interest Periods ending on such date of required prepayment and
all Base Rate Loans made pursuant to such Facility have been paid in full; (ii)
if any prepayment of Eurodollar Loans made
22
<PAGE>
pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant
to such Borrowing to an amount less than the Minimum Borrowing Amount for such
Borrowing, such Borrowing shall be immediately converted into Base Rate Loans;
(iii) each prepayment of any Revolving Loans made by Non-Defaulting Banks
pursuant to a Borrowing shall be applied pro rata among such Revolving Loans;
and (iv) each prepayment of any Revolving Loans made by Defaulting Banks
pursuant to a Borrowing shall be applied pro rata among such Revolving Loans. In
the absence of a designation by the Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion with a view, but no obligation, to minimize
breakage costs owing under Section 1.11. Notwithstanding the foregoing
provisions of this Section 4.02(B), if at any time a mandatory or voluntary
prepayment of Loans pursuant to Sections 4.01 or 4.02(A) above would result,
after giving effect to the procedures set forth above, in the Borrower incurring
breakage costs under Section 1.11 as a result of Eurodollar Loans being prepaid
other than on the last day of an Interest Period applicable thereto (the
"Affected Eurodollar Loans"), then the Borrower may in its sole discretion
initially deposit a portion (up to 100%) of the amounts that otherwise would
have been paid in respect of the Affected Eurodollar Loans with the
Administrative Agent (which deposit must be equal in amount to the amount of the
Affected Eurodollar Loans not immediately prepaid) to be held as security for
the obligations of the Borrower hereunder pursuant to a cash collateral
arrangement satisfactory to the Administrative Agent and shall provide for
investments satisfactory to the Administrative Agent, with such cash collateral
to be directly applied upon the first occurrence (or occurrences) thereafter of
the last day of an Interest Period applicable to the relevant Loans that are
Eurodollar Loans (or such earlier date or dates as shall be requested by the
Borrower), to repay an aggregate principal amount of such Loans equal to the
Affected Eurodollar Loans not initially prepaid pursuant to this sentence.
Notwithstanding anything to the contrary contained in the immediately preceding
sentence, all amounts deposited as cash collateral pursuant to the immediately
preceding sentence shall be held for the sole benefit of the Banks whose Loans
would otherwise have been immediately prepaid with the amounts deposited and
upon the taking of any action by the Administrative Agent or the Banks pursuant
to the remedial provisions of Section 9, any amounts held as cash collateral
pursuant to this Section 4.02(B)(b) shall, subject to the requirements of
applicable law, be immediately applied to repay Loans.
4.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement shall be made to
the Administrative Agent for the ratable (based on their respective pro rata
shares) account of the Banks entitled thereto (which funds the Administrative
Agent shall promptly forward to such Banks), not later than 1:00 P.M. (New York
time) on the date when due and shall be made in immediately available funds and
in lawful money of the United States of America at the Payment Office, it being
understood that written notice by the Borrower to the Administrative Agent to
make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
23
<PAGE>
4.04 Net Payments. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the jurisdiction in which it is organized or managed and controlled
or the jurisdiction in which the principal office or applicable lending office
of such Bank is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts, if any, as may be necessary so that every payment of all amounts due
under this Agreement or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
such Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Bank, upon the written
request of such Bank, for taxes imposed on or measured by the net income or net
profits of such Bank pursuant to the laws of the jurisdiction in which the
principal office or applicable lending office of such Bank is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction in which the principal office or applicable lending office of such
Bank is located and for any withholding of taxes as such Bank shall determine
are payable by, or withheld from, such Bank in respect of such amounts so paid
to or on behalf of such Bank pursuant to the preceding sentence and in respect
of any amounts paid to or on behalf of such Bank pursuant to this sentence. The
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by the Borrower. The Borrower agrees to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Effective Date, or in the case
of a Bank that is an assignee or transferee of an interest under this Agreement
pursuant to Section 1.13 or 12.04 (unless the respective Bank was already a Bank
hereunder immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Bank, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit D (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Bank agrees
24
<PAGE>
that from time to time after the Effective Date, when a lapse in time or change
in circumstances renders the previous certification obsolete or inaccurate in
any material respect, it will deliver to the Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as
the case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Bank to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Note, or it shall immediately notify the Borrower and the
Administrative Agent of its inability to deliver any such Form or Certificate.
Notwithstanding anything to the contrary contained in Section 4.04(a), but
subject to Section 12.04(b) and the immediately succeeding sentence, (x) the
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
fees or other amounts payable hereunder for the account of any Bank which is not
a United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes to the extent that such Bank has not
provided to the Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrower shall
not be obligated pursuant to Section 4.04(a) to gross-up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States if (I)
such Bank is not a U.S. Person (defined as provided above) and has not provided
to the Borrower the Internal Revenue Service Forms required to be provided to
the Borrower pursuant to this Section 4.04(b) or (II) in the case of a payment,
other than interest, to a Bank described in clause (ii) above, to the extent
that such Forms do not establish a complete exemption from withholding of such
taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 4.04 and except as set forth in Section
12.04(b), the Borrower agrees to pay additional amounts and to indemnify each
Bank in the manner set forth in Section 4.04(a) (without regard to the identity
of the jurisdiction requiring the deduction or withholding) in respect of any
amounts deducted or withheld by it as described in the immediately preceding
sentence as a result of any changes after the Effective Date in any applicable
law, treaty, governmental rule, regulation, guide-line or order, or in the
interpretation thereof, relating to the deducting or withholding of such Taxes,
provided such Bank shall provide to the Borrower and the Administrative Agent,
upon the request of the Borrower, any reasonably available applicable IRS tax
form (reasonably similar in its simplicity and lack of detail to IRS Form 1001
or Form 4224 or a Section 4.04(b)(ii) Certificate) necessary or appropriate for
the exemption or reduction in the rate of such U.S. federal withholding tax.
(c) If the Borrower pays any additional amount under this
Section 4.04 to a Bank and such Bank determines in its sole discretion that it
has actually received or realized in connection therewith any refund or any
reduction of, or credit against, its tax liabilities in or with respect to the
taxable year in which the additional amount is paid, such Bank shall pay to the
Borrower an amount that the Bank shall, in its sole discretion, determine is
equal to the net benefit, after tax, which was obtained by the Bank in such year
as a consequence of such refund, reduction or credit. Whether or not a Bank
claims any refund or credit or files any amended tax return shall be in the sole
discretion of such Bank. Nothing in this Section 4.04(c) shall require a Bank to
(i) disclose or detail the basis of its calculation of the amount of any tax
benefit or refund to the Borrower or any other party or (ii) disclose such
Bank's tax returns.
25
<PAGE>
SECTION 5. Conditions Precedent. The obligation of the Banks
to make each Loan hereunder, and the obligation of the Letter of Credit Issuers
to issue Letters of Credit hereunder, is subject, at the time of each such
Credit Event (except as otherwise hereinafter indicated), to the satisfaction of
each of the following conditions:
5.01 Execution of Agreement. On or prior to the Initial
Borrowing Date, (i) this Agreement shall have become effective as provided in
Section 12.10 and (ii) there shall have been delivered to the Administrative
Agent for the account of each Bank the appropriate Term Note and/or Revolving
Note and, in the case of BTCo, the Swingline Note, in each case, executed by the
Acquisition Corp. and New Penhall, and in the amount, maturity and as otherwise
provided herein.
5.02 No Default; Representations and Warranties. At the time
of each Credit Event and also after giving effect thereto, (i) there shall exist
no Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents in effect at such time shall
be true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, except to the extent that such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties will be true and correct in all material respects as of such earlier
date.
5.03 Officer's Certificate. On the Initial Borrowing Date, the
Administrative Agent shall have received a certificate dated such date signed by
an Authorized Officer of the Borrower stating that all of the applicable
conditions set forth in Sections 5.02, 5.07, 5.08, 5.09, 5.10 and 5.11 exist or
have been satisfied as of such date.
5.04 Opinions of Counsel. On the Initial Borrowing Date, the
Administrative Agent shall have received (i) an opinion, addressed to the
Administrative Agent and each of the Banks and dated the Initial Borrowing Date,
from Dechert Price & Rhoads, special counsel to the Borrower and each Subsidiary
Guarantor, which opinion shall cover the matters contained in Exhibit E and (ii)
reliance letters with respect to all legal opinions delivered pursuant to any
Transaction Document, addressed to the Administrative Agent and each of the
Banks and dated the Initial Borrowing Date, from counsel rendering such legal
opinions, with such opinions to be in form and substance satisfactory to the
Administrative Agent.
5.05 Corporate Proceedings. (a) On the Initial Borrowing Date,
the Administrative Agent shall have received from each Credit Party a
certificate, dated the Initial Borrowing Date, signed by an Authorized Officer
of such Credit Party in the form of Exhibit F with appropriate insertions and
deletions, together with copies of the certificate of incorporation, the by-laws
or other organizational documents of each such Credit Party and the resolutions
of each such Credit Party referred to in such certificate and all of the
foregoing shall be satisfactory to the Administrative Agent.
(b) On the Initial Borrowing Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Documents shall be
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
certificates,
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documents and papers, including good standing certificates and any other records
of corporate proceedings and governmental approvals, if any, which the
Administrative Agent may have reasonably requested in connection therewith, such
documents and papers, where appropriate, to be certified by proper corporate or
governmental authorities.
5.06 Plans; Existing Indebtedness Agreements; Shareholders'
Agreements; Management Agreements; Employment Agreements. On or prior to the
Initial Borrowing Date, there shall have been delivered to the Banks copies,
certified as true and correct by an appropriate officer of the Borrower of:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the
most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, the most recently prepared actuarial valuation
therefor) and any other "employee benefit plans," as defined in
Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees
of the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate (provided that the foregoing shall apply in the case of any
multiemployer plan, as defined in Section 4001(a)(3) of ERISA, only to
the extent that any document described therein is in the possession of
the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate
or reasonably available thereto from the sponsor or trustee of any
such plan);
(ii) all agreements evidencing or relating to Existing Indebtedness
(the "Existing Indebtedness Agreements");
(iii) all agreements (including the Management Investment Agreement)
entered into by the Borrower or any of its Subsidiaries (after giving
effect to the Transaction) governing the terms and relative rights of
its capital stock, and any agreements entered into by members or
shareholders relating to any such entity with respect to their capital
stock (collectively, the "Shareholders' Agreements");
(iv) any material agreement (including the BRS Management Agreement)
with members of, or with respect to, the management of the Borrower or
any of its Subsidiaries (after giving effect to the Transaction)
(collectively, the "Management Agreements"); and
(v) any material employment agreements entered into by the Borrower or
any of its Subsidiaries (collectively the "Employment Agreements");
all of which Plans, Existing Indebtedness Agreements, Shareholders' Agreements,
Management Agreements and Employment Agreements shall be in form and substance
satisfactory to the Administrative Agent.
5.07 Adverse Change, etc. On the Initial Borrowing Date,
nothing shall have occurred (and neither the Banks nor the Administrative Agent
shall have become aware of any
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facts or conditions not previously known) which the Administrative Agent or the
Required Banks shall determine (a) has, or is reasonably likely to have, a
material adverse effect on the rights or remedies of the Banks or the
Administrative Agent, or on the ability of the Credit Parties to perform their
obligations to them, or (b) has, or is reasonably likely to have, a Material
Adverse Effect.
5.08 Litigation. On the Initial Borrowing Date, there shall be
no actions, suits or proceedings pending or threatened (a) with respect to this
Agreement or any other Document or the transactions contemplated hereby or
thereby (including the Transaction) or (b) which the Administrative Agent or the
Required Banks shall determine could reasonably be expected to (i) have a
Material Adverse Effect or (ii) have a material adverse effect on the rights or
remedies of the Banks hereunder or under any other Credit Document or on the
ability of any Credit Party to perform its respective obligations to the Banks
hereunder or under any other Credit Document.
5.09 Approvals. On or prior to the Initial Borrowing Date, all
material and necessary governmental and third party approvals in connection with
the transactions contemplated by the Documents and otherwise referred to herein
or therein shall have been obtained and remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority which restrains or prevents such transactions or imposes, in
the reasonable judgment of the Required Banks or the Administrative Agent,
materially adverse conditions upon the consummation of such transactions.
5.10 Consummation of the Recapitalization; Equity Issuance.
(a) On or prior to the Initial Borrowing Date (or contemporaneously with the
first borrowing in the case of the Recapitalization described below), there
shall have been delivered to the Banks true and correct copies of the
Recapitalization Agreement, and all terms of the Recapitalization Agreement
and the other Recapitalization Documents shall be satisfactory in form and
substance to the Administrative Agent. The Recapitalization Agreement (and
the transactions contemplated thereby) shall have been duly approved by the
board of directors and (if required by applicable law) the Stockholders of
the Borrower, and all Recapitalization Documents shall have been duly
executed and delivered by the parties thereto and shall be in full force and
effect. Each of the conditions precedent to the obligation of the parties to
consummate the Recapitalization as set forth in the Recapitalization
Documents shall have been satisfied, or waived, all to the satisfaction of
the Administrative Agent, and concurrently with the making of the Term Loans
on the Initial Borrowing Date, the Recapitalization shall have been
consummated in accordance with the Recapitalization Documents and all
applicable laws, rules and regulations.
(b) On or prior to the Initial Borrowing Date, the Borrower
shall have issued (i) $8,941,460.70 of Junior Preferred Stock and Common Stock
to the Management Investors and (ii) Junior Preferred Stock and Common Stock to
the BRS Investors for gross proceeds of at least $21,058,539.30 pursuant to the
Junior Preferred Stock Documents.
(c) On the Initial Borrowing Date, the proceeds received by
the Borrower pursuant to Section 5.11 when aggregated with (x) all amounts
received pursuant to the issuance of Common Stock and Junior Preferred Stock to
the BRS Investors in connection with the Recapitalization and (y) the Term Loans
and Revolving Loans incurred by the Borrower on
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the Initial Borrowing Date shall be sufficient to consummate the Transaction and
to pay all fees and expenses owing in connection therewith.
(d) On or prior to the Initial Borrowing Date, the Borrower
shall have issued at least $10,000,000 of Senior Exchangeable Preferred Stock to
the Seller pursuant to the Senior Exchangeable Preferred Stock Documents.
On or prior to the Initial Borrowing Date, the Banks shall
have received true and correct copies of the Senior Exchangeable Preferred Stock
Documents, the Junior Preferred Stock Documents and all agreements relating to
the issuance of the Common Stock (certified as such by an appropriate officer of
the Borrower), and all of the terms and conditions thereof shall be in form and
substance satisfactory to the Administrative Agent and the Required Banks. All
of the Senior Exchangeable Preferred Stock Documents, the Junior Preferred Stock
Documents and all agreements relating to the issuance of the Common Stock shall
have been duly executed and delivered by the parties thereto, shall be in full
force and effect and each of the conditions precedent to the obligations of the
parties to effectuate the issuance of the Common Stock , the Senior Exchangeable
Preferred Stock and the Junior Preferred Stock as set forth therein shall have
been satisfied, or waived, all to the satisfaction of the Administrative Agent,
and concurrently with the making of the Term Loans on the Initial Borrowing
Date, the Common Stock, the Senior Exchangeable Preferred Stock and the Junior
Preferred Stock shall have been issued in accordance with such documents and all
applicable laws, rules and regulations.
5.11 Senior Notes Issuance. On or prior to the Initial
Borrowing Date, the Borrower shall have received at least $100,000,000 of gross
proceeds from the issuance of long-term senior notes (the "Senior Notes").
5.12 Fees. On the Initial Borrowing Date, the Borrower shall
have paid to the Administrative Agent and the Banks all Fees and expenses
(including, without limitation, reasonable fees and expenses of counsel) agreed
upon by such parties to be paid on or prior to such date.
5.13 Subsidiary Guaranty. On the Initial Borrowing Date, each
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Guaranty in the form of Exhibit G (as modified, amended or supplemented from
time to time in accordance with the terms hereof and thereof, the "Subsidiary
Guaranty"), and the Subsidiary Guaranty shall be in full force and effect.
5.14 Security Documents. (a) On the Initial Borrowing Date,
the Borrower and each Subsidiary Guarantor shall have duly authorized, executed
and delivered a Pledge Agreement in the form of Exhibit H (as modified, amended
or supplemented from time to time in accordance with the terms hereof and
thereof, the "Pledge Agreement") and each such Credit Party shall have delivered
to the Collateral Agent, as pledgee thereunder, all of the certificates
representing the Pledged Securities referred to therein and owned by such Credit
Party on the Initial Borrowing Date, endorsed in blank (in the case of
promissory notes) or accompanied by executed and undated stock powers (in the
case of capital stock), and the Pledge Agreement shall be in full force and
effect.
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(b) On the Initial Borrowing Date, the Borrower and each
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Security Agreement in the form of Exhibit I (as modified, supplemented or
amended from time to time in accordance with the terms hereof and thereof, the
"Security Agreement") covering all of such Credit Party's present and future
Security Agreement Collateral, in each case together with:
(i) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as may
be necessary to perfect the security interests purported to be created
by the Security Agreement;
(ii) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, each of recent date listing all
effective financing statements that name each Credit Party as debtor
and that are filed in the jurisdictions referred to in clause (i)
above, together with copies of such other financing statements that
name any Credit Party as debtor (none of which shall cover the
Collateral except (x) those with respect to which appropriate
termination statements executed by the secured lender thereunder have
been delivered to the Administrative Agent and (y) to the extent
evidencing Permitted Liens);
(iii) evidence of the completion of all other recordings and filings
of, or with respect to, the Security Agreement as may be necessary or,
in the reasonable opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created by the Security
Agreement (including, without limitation, filings and registrations
with respect to copyrights, patents and trademarks); and
(iv) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by the Security Agreement
have been taken; and
the Security Agreement shall be in full force and effect.
5.15 Mortgages. On the Initial Borrowing Date, the Borrower
will, or will cause its respective Subsidiary to, deliver to the Collateral
Agent (i) fully executed counterparts of deeds of trust, mortgages and similar
documents in each case in form and substance satisfactory to the Collateral
Agent (each a "Mortgage" and, collectively, the "Mortgages") covering all of the
Mortgaged Properties, and counterparts of such Mortgages shall have been duly
recorded in all places to the extent necessary or, in the judgment of the
Collateral Agent, desirable, effectively to create a valid and enforceable first
priority mortgage Lien, subject only to Permitted Encumbrances, on each such
Mortgaged Property in favor of the Collateral Agent (or such other trustee as
may be required or desirable under local law) for the benefit of the Banks, (ii)
mortgage title insurance policies issued by title insurers reasonably
satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts
reasonably satisfactory to the Collateral Agent and assuring the Collateral
Agent that the Mortgages in respect of the Mortgaged Properties are valid and
enforceable first priority mortgage Liens on the respective Mortgaged Properties
free and clear of all defects and encumbrances except Permitted Encumbrances,
and such Mortgage Policies shall be in form and substance reasonably
satisfactory to the Collateral Agent and shall include an endorsement, and for
mechanic liens and for any other manner that the Collateral Agent in its
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discretion may reasonably request and (iii) such opinions of counsel as the
Collateral Agent may reasonably request in connection with such Mortgages, which
opinions of counsel shall be in form and substance satisfactory to the
Collateral Agent.
5.16 Solvency. On the Initial Borrowing Date, the Borrower
shall have delivered to the Administrative Agent a solvency certificate in the
form of Exhibit J, addressed to the Administrative Agent and each of the Banks
and dated the Initial Borrowing Date, from the chief financial officer of the
Borrower.
5.17 Insurance Policies; Bonding Requirements. On the Initial
Borrowing Date, the Collateral Agent shall have received evidence of insurance
and performance bonding complying with the requirements of Section 7.03 for the
business and properties of the Borrower and its Subsidiaries, in form and
substance satisfactory to the Administrative Agent and, with respect to all
casualty insurance, naming the Collateral Agent as an additional insured and
loss payee.
5.18 Refinanced Agreements. (i) On the Initial Borrowing Date,
the commitments under each Refinanced Agreement shall have been terminated, all
loans thereunder shall have been repaid in full, together with interest thereon
(including, without limitation, any prepayment premium), all letters of credit
issued thereunder shall have been terminated or secured by a support letter of
credit issued hereunder and all other amounts owing pursuant to each Refinanced
Agreement shall have been repaid in full, and the Administrative Agent shall
have received evidence in form, scope and substance satisfactory to the
Administrative Agent that the matters set forth in this Section 5.18 have been
satisfied at such time.
(ii) On the Initial Borrowing Date, the creditors under each
Refinanced Agreement shall have terminated and released all applicable Liens on
the capital stock of, and assets owned by, the Borrower and its Subsidiaries,
and the Administrative Agent shall have received all such releases as may have
been requested by the Administrative Agent, which releases shall be in form and
substance satisfactory to the Administrative Agent.
5.19 Notice of Borrowing; Letter of Credit Request. (a) Prior
to the making of each Loan (excluding Swingline Loans), the Administrative Agent
shall have received a Notice of Borrowing meeting the requirements of Section
1.03(a). Prior to the making of any Swingline Loan, BTCo shall have received the
notice required by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the
respective Letter of Credit Issuer shall have received a Letter of Credit
Request meeting the requirements of Section 2.03.
5.20 Projections. On or prior to the Initial Borrowing Date,
there shall have been delivered to the Administrative Agent detailed projected
consolidated financial statements of the Borrower and its Subsidiaries certified
by the Chief Financial Officer of the Borrower for the period from June 30, 1998
to June 30, 2003 (the "Projections"), which Projections (x) shall reflect the
forecasted consolidated income statements, balance sheets and cash flow
(including all relevant assumptions in connection therewith) of the Borrower and
its Subsidiaries after giving affect to the
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Transaction and the related financing thereof and the other transactions
contemplated hereby and (y) shall be satisfactory in form and substance to the
Administrative Agent.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by the Borrower to the Administrative
Agent and each of the Banks that all of the applicable conditions specified
above exist as of that time. All of the certificates, legal opinions and other
documents and papers referred to in this Section 5, unless otherwise specified,
shall be delivered to the Administrative Agent at its Notice Office for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts or copies for each of the Banks and shall be satisfactory in form
and substance to the Administrative Agent.
SECTION 6. Representations, Warranties and Agreements. In
order to induce the Banks to enter into this Agreement and to make the Loans and
issue and/or participate in Letters of Credit provided for herein, the Borrower
makes the following representations and warranties to, and agreements with, the
Banks, in each case after giving effect to the Transaction, all of which shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance and/or participation in Letters of Credit (with the making of
each Credit Event thereafter being deemed to constitute a representation and
warranty that the matters specified in this Section 6 are true and correct in
all material respects on and as of the date of each such Credit Event unless
such representation and warranty expressly indicates that it is being made as of
any specific date, in which case such representation and warranty shall be true
and correct in all material respects as of such specific date):
6.01 Corporate Status. Each of the Borrower and each of its
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its organization and has the
corporate power and authority to own its property and assets and to transact the
business in which it is engaged and (ii) has duly qualified and is authorized to
do business and is in good standing in all jurisdictions where it is required to
be so qualified and where the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect.
6.02 Corporate Power and Authority. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Documents to which it is a party. Each Credit Party has duly executed and
delivered each Document to which it is a party and each such Document
constitutes the legal, valid and binding obligation of such Person enforceable
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
6.03 No Violation. Neither the execution, delivery and
performance by any Credit Party of the Documents to which it is a party nor
compliance by it with the terms and provisions thereof, nor the consummation of
the transactions contemplated therein, (i) will contravene any applicable
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality, (ii) will conflict or be
inconsistent with, or result in any
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breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or (other than pursuant to the Security Documents)
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of, any material indenture, mortgage, deed of
trust, agreement or other instrument to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its material property or assets
are bound or to which it may be subject or (iii) will violate any provision of
the certificate of incorporation or by-laws (or equivalent organizational
documents) of the Borrower or any of its Subsidiaries.
6.04 Litigation. There are no actions, suits or proceedings
pending or threatened with respect to the Borrower or any of its Subsidiaries
(i) that could reasonably be expected to have a Material Adverse Effect or (ii)
that could reasonably be expected to have a material adverse effect on (a) the
rights or remedies of the Banks or on the ability of any Credit Party to perform
its obligations to them hereunder and under the other Credit Documents to which
it is a party or (b) the ability to consummate the Transaction.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
all Term Loans shall be utilized (i) to effect the Transaction and (ii) to pay
certain fees and expenses relating to the Transaction.
(b) The proceeds of all Revolving Loans and the proceeds of
all Swingline Loans shall be used for the general corporate and working capital
and capital expenditure purposes of the Borrower and its Subsidiaries; provided
that no more than $2,000,000 of Revolving Loans may be borrowed on the Initial
Borrowing Date to be used for the purposes described in clause (a) above.
(c) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System and
no part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock or to extend credit for the purpose of purchasing or carrying any Margin
Stock. At no time shall the value (as determined in accordance with Regulation
U) of Margin Stock owned by the Borrower and its Subsidiaries exceed 25% of the
value (as determined in accordance with Section 221.2(g)(2) of Regulation U) of
the assets of the Borrower and its Subsidiaries taken as a whole.
6.06 Governmental Approvals. Except for filings and recordings
in connection with the Security Documents that have been or will be made, no
material order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any foreign or domestic
governmental or public body or authority, or any subdivision thereof, is
required to authorize or is required in connection with (i) the execution,
delivery and performance of any Document or (ii) the legality, validity, binding
effect or enforceability of any Document.
6.07 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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6.08 Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
the Borrower or any of its Subsidiaries in writing to the Administrative Agent
or any Bank for purposes of or in connection with this Agreement or any
transaction contemplated herein is true and accurate in all material respects on
the date as of which such information is dated or certified and not incomplete
by omitting to state any material fact necessary to make such information (taken
as a whole) not misleading at such time in light of the circumstances under
which such information was provided. There is no fact known to the Borrower
which would be reasonably likely to have a Material Adverse Effect which has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Banks for use in connection with the transactions contemplated
hereby.
6.10 Financial Condition; Financial Statements. (a) On and as
of the Initial Borrowing Date, on a pro forma basis after giving effect to the
Transaction and to all Indebtedness incurred, and to be incurred, and Liens
created, and to be created, by each Credit Party in connection therewith, (x)
the sum of the assets, at a fair valuation, of the Borrower and its Subsidiaries
taken as a whole will exceed its debts, (y) the Borrower and its Subsidiaries
taken as a whole will not have incurred or intended to, or believe that they
will, incur debts beyond their ability to pay such debts as such debts mature
and (z) the Borrower and its Subsidiaries taken as a whole will not have
unreasonably small capital with which to conduct its business. For purposes of
this Section 6.10 (a), "debt" means any liability on a claim, and "claim" means
(i) right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) (i) The consolidated balance sheet of the Borrower at June
30, 1997 and the related consolidated statements of operations and cash flows of
the Borrower for the fiscal year ended as of said date, which have been audited
by KPMG, independent certified public accountants, who delivered an unqualified
audit opinion in respect therewith and (ii) the pro forma consolidated balance
sheet of the Borrower as of March 31, 1998, copies of which have heretofore been
furnished to each Bank, present fairly the consolidated financial position of
the Borrower at the dates of said statements and the results for the period
covered thereby (or, in the case of the pro forma balance sheet, presents a good
faith estimate of the consolidated pro forma financial condition of the Borrower
(after giving effect to the Transaction and the related financing thereof) at
the date thereof) in accordance with GAAP (except, in the case of the pro forma
balance sheet, to the extent provided therein), except to the extent provided in
the notes to said financial statements and, in the case of the balance sheet as
of March 31, 1998, subject to normal year end adjustments. All such financial
statements (other than the aforesaid pro forma balance sheets) have been
prepared in accordance with GAAP consistently applied except to the extent
provided in the notes to said financial statements.
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(c) Since June 30, 1997, and after giving effect to the
Transaction, nothing has occurred that has had or could reasonably be expected
to have a Material Adverse Effect.
(d) The Projections and pro forma financial information
contained in such materials are based on good faith estimates and assumptions
believed by such Persons to be reasonable at the time made, it being recognized
by the Banks that such Projections as to future events and pro forma adjustments
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ from the projected results or
pro forma adjustments and that such differences may be material. On the Initial
Borrowing Date, the Borrower believed that the Projections were reasonable and
attainable.
(e) Except as reflected in the financial statements and the
notes thereto described in Section 6.10(b), there were as of the Initial
Borrowing Date no liabilities or obligations with respect to the Borrower or any
of its Subsidiaries of a nature (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
would be material to the Borrower and its Subsidiaries taken as a whole.
6.11 Security Interests. On and after the Initial Borrowing
Date, each of the Security Documents create (or after the execution and delivery
thereof, will create), as security for the Obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Collateral subject thereto, superior to and prior to the rights of all
third Persons and subject to no other Liens (except (x) to the extent expressly
set forth in the Security Documents, (y) that the Collateral may be subject to
the security interests evidenced by Permitted Liens relating thereto and (z)
that the Mortgaged Properties also may be subject to Permitted Encumbrances
relating thereto), in favor of the Collateral Agent for the benefit of the
Collateral Agent. No filings or recordings are required in order to perfect the
security interests created under any Security Document except for filings or
recordings required in connection with any such Security Document (other than
the Pledge Agreement) which shall have been made upon or prior to (or are the
subject of arrangements, satisfactory to the Administrative Agent, for filing on
or promptly after the date of, as set forth in Sections 5.14 and 5.15) the
execution and delivery thereof.
6.12 Representations and Warranties in Documents. All
representations and warranties of the Credit Parties and, to the best knowledge
of the Borrower, of all other Persons party thereto, set forth in the Documents
were true and correct in all material respects as of the time such
representations and warranties were made and shall be true and correct in all
material respects as of the Initial Borrowing Date as if such representations
and warranties were made on and as of such date, unless stated to relate to a
specific earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date.
6.13 Consummation of Transaction. As of the Initial Borrowing
Date, the Transaction shall have been consummated in accordance with the terms
and conditions of the Transaction Documents and all applicable laws. All
applicable waiting periods with respect thereto have or, prior to the time when
required, will have, expired without, in all such cases, any action being taken
by any competent authority which restrains, prevents, or imposes material
adverse conditions upon the consummation of the Transaction. As of the Initial
Borrowing Date, there does not exist
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any judgment, order, or injunction prohibiting the consummation of the
Transaction, or the making of the Loans or the performance by any Credit Party
of its respective obligations under the Documents.
6.14 Tax Returns and Payments. Each of the Borrower and each
of its Subsidiaries has filed all federal income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and has
paid, or properly accrued in accordance with GAAP, all material taxes and
assessments payable by it which have become due, other than those not yet
delinquent and those contested in good faith and for which adequate reserves
have been established in accordance with GAAP. The Borrower and each of its
Subsidiaries have paid, or have provided adequate reserves (in the good faith
judgment of the management of the Borrower) for the payment of, all federal,
state and foreign income taxes applicable for all prior fiscal years and for the
current fiscal year to the date hereof. There is no action, suit, proceeding,
investigation, audit or claim now pending or, to the best knowledge of the
Borrower, threatened by any authority regarding any taxes relating to the
Borrower or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect .
6.15 Compliance with ERISA. (a) Each Plan (and each related
trust, insurance contract or fund) is in substantial compliance with its terms
and with all applicable laws, including without limitation, ERISA and the Code;
with respect to each Plan (and each related trust, if any) which is intended to
be qualified under Section 401(a) of the Code, such Plan has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code or the Borrower
intends to apply for such a determination letter within the time period
prescribed for submitting such application, and the Borrower has not been
notified of, and the Borrower does not know of any condition or circumstance
that has resulted or would be likely to result, in the rejection of such an
application or the failure to issue such a favorable determination letter; no
Reportable Event has occurred; no Plan has an Unfunded Current Liability; no
Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an
accumulated funding deficiency, within the meaning of such sections of the Code
or ERISA or has applied for or received a waiver of an accumulated funding
deficiency or an extension of any amortization period, within the meaning of
Section 412 of the Code or Section 303 or 304 of ERISA; all contributions
required to be made with respect to a Plan have been timely made; neither the
Borrower, nor any Subsidiary of the Borrower nor any ERISA Affiliate has
incurred any material liability to or on account of a Plan pursuant to Section
409, 502(i), 502(l), 515, 4062, 4063, 4064 or 4069 of ERISA or Section
401(a)(29), 4971 or 4975 of the Code or reasonably expects to incur any such
liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate of incurring a material liability to or
on account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no action, suit,
proceeding, hearing, audit or investigation with respect to the administration,
operation or investment of assets of any Plans (other than routine claims for
benefits) is pending, expected or threatened; each group health plan (as defined
in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or
has covered employees or former employees of the Borrower, any of its
Subsidiaries, or any ERISA Affiliate has at all times been operated in
compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code except to the
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extent that any failure to comply would not result in a material liability to
the Borrower, any of its Subsidiaries or any ERISA Affiliate; no lien imposed
under the Code or ERISA on the assets of the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate exists or is reasonably likely to arise on
account of any Plan; and the Borrower and its Subsidiaries do not maintain or
contribute to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) which provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or any Plan the obligations
with respect to which could reasonably be expected to have a Material Adverse
Effect;
(b) As of the date of this Agreement and to the knowledge of
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate, each
Multiemployer Plan (and each related trust, insurance contract or fund) is in
substantial compliance with its terms and with all applicable laws, including
without limitation, ERISA and the Code; each Multiemployer Plan (and each
related trust, if any) has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Sections 401(a)
and 501(a) of the Code; no Reportable Event has occurred; no Multiemployer Plan
is insolvent or in reorganization; no Multiemployer Plan has an accumulated
funding deficiency, within the meaning of Section 412 of the Code or Section 303
or 304 of ERISA or has applied for or received a waiver of an accumulated
funding deficiency or an extension of any amortization period, within the
meaning of Section 412 of the Code or Section 303 or 304 of ERISA; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Multiemployer Plan.
(c) As of the date of this Agreement, the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate, as applicable, has timely
made all contributions required to be made with respect to each Multiemployer
Plan; neither the Borrower, nor any Subsidiary of the Borrower nor any ERISA
Affiliate has incurred any material liability to or on account of any
Multiemployer Plan pursuant to Section 409, 502(i), 502(l), 515, 4201, 4204, or
4212 of ERISA or Section 4971 or 4975 of the Code or reasonably expects to incur
any such liability under any of the foregoing sections with respect to any
Multiemployer Plan with respect to any action taken by the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate; no condition exists which
presents a material risk to the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate of incurring a material liability to or on account of a
Multiemployer Plan pursuant to the foregoing provisions of ERISA and the Code;
using actuarial assumptions and computation methods consistent with Part 1 of
Subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and
its Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the
event of a complete withdrawal therefrom, as of the close of the most recent
fiscal year of each such Multiemployer Plan ended prior to the date hereof,
would not have a Material Adverse Effect; no lien imposed under the Code or
ERISA on the assets of the Borrower or any Subsidiary of the Borrower or any
ERISA Affiliate exists on account of any Multiemployer Plan.
6.16 Subsidiaries; Subsidiary Restrictions. (a) Annex III
lists each Subsidiary of the Borrower (and the direct and indirect ownership
interest of the Borrower therein), in each case existing on the Initial
Borrowing Date.
(b) There are no restrictions on the Borrower or any of its
Subsidiaries which prohibit or otherwise restrict the transfer of cash or other
assets from any Subsidiary of the Borrower
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to the Borrower, other than prohibitions or restrictions existing under or by
reason of (i) this Agreement and the other Credit Documents, (ii) the Senior
Notes Documents, (iii) applicable law, (iv) customary non-assignment provisions
entered into in the ordinary course of business and consistent with past
practices, (v) any restriction or encumbrance with respect to a Subsidiary of
the Borrower imposed pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the capital stock or
assets of such Subsidiary, so long as such sale or disposition is permitted
under this Agreement, and (vi) any documents or instruments governing the terms
of any Indebtedness or other obligations secured by Permitted Liens, provided
that such prohibitions or restrictions apply only to the assets subject to such
Permitted Liens.
6.17 Patents, etc. The Borrower and each of its Subsidiaries
have obtained all material patents, trademarks, service marks, trade names,
copyrights and licenses, free from materially burdensome restrictions, that are
used for the operation of their businesses taken as a whole as presently
conducted.
6.18 Pollution and Other Regulations. (a) Each of the Borrower
and each of its Subsidiaries is in compliance with all applicable Environmental
Laws governing its business for which failure to comply is likely to have a
Material Adverse Effect, and neither the Borrower nor any of its Subsidiaries is
liable for any material penalties, fines or forfeitures for failure to comply
with any of the foregoing in the manner set forth above. All licenses, permits,
registrations or approvals required for the business of the Borrower and each of
its Subsidiaries, as conducted as of the Initial Borrowing Date, under any
Environmental Law have been secured and each of the Borrower and each of its
Subsidiaries is in substantial compliance therewith, except such licenses,
permits, registrations or approvals the failure to secure or to comply therewith
is not likely to have a Material Adverse Effect. Neither the Borrower nor any of
its Subsidiaries is in any respect in noncompliance with, breach of or default
under any applicable writ, order, judgment, injunction, or decree to which the
Borrower or such Subsidiary is a party or which would affect the ability of the
Borrower or such Subsidiary to conduct its business and no event has occurred
and is continuing which, with the passage of time or the giving of notice or
both, would constitute noncompliance, breach of or default thereunder, except in
each such case, such noncompliance, breaches or defaults as are not likely to,
in the aggregate, have a Material Adverse Effect. There are as of the Initial
Borrowing Date no Environmental Claims pending or, to the best knowledge of the
Borrower, threatened, against the Borrower or any of its Subsidiaries, or which
(a) question the validity, term or entitlement of the Borrower or any of its
Subsidiaries for any permit, license, order or registration required for the
operation of any facility which the Borrower or any of its Subsidiaries
currently operates and (b) wherein an unfavorable decision, ruling or finding
would be reasonably likely to have a Material Adverse Effect. There are no
facts, circumstances, conditions or occurrences on any Real Property at any time
owned or operated by the Borrower or any of its Subsidiaries or, to the
knowledge of the Borrower, on any property adjacent to any such Real Property
that could reasonably be expected (i) to form the basis of an Environmental
Claim against the Borrower, any of its Subsidiaries or any currently owned or
operated Real Property of the Borrower or any of its Subsidiaries, or (ii) (a)
to cause any such Real Property currently owned or operated to be subject to any
restrictions on the occupancy or use of such Real Property under any
Environmental Law or (b) to cause any such owned Real Property to be subject to
any restrictions on the ownership or transferability of such owned Real Property
under any
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Environmental Law, except in each such case, such Environmental Claims or
restrictions that individually or in the aggregate are not reasonably likely to
have a Material Adverse Effect.
(b) Hazardous Materials have not at any time been (i)
generated, used, treated or stored on, or transported to or from, any Real
Property of the Borrower or any of its Subsidiaries or (ii) released on any such
Real Property, in each case where such occurrence or event individually or in
the aggregate is reasonably likely to have a Material Adverse Effect.
6.19 Properties. The Borrower and each of its Subsidiaries
have good title to all material properties owned by them, free and clear of all
Liens, other than (i) as referred to in the consolidated balance sheet referred
to in Section 6.10(b) or in the notes thereto or (ii) Permitted Liens. Annex IV
contains a true and complete list of each Real Property owned or leased by the
Borrower or any of its Subsidiaries on the Initial Borrowing Date and the type
of interest therein held by the Borrower or the respective Subsidiary.
6.20 Labor Relations. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Borrower or any Subsidiary of the
Borrower or, to the Borrower's knowledge, threatened against any of them, before
the National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against the Borrower or any Subsidiary of the Borrower or, to the Borrower's
knowledge, threatened against any of them, (ii) no strike, labor dispute, work
slowdown or stoppage pending against the Borrower or any Subsidiary of the
Borrower or, to the Borrower's knowledge, threatened against any of them and
(iii) no union representation petition existing with respect to the employees of
the Borrower or any Subsidiary of the Borrower and no union organizing
activities are taking place, except with respect to any matter specified in
clause (i), (ii) or (iii) above, either individually or in the aggregate, such
as is not reasonably likely to have a Material Adverse Effect.
6.21 Existing Indebtedness. Annex V sets forth a true and
complete list of all Indebtedness of the Borrower and each of its Subsidiaries
as of the Initial Borrowing Date and which is to remain outstanding after giving
effect to the Transaction (excluding the Loans, the Letters of Credit and the
Senior Notes, the "Existing Indebtedness"), in each case showing the aggregate
principal amount thereof and the name of the respective borrower (or issuer) and
any other entity which directly or indirectly guaranteed such debt.
6.22 Capitalization. On the Initial Borrowing Date and after
giving effect to the Transaction and the other transactions contemplated hereby,
the authorized capital stock of the Borrower shall consist of (w) $5,000,000
shares of Common Stock, $0.1 par value per share, of which $1,000,000 shares
shall be issued and outstanding, (x) $25,000 shares of Series A Junior Preferred
Stock, $0.1 par value per share, of which 10,851.91948 shares shall be issued
and outstanding, (y) 50,000 shares of Series B Junior Preferred Stock, $0.1 par
value per share of which 18,148.08452 shares shall be issued and outstanding and
(z) 10,000 shares of Senior Exchangeable Preferred Stock, $.01 par value per
share of which 10,000 shares shall be issued and outstanding. All such
outstanding shares have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. Neither the Borrower nor any of
its Subsidiaries has outstanding
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any securities convertible into or exchangeable for its capital stock or
outstanding any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments, puts or claims of any character
relating to, its capital stock.
6.23 Year 2000 Representation. Any reprogramming required to
permit the proper functioning, in and following the year 2000, of (i) the
Borrower's computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the Borrower's
and its Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by January 1, 1999. The cost to
the Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) could not
reasonably be expected to have a material adverse effect on the ability of the
Credit Parties to perform their respective obligations to the Agents and the
Banks or could not reasonably be expected to have a material adverse effect on
the business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or of the Borrower and its Subsidiaries
taken as a whole.
SECTION 7. Affirmative Covenants. The Borrower covenants and
agrees that as of the Effective Date and thereafter for so long as this
Agreement is in effect and until the Commitments have terminated, no Letters of
Credit or Notes are outstanding and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations (other than indemnities described in
Section 12.13 hereof which are not then due and payable) incurred hereunder, are
paid in full:
7.01 Information Covenants. The Borrower will furnish to each
Bank:
(a) Annual Financial Statements. Within 90 days after the
close of each fiscal year of the Borrower, the consolidated balance sheet of the
Borrower and its Subsidiaries, as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for
such fiscal year, in each case setting forth comparative consolidated figures
for the preceding fiscal year, and in the case of the consolidated financial
statements, examined by independent certified public accountants of recognized
national standing whose opinion shall not be qualified as to the scope of audit
or as to the status of the Borrower or any of its Subsidiaries as a going
concern, together with a certificate of such accounting firm stating that in the
course of its regular audit of the business of the Borrower, which audit was
conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default
which has occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof.
(b) Quarterly Financial Statements. As soon as available and
in any event within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year of the Borrower, the consolidated balance
sheet of the Borrower and its Subsidiaries, as at the end of such quarterly
accounting period and the related consolidated statements of income and retained
earnings and of cash flows for such quarterly accounting period and for the
elapsed portion of the
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fiscal year ended with the last day of such quarterly accounting period, and in
each case setting forth comparative consolidated figures for the related periods
in the prior fiscal year, all of which shall be certified by the chief financial
officer or controller of the Borrower, subject to changes resulting from audit
and normal year-end audit adjustments.
(c) Monthly Reports. As soon as practicable, and in any event
within 30 days after the end of each monthly accounting period of each fiscal
year of the Borrower (other than the last monthly accounting period in such
fiscal year), monthly reports in a form reasonably satisfactory to the
Administrative Agent, which shall include the consolidated balance sheet of the
Borrower and its Subsidiaries, as at the end of such monthly accounting period,
and the related consolidated statements of income and retained earnings and cash
flow for such monthly accounting period, setting forth comparative figures for
the corresponding period of the previous year.
(d) Budgets; etc. Not more than 60 days after the commencement
of each fiscal year of the Borrower, a budget of the Borrower and its
Subsidiaries in reasonable detail for each of the twelve months of such fiscal
year. Together with each delivery of consolidated financial statements pursuant
to Sections 7.01(a), (b) and (c), a comparison of the current year to date
financial results against the budgets required to be submitted pursuant to this
clause (d) shall be presented.
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 7.01(a) (b) and (c), a certificate
of the chief financial officer, controller or other Authorized Officer of the
Borrower to the effect that no Default or Event of Default exists or, if any
Default or Event of Default does exist, specifying the nature and extent
thereof, which certificate, in the case of the certificate delivered pursuant to
(x) Sections 7.01(a) and (b), shall set forth the calculations required to
establish whether the Borrower and its Subsidiaries were in compliance with the
provisions of Sections 8.05, 8.08(a) (but only to the extent the Borrower has
made payments of the type described in clause (ii) thereof in such fiscal
quarter or year), 8.10, and 8.11 as at the end of such fiscal quarter or year,
as the case may be, (y) Section 7.01(a), shall set forth the calculation of the
ECF Prepayment Amount, if any and (z) Section 7.01(c), shall set forth the
calculation of the Leverage Ratio, together with the calculations required to
establish such ratio.
(f) Notice of Default or Litigation. Promptly, and in any
event within three Business Days after the Borrower obtains knowledge thereof,
notice of (x) the occurrence of any event which constitutes a Default or an
Event of Default, which notice shall specify the nature thereof, the period of
existence thereof and what action the Borrower proposes to take with respect
thereto or (y) the commencement of or any significant development in any
litigation or governmental proceeding pending against the Borrower or any of its
Subsidiaries which is likely to have a Material Adverse Effect or is likely to
have a material adverse effect on the ability of the Borrower or any other
Credit Party to perform its obligations hereunder or under any other Credit
Document.
(g) Auditors' Reports. Promptly upon receipt thereof, a copy
of each final report or "management letter" submitted to the Borrower by its
independent accountants in connection with any annual, interim or special audit
made by it of the books of the Borrower.
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(h) Other Information. From time to time, such other
information or documents (financial or otherwise) as the Administrative Agent on
its own behalf or on behalf of the Required Banks may reasonably request from
time to time.
7.02 Books, Records and Inspections; Bank Meetings. (a) The
Borrower will, and will cause each of its Subsidiaries to, permit, upon
reasonable notice to the chief financial officer, controller or any other
Authorized Officer of the Borrower, (x) officers and designated representatives
of the Administrative Agent or the Required Banks to visit and inspect any of
the properties or assets of the Borrower or any of its Subsidiaries in
whomsoever's possession, and to examine the books of account of the Borrower or
any of its Subsidiaries and discuss the affairs, finances and accounts of the
Borrower or of any of its Subsidiaries with, and be advised as to the same by,
its and their officers and independent accountants, all at such reasonable times
and intervals and to such reasonable extent as the Administrative Agent or the
Required Banks may desire and (y) not more than once per year (and at any time
during the occurrence of a Default or an Event of Default) the Administrative
Agent, or a third party designated by the Administrative Agent, to conduct, at
the Borrower's expense, an audit of the accounts receivable and inventories of
the Borrower and its Subsidiaries at such times as the Administrative Agent
shall reasonably require.
(b) At the request of the Administrative Agent, the Borrower
shall within 120 days after the close of each fiscal year of the Borrower hold a
meeting at a time and place selected by the Borrower and acceptable to the
Administrative Agent with all of the Banks at which meeting shall be reviewed
the financial results of the previous fiscal year and the financial condition of
the Borrower and its Subsidiaries and the budgets presented for the current
fiscal year of the Borrower and its Subsidiaries.
7.03 Maintenance of Property; Insurance; Bonding. (a) The
Borrower will, and will cause each of its Subsidiaries to, at all times maintain
in full force and effect insurance (including builder's risk insurance) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice. At
any time that insurance at the levels described in Annex VI is not being
maintained by the Borrower and its Subsidiaries, the Borrower will notify the
Banks in writing thereof and, if thereafter notified by the Administrative Agent
to do so, the Borrower will, and will cause each of its Subsidiaries to, obtain
insurance at such levels at least equal to those set forth in Annex VI to the
extent then generally available, or otherwise as are acceptable to the
Administrative Agent. The Borrower will, and will cause each of its Subsidiaries
to, furnish on the Initial Borrowing Date and annually thereafter to the
Administrative Agent, upon its request, a summary of the insurance carried
together with certificates of insurance and other evidence of such insurance, if
any, naming the Collateral Agent as an additional insured and/or loss payee.
(b) The Borrower shall obtain and maintain surety bonds
necessary to comply with its bonding requirement under its subcontracts on the
Effective Date, and shall have satisfactory arrangements for obtaining surety
bonds for its future subcontracts.
7.04 Payment of Taxes. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the
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date on which material penalties attach thereto, and all lawful claims which, if
unpaid, might become a Lien not otherwise permitted pursuant to Section 8.03(a)
or charge upon any properties of the Borrower or any of its Subsidiaries,
provided that neither the Borrower nor any Subsidiary of the Borrower shall be
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if it has maintained adequate
reserves (in the good faith judgment of the management of the Borrower) with
respect thereto in accordance with GAAP.
7.05 Corporate Franchises. The Borrower will do, and will
cause each of its Subsidiaries to do, or cause to be done, all things necessary
to preserve and keep in full force and effect its existence, material rights and
authority, provided that any transaction permitted by Section 8.02 will not
constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. The Borrower will, and
will cause each of its Subsidiaries to, comply with all applicable statutes
(including, without limitation, all applicable Environmental Laws), regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property except for such non-compliance which would not have a
Material Adverse Effect or would not have a material adverse effect on the
ability of any Credit Party to perform its obligations under any Credit Document
to which it is party.
7.07 ERISA. As soon as possible and, in any event, within 10
days after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following, the
Borrower will deliver to each of the Banks a certificate of the chief financial
officer or any vice president of the Borrower setting forth the full details as
to such occurrence and the action, if any, which the Borrower, a Subsidiary or
an ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, the
Subsidiary, the ERISA Affiliate, the PBGC or any other governmental agency, a
Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred (except to the extent that the Borrower has
previously delivered to the Banks a certificate and notices (if any) concerning
such event pursuant to the next clause hereof); that a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA
is subject to the advance reporting requirement of PBGC Regulation Section
4043.61 (without regard to subparagraph (b)(1) thereof), and an event described
in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section
4043 is reasonably expected to occur with respect to such Plan within the
following 30 days; that an accumulated funding deficiency within the meaning of
Section 412 of the Code or Section 302 of ERISA has been incurred or an
application may be or has been made for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303 or 304
of ERISA, with respect to a Plan; that any contribution required to be made with
respect to a Plan has not been timely made; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan which is not a Multiemployer Plan has an Unfunded Current
Liability; that proceedings have been or are reasonably expected to be
instituted to terminate a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that the Borrower, any Subsidiary of the
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Borrower or any ERISA Affiliate will or may incur any liability to or on account
of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or any material liability with respect to a
Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409,
502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B
of the Code; or that the Borrower or any Subsidiary of the Borrower may incur
any material liability pursuant to any employee welfare benefit plan (as defined
in Section 3(l) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
other than any Plan subject to Title IV of ERISA and/or Section 412 of the Code.
The Borrower will deliver to each of the Banks copies of any records, documents
or other information that must be furnished to the PBGC with respect to any Plan
pursuant to Section 4010 of ERISA. The Borrower will also deliver to the Banks a
complete copy of the annual report (on Internal Revenue Service Form
5500-series) of each Plan which is not a Multiemployer Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements, certifications, schedules and information) required
to be filed with the Internal Revenue Service. In addition to any certificates
or notices delivered to the Banks pursuant to the first sentence hereof, copies
of annual reports and any records documents or other information required to be
furnished to the PBGC or any other governmental agency and any material notices
received by the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate with respect to a Plan shall be delivered to the Banks no later than
10 days after the date such report has been filed with the Internal Revenue
Service or such records, documents and/or information has been furnished to the
PBGC or any other governmental agency or such notice has been received by the
Borrower and copies of any material notices received by any Subsidiary of the
Borrower or any ERISA Affiliate shall be delivered to the Banks no later than 30
days after the date such notice has been received by such Subsidiary or ERISA
Affiliate.
7.08 Good Repair. The Borrower will, and will cause each of
its Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept, in all
material respects, in good repair, working order and condition, normal wear and
tear excepted, and, subject to Section 8.05, that from time to time there are
made in such properties and equipment all needful and proper repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto, to
the extent and in the manner useful or customary for companies in similar
businesses.
7.09 End of Fiscal Years; Fiscal Quarters. The Borrower will,
for financial reporting and tax purposes, cause (i) each of its, and each of its
Subsidiaries' fiscal years to end on June 30 of each year and (ii) each of its,
and each of its Subsidiaries' fiscal quarters to end on September 30, December
31, March 31 and June 30 of each year.
7.10 Use of Proceeds. All proceeds of the Loans shall be used
as provided in Section 6.05.
7.11 Additional Security; Further Assurances. (a) The Borrower
will, and will cause each of its Subsidiaries to, at the request of the
Administrative Agent, grant to the Collateral Agent security interests and
mortgages (each an "Additional Mortgage") in such owned Real
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Property of the Borrower and its Subsidiaries with a fair market value equal to
or higher than $1,500,000 acquired after the Effective Date. Such Additional
Mortgages shall be granted pursuant to documentation reasonably satisfactory in
form and substance to the Administrative Agent and shall constitute valid and
enforceable Liens superior to and prior to the rights of all third Persons and
subject to no other Liens except as are permitted by Section 8.03. The
Additional Mortgages or instruments related thereto shall be duly recorded or
filed in such manner and in such places as are required by law to establish,
perfect, preserve and protect the Liens in favor of the Collateral Agent
required to be granted pursuant to the Additional Mortgages and all taxes, fees
and other charges payable in connection therewith shall have been paid in full
by the Borrower.
(b) The Borrower will, and will cause each of its Subsidiaries
to, at the expense of the Borrower, make, execute, endorse, acknowledge, file
and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the Collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Borrower will cause to be delivered to the Collateral Agent such opinions of
counsel, title insurance and other related documents as may be requested by the
Administrative Agent to assure themselves that this Section 7.11 has been
complied with.
(c) The Borrower agrees that each action required by clauses
(a) and (b) above in this Section 7.11 shall be completed as soon as possible,
but in no event later than 90 days after such action is requested to be taken by
the Administrative Agent or the Required Banks, provided that in no event shall
the Borrower be required to take any action, other than using its reasonable
commercial efforts without any material expenditure, to obtain consents from
third parties with respect to its compliance with such clauses (a) and (b).
(d) In the event that the Administrative Agent or the Required
Banks at any time after the Effective Date determine in its or their good faith
discretion that real estate appraisals satisfying the requirements of FIRREA
(any such appraisal a "Required Appraisal") are or were required to be obtained,
or should be obtained, in connection with the Mortgaged Properties, then, within
120 days after receiving written notice thereof from the Administrative Agent or
the Required Banks, as the case may be, such Required Appraisal shall be
delivered, at the expense of the Borrower, to the Administrative Agent which
Required Appraisal, and the respective appraiser, shall be satisfactory to the
Administrative Agent.
7.12 Compliance with Environmental Laws. The Borrower will
comply, and will cause each of its Subsidiaries to comply, in all material
respects with all Environmental Laws applicable to the ownership, lease or use
of its Real Property now or hereafter owned, leased or operated by the Borrower
or any of its Subsidiaries for which failure to comply is likely to have a
Material Adverse Effect, will promptly pay or cause to be paid all costs and
expenses incurred in connection with such compliance, and will either keep or
cause to be kept all such Real Property free and clear of any Liens imposed
pursuant to such Environmental Laws or will promptly discharge and/or satisfy
such Liens. Neither the Borrower nor any of its Subsidiaries will generate, use,
treat, store on, or transport to or from, or permit the generation, use,
treatment, storage on, or transportation to or from, of Hazardous Materials on
any Real Property now or hereafter owned,
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leased or operated by the Borrower or any of its Subsidiaries, in each case
where such occurrence or event individually or in the aggregate is reasonably
likely to have a Material Adverse Effect.
SECTION 8. Negative Covenants. The Borrower covenants and
agrees that as of the Effective Date and thereafter for so long as this
Agreement is in effect and until the Commitments have terminated, no Letters of
Credit or Notes are outstanding and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations (other than indemnities described in
Section 12.13 which are not then due and payable) incurred hereunder, are paid
in full:
8.01 Changes in Business. The Borrower will not, and will not
permit any of its Subsidiaries to, materially alter the character of the
business of the Borrower and its Subsidiaries from that conducted on the Initial
Borrowing Date (after giving effect to the consummation of the Transaction),
provided that this Section 8.01 shall not restrict the making of any investment
expressly permitted by Section 8.06 or the consummation of any transaction
expressly permitted by Section 8.02.
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.
The Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, or sell or otherwise dispose of all or any part of its property
or assets (other than inventory or obsolete equipment or excess equipment no
longer needed in the conduct of the business in the ordinary course of business)
or purchase, lease or otherwise acquire all or any part of the property or
assets of any Person (other than leases, purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business), or agree
to do any of the foregoing at any future time, except that the following shall
be permitted:
(a) any Wholly-Owned Subsidiary of the Borrower may be merged
or consolidated with or into, or be liquidated into, the Borrower or a
Subsidiary Guarantor that is a Wholly-Owned Domestic Subsidiary of the
Borrower (so long as the Borrower or such Subsidiary Guarantor, as the
case may be, is the surviving corporation), or all or any part of the
business, properties or assets of any Wholly-Owned Subsidiary of the
Borrower may be conveyed, leased, sold or transferred to the Borrower
or any Subsidiary Guarantor that is a Wholly-Owned Domestic Subsidiary
of the Borrower;
(b) Consolidated Capital Expenditures to the extent within the
limitations set forth in Section 8.05;
(c) the investments, acquisitions and transfers or
dispositions of properties permitted pursuant to Section 8.06;
(d) the Borrower and its Subsidiaries may lease (as lessee)
real or personal property in the ordinary course of business (so long
as such lease does not create a Capitalized Lease Obligation not
otherwise permitted by Section 8.04(d));
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(e) licenses or sublicenses by the Borrower and its
Subsidiaries of software, customer lists, trademarks, service marks,
patents, trade names and copyrights and other intellectual property in
the ordinary course of business, provided, that such licenses or
sublicenses shall not interfere with the business of the Borrower or
any such Subsidiary;
(f) other sales or dispositions of assets in the ordinary
course of business which shall include dispositions of equipment in the
ordinary course of business (other than assets disposed of in
connection with a Recovery Event), provided that (x) the aggregate Net
Cash Proceeds received from all such sales and dispositions shall not
exceed $2,500,000 in any fiscal year of the Borrower, (y) each such
sale shall be in an amount at least equal to the fair market value
thereof (as determined in good faith by the Borrower) and for proceeds
consisting solely of not less than (A) 75% cash and (B) seller
indebtedness evidenced by promissory notes, which promissory notes
shall be pledged and delivered to the Collateral Agent pursuant to the
Pledge Agreement, and (z) the Net Cash Proceeds of any such sale are
applied to repay the Loans to the extent required by Section
4.02(A)(c), and, provided further, that the sale or disposition of the
capital stock of (i) any Subsidiary Guarantor shall be prohibited and
(ii) any other Subsidiary of the Borrower shall be prohibited unless it
is for all of the outstanding capital stock of such Subsidiary owned by
the Borrower and its Subsidiaries;
(g) other sales or dispositions of assets (or similar
transactions) in each case to the extent the Required Banks have
consented in writing thereto and subject to such conditions as may be
set forth in such consent;
(h) any Subsidiary of the Borrower (including any Subsidiary
Guarantor so long as the assets of such Subsidiary Guarantor are
transferred pursuant to Section 8.02(j)) may be liquidated into the
Borrower or a Subsidiary Guarantor that is a Wholly-Owned Domestic
Subsidiary of the Borrower;
(i) the Borrower and its Subsidiaries may, in the ordinary
course of business, sell, transfer or otherwise dispose of patents,
trademarks, service marks, trade names and copyrights which, in the
reasonable judgment of the Borrower or such Subsidiary, are determined
to be uneconomical, negligible or obsolete in the conduct of its
business;
(j) any Subsidiary of the Borrower may transfer assets to the
Borrower or to a Subsidiary Guarantor that is a Wholly-Owned Domestic
Subsidiary of the Borrower so long as the security interests granted to
the Collateral Agent pursuant to the Security Documents in the assets
so transferred shall remain in full force and effect and perfected (to
at least the same extent as in effect immediately prior to such
transfer).
(k) each of the Borrower and its Subsidiaries may acquire all
or substantially all of the assets of any Person (or all or
substantially all of the assets of a product line or division of any
Person) or 100% of the capital stock of any Person (any acquisition
permitted by this clause (k), a "Permitted Acquisition"), so long as
(i) no Default or Event of Default then exists or would result
therefrom, (ii) each of the representations and warranties contained in
Section 6 shall be true and correct in all material respects both
before and after
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giving effect to such Permitted Acquisitions, (iii) any liens or
Indebtedness assumed or issued in connection with such acquisition are
otherwise permitted under Section 8.03 or 8.04 as the case may be,
(iv) the value of all consideration paid in connection therewith
(including Indebtedness assumed or incurred) for all of the Permitted
Acquisitions shall not exceed $25,000,000, (v) the Borrower shall be
in pro forma compliance with all financial covenants in this Agreement
before and after giving effect to such Permitted Acquisitions, (vi)
the Leverage Ratio (calculated on a pro forma basis after giving
effect to such Permitted Acquisition) of the Borrower is 0.5x less
than the Leverage Ratio required to be met for the Test period most
recently ended prior to the Permitted Acquisition, and (vii) after
giving effect to such Permitted Acquisition, the Total Unutilized
Revolving Commitment shall not be less than $7,500,000.
To the extent the Required Banks waive the provisions of this Section 8.02 with
respect to the sale or other disposition of any Collateral, or any Collateral is
sold or otherwise disposed of as permitted by this Section 8.02, such Collateral
(unless sold to the Borrower or a Subsidiary of the Borrower) shall be sold or
otherwise disposed of free and clear of the Liens created by the Security
Documents, and the Administrative Agent and Collateral Agent shall be authorized
to take any actions deemed appropriate in order to effect the foregoing.
8.03 Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets of any kind (real or personal, tangible
or intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute; provided
that the provisions of this Section 8.03 shall not prevent the creation,
incurrence, assumption or existence of the following (with such Liens described
below being herein referred to as "Permitted Liens"):
(a) inchoate Liens for taxes, assessments or governmental
charges or rules not yet delinquent or Liens for taxes, assessments or
governmental charges or rules being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Borrower) have been established;
(b) Liens in respect of property or assets of the Borrower or
any of its Subsidiaries imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens, statutory landlord's Liens, and other similar Liens
arising in the ordinary course of business, and (x) which do not in the
aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business
of the Borrower or any such Subsidiary or (y) which are being contested
in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or asset
subject to such Lien;
(c) Liens created by or pursuant to this Agreement and the
other Credit Documents;
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(d) Liens existing on the Initial Borrowing Date to the extent
listed on Annex VII, without giving effect to any subsequent extensions
or renewals thereof;
(e) Liens arising from judgments, decrees or attachments (or
securing of appeal bonds with respect thereto) in circumstances not
constituting an Event of Default under Section 9.09, so long as no cash
or property (other than proceeds of insurance payable by reason of such
judgments, decrees or attachments) is deposited or delivered to secure
any respective judgment or award, or any appeal bond in respect
thereof, the fair market value of which exceeds $3,000,000;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety bonds (other than appeal bonds), bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed
money);
(g) leases, subleases or licenses granted to others not
interfering in any material respect with the business of the Borrower
or any of its Subsidiaries;
(h) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding
leases permitted by this Agreement;
(j) purchase money Liens securing payables arising from the
purchase by the Borrower or any of its Subsidiaries of any equipment or
goods in the normal course of business, provided that such payables
shall not constitute Indebtedness;
(k) any interest or title of a lessor under any lease
permitted by this Agreement;
(l) Liens arising pursuant to purchase money mortgages
relating to, or security interests securing Indebtedness representing,
the purchase price or financing thereof of assets acquired by the
Borrower or any of its Subsidiaries after the Initial Borrowing Date
and Liens created pursuant to Capital Leases, provided that any such
Liens attach only to the assets so acquired and that all Indebtedness
secured by Liens created pursuant to this clause (l) shall not exceed
the amount permitted pursuant to Section 8.04(d) at any time
outstanding;
(m) Liens arising pursuant to Deferred Purchase Price
Obligations, provided that any such Liens attach only to the assets so
acquired and that all Indebtedness secured by Liens created pursuant to
this clause (m) shall not exceed the amount permitted pursuant to
Section 8.04(g) at any time outstanding;
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(n) Permitted Encumbrances;
(o) Liens securing Indebtedness not in excess of $2,500,000 at
any time outstanding; and
(p) Liens on assets acquired in connection with a Permitted
Acquisition.
(q) Liens arising in connection with a Permitted Joint
Venture.
8.04 Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness of the Borrower incurred under the Senior
Notes;
(c) Indebtedness owing by (i) any Subsidiary Guarantor to
another Subsidiary Guarantor or to the Borrower, (ii) any Subsidiary of
the Borrower that is not a Subsidiary Guarantor to another Subsidiary
of the Borrower that is not a Subsidiary Guarantor and (iii) the
Borrower to any Subsidiary Guarantor;
(d) Capitalized Lease Obligations of the Borrower and its
Subsidiaries incurred by the Borrower or any of its Subsidiaries after
the Initial Borrowing Date and Indebtedness incurred pursuant to
purchase money mortgages permitted by Section 8.03(l), provided that
the aggregate amount of Indebtedness incurred pursuant to this clause
(d) shall not exceed $5,000,000 at any time outstanding;
(e) Existing Indebtedness, without giving effect to any
subsequent extension, renewal or refinancing thereof;
(f) Indebtedness under Interest Rate Agreements relating to
Indebtedness otherwise permitted under this Section 8.04;
(g) Indebtedness incurred pursuant to Deferred Purchase Price
Obligations of approximately $3,700,000 on the Initial Borrowing Date,
plus additional Deferred Purchase Price Obligations in connection with
Permitted Acquisitions.
(h) Additional Indebtedness of the Borrower and its
Subsidiaries not to exceed an aggregate outstanding principal amount of
$7,500,000 at any time.
(i) So long as no Default or Event of Default then exists or
would arise therefrom, the Borrower may exchange all of the issued and
outstanding Senior Exchangeable Preferred Stock for Junior Subordinated
Exchange Notes in accordance with the terms of the Senior Exchangeable
Preferred Stock Documents.
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<PAGE>
8.05 Capital Expenditures. (a) The Borrower will not, and will
not permit any of its Subsidiaries to, incur Consolidated Capital Expenditures,
provided that the Borrower and its Subsidiaries may make Consolidated Capital
Expenditures during each fiscal period set forth below (taken as one accounting
period) so long as the aggregate amount of Consolidated Capital Expenditures
made under this section 8.05(a) (as may be reduced under clauses (c) and (f)
below) does not exceed for any period set forth below the amount set forth
opposite such period:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
June 30, 1999 $13,500,000
June 30, 2000 $13,500,000
June 30, 2001 $13,500,000
June 30, 2002 $14,500,000
June 30, 2003 $16,000,000
June 30, 2004 $16,500,000
</TABLE>
(b) In the event that the maximum amount which is permitted to
be expended in respect of Consolidated Capital Expenditures during any fiscal
year of the Borrower pursuant to Section 8.05(a) (without giving effect to this
clause (b)) is not fully expended during such fiscal year, the maximum amount
which may be expended during the immediately succeeding fiscal year pursuant to
Section 8.05(a) shall be increased by such unutilized amount, provided that such
increase shall not exceed the amount otherwise permitted by more than 25% in any
fiscal year of the Borrower.
(c) In addition to the foregoing, during any fiscal year, up
to 15% of the Consolidated Capital Expenditures which may be expended for any
following fiscal year pursuant to Section 8.05(a) may be applied to the total
amount of permitted Consolidated Capital Expenditures for such current year,
provided that the amount of permitted Consolidated Capital Expenditures for that
following year will be reduced accordingly.
(d) In addition to the foregoing, the Borrower and the
Subsidiary Guarantors may make Consolidated Capital Expenditures to the extent
such Consolidated Capital Expenditures also constitute a Reinvestment Asset with
the proceeds of any Asset Sale not required to be applied to repay the Term
Loans pursuant to Section 4.02(A)(c) or Permitted Acquisitions made in
compliance with Section 8.02(k).
(e) In addition to the foregoing, the Borrower and the
Subsidiary Guarantors may make Consolidated Capital Expenditures in an amount
equal to the aggregate amount of the net proceeds received by the Borrower
pursuant to the issuance of Junior Preferred Stock or Common Stock in accordance
with Section 8.12(w).
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(f) In addition to the foregoing, the amount of insurance
proceeds received by the Borrower and its Subsidiaries from any Recovery Event
may be used by the Borrower or such Subsidiary to make Consolidated Capital
Expenditures to replace or restore any properties or assets in respect of which
such proceeds were paid or to otherwise acquire productive assets usable in the
business of the Borrower, in each case to the extent such proceeds are not
required to be applied to repay Term Loans pursuant to Section 4.02(A)(g),
provided that any proceeds that are so used to make Consolidated Capital
Expenditures pursuant to this clause (g) are, to the extent required by Section
4.02(A)(g), used within the period of time as is set forth in the respective
officer's certificate delivered pursuant to such Section 4.02(A)(g).
(g) Notwithstanding the foregoing, if for the fiscal year 2000
or any fiscal year thereafter the level of EBITDA actually achieved is less than
the level established in the Projections for that fiscal year, the aggregate
amount of Consolidated Capital Expenditures permitted under section 8.05(a) for
the following fiscal year will be reduced on a dollar for dollar basis by an
amount equal to the difference between the level of EBITDA actually achieved and
the amount projected to be achieved in the Projections, provided that the amount
of Capital Expenditures so permitted per year will not fall below $6,000,000 as
a result thereof.
8.06 Advances, Investments and Loans. The Borrower will not,
and will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) the Borrower and its Subsidiaries may acquire and hold
receivables owing to them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary trade terms;
(b) the intercompany Indebtedness described in Section 8.04(c)
shall be permitted;
(c) investments made by the Borrower in Subsidiary Guarantors
that are Wholly-Owned Subsidiaries shall be permitted;
(d) loans and advances to employees in an aggregate principal
amount not to exceed $1,000,000 at any time outstanding shall be
permitted;
(e) the Borrower and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(f) Interest Rate Agreements permitted by Section 8.04(f)
shall be permitted;
(g) the Borrower may hold the promissory notes acquired in
accordance with Section 8.02(f);
(h) the Borrower may repurchase stock to the extent permitted
by Section 8.08(a)(ii);
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(i) each of the Borrower and its Subsidiaries may enter into,
invest in and make loans and advances to corporations, associations,
partnerships, business trusts and other business entities which would
not, after the respective investments, be a subsidiary of the Borrower
(any joint venture permitted by this clause (i), a "Permitted Joint
Venture"), so long as (w) no default or event of default then exists or
would result therefrom, (x) each of the representations and warranties
contained in Section 6 shall be true and correct in all material
respects both before and after giving effect to such Permitted Joint
Ventures, (y) any liens or Indebtedness assumed or issued in connection
with such acquisition are otherwise permitted under Section 8.03 or
8.04 as the case may be, (z) the aggregate amount invested in the
Permitted Joint Ventures shall at no time exceed $2,500,000.
(j) Permitted Acquisitions shall be permitted.
8.07 Prepayments of Indebtedness; Modification of Preferred
Stock and Other Agreements, etc. The Borrower will not, and will not permit any
of its Subsidiaries to, (w) make (or give any notice in respect thereof) any
voluntary or optional payment or prepayment or redemption or acquisition for
value of (including, without limitation, by way of depositing with the trustee
with respect thereto money or securities before due for the purpose of paying
when due) or exchange of any Existing Indebtedness, the Senior Notes or the
Junior Subordinated Exchange Notes; provided, that the (i) Borrower and/or its
Subsidiaries may prepay Existing Indebtedness in an aggregate amount not to
exceed $4,000,000 and (ii) to the extent not applied to repay Loans as required
by Section 4.02(A)(e), with the consent of the Required Banks (such consent not
to be unreasonably withheld), the Borrower may repay, repurchase or otherwise
acquire Senior Notes with the proceeds of issuances of equity or capital
contributions, (x) amend, modify or change in any manner any agreements
(including, without limitation, the Senior Note Documents) relating to the
Senior Notes, (y) amend or modify, or permit the amendment or modification of
any provision of the Junior Preferred Stock Documents and the Senior
Exchangeable Preferred Stock Documents (including as relating to the Junior
Subordinated Exchange Notes) or (z) amend, modify or change in any manner
materially adverse to the interests of the Banks, the Certificate of
Incorporation (including, without limitation, by the filing of any additional
certificate of designation) or By-Laws of the Borrower or any of its
Subsidiaries, the terms of any of its capital stock or any agreement entered
into by the Borrower with respect to its capital stock, any Shareholders
Agreement, or enter into any new agreement in any manner materially adverse to
the interests of the Banks with respect to the capital stock of the Borrower.
8.08 Dividends, etc. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in capital stock of such Person) or return any capital
to its stockholders or authorize or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a consideration, any
shares of any class of its capital stock now or hereafter outstanding (or any
warrants for or options or stock appreciation rights in respect of any of such
shares), or set aside any funds for any of the foregoing purposes, or permit any
of its Subsidiaries to purchase or otherwise acquire for consideration any
shares of any class of the capital stock of the Borrower or any other
Subsidiary, as the case may be, now or hereafter outstanding (or any options or
warrants or stock appreciation rights issued by such Person with respect to its
capital stock) (all of the foregoing "Dividends"), except that:
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(i) any Subsidiary of the Borrower may pay cash dividends to the
Borrower or to a Wholly-Owned Subsidiary of the Borrower; and
(ii) so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, the Borrower may redeem or
repurchase for cash, at fair value, the capital stock of the Borrower
(or options to purchase capital stock) from any employee of the
Borrower upon the death, disability, retirement or other termination of
such employee, provided, that all such repurchases under this clause
(ii) shall not exceed, in the aggregate, $5,000,000 (increased by the
amount of proceeds received by the Borrower in connection with the
issuance of capital stock to directors or employees of the Borrower and
its Subsidiaries after the Initial Borrowing Date); provided further,
the Borrower may effect such repurchases without regard to the dollar
limitations set forth above solely with the proceeds of key man life
insurance obtained for the purpose of making such repurchase.
(iii) the Borrower may pay regularly scheduled dividends on its
Senior Exchangeable Preferred Stock in additional shares of Senior
Exchangeable Preferred Stock pursuant to the terms thereof.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or otherwise restricts (A) the ability of any
Subsidiary of the Borrower to (a) pay dividends or make other distributions or
pay any Indebtedness owed to the Borrower or any other Subsidiary of the
Borrower, (b) make loans or advances to the Borrower or any other Subsidiary of
the Borrower, (c) transfer any of its properties or assets to the Borrower or
any other Subsidiary of the Borrower or (B) the ability of the Borrower or any
other Subsidiary of the Borrower to create, incur, assume or suffer to exist any
Lien upon its property or assets to secure the Obligations, other than
prohibitions or restrictions existing under or by reason of:
(i) this Agreement and the other Credit Documents;
(ii) the Senior Note Documents;
(iii) applicable law;
(iv) customary non-assignment provisions entered into in the
ordinary course of business and consistent with past practices;
(v) any restriction or encumbrance with respect to a
Subsidiary of the Borrower imposed pursuant to an agreement which has
been entered into for the sale or disposition of all or substantially
all of the capital stock or assets of such Subsidiary, so long as such
sale or disposition is permitted under this Agreement; and
(vi) Liens permitted under Section 8.03 and any documents or
instruments governing the terms of any Indebtedness or other
obligations secured by any such Liens, provided that such prohibitions
or restrictions apply only to the assets subject to such Liens.
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8.09 Transactions with Affiliates. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any transaction or series
of transactions after the Initial Borrowing Date whether or not in the ordinary
course of business, with any Affiliate other than on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would be
obtainable by the Borrower or such Subsidiary at the time in a comparable arm's
length transaction with a Person other than an Affiliate; provided, that the
foregoing restrictions shall not apply to (i) advances to employees of the
Borrower and its Subsidiaries to the extent permitted by Section 8.06(e), (ii)
annual management fees to be paid to an Affiliate of BRS not to exceed $300,000
in any fiscal year, (iii) the reimbursement of the reasonable out-of-pocket
expenses incurred by the Investors in connection with the Transaction, (iv) the
payment of one-time fees to an Affiliate of BRS on the Initial Borrowing Date in
an aggregate amount not to exceed $2,000,000, (v) Dividends permitted under
Section 8.08, (vi) transactions between the Borrower and its Subsidiaries to the
extent otherwise expressly permitted under this Agreement, (vii) employment
arrangements (including arrangements made with respect to bonuses) entered into
in the ordinary course of business with members of the Board of Directors of the
Borrower and of its Subsidiaries, (viii) the Shareholders' Agreements as in
effect on the Initial Borrowing Date and (ix) Payments to be made pursuant to
Sections 1.10 and 1.11 of the Recapitalization Agreement. Other than the
Management Agreements, the Borrower shall not enter into any agreements to
provide for management or similar services.
8.10 Interest Coverage Ratio. The Borrower will not permit the
Interest Coverage Ratio for any Test Period ending on a date set forth below to
be less than the ratio set forth opposite such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30, 1998 1.60:1
December 31, 1998 1.60:1
March 31, 1999 1.60:1
June 30, 1999 1.60:1
September 30, 1999 1.65:1
December 31, 1999 1.70:1
March 31, 2000 1.75:1
June 30, 2000 1.80:1
September 30, 2000 1.85:1
December 31, 2000 1.90:1
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
March 31, 2001 1.95:1
June 30, 2001 2.00:1
September 30, 2001 2.10:1
December 31, 2001 2.15:1
March 31, 2002 2.20:1
June 30, 2002 2.30:1
September 30, 2002 2.40:1
December 31, 2002 2.45:1
March 31, 2003 2.50:1
June 30, 2003 2.60:1
September 30, 2003 2.70:1
December 31, 2003 2.80:1
March 31, 2004 2.90:1
June 30, 2004 3.00:1
</TABLE>
8.11 Leverage Ratio. The Borrower will not permit the Leverage
Ratio on the last day of any Test Period to be greater than the ratio set forth
opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
September 30, 1998 6.00:1
December 31, 1998 6.00:1
March 31, 1999 6.00:1
June 30, 1999 6.00:1
September 30, 1999 5.85:1
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
December 31, 1999 5.70:1
March 31, 2000 5.55:1
June 30, 2000 5.40:1
September 30, 2000 5.25:1
December 31, 2000 5.10:1
March 31, 2001 4.95:1
June 30, 2001 4.75:1
September 30, 2001 4.60:1
December 31, 2001 4.50:1
March 31, 2002 4.40:1
June 30, 2002 4.25:1
September 30, 2002 4.10:1
December 31, 2002 4.00:1
March 31, 2003 3.90:1
June 30, 2003 3.75:1
September 30, 2003 3.55:1
December 31, 2003 3.40:1
March 31, 2004 3.20:1
June 30, 2004 3.00:1
</TABLE>
8.12 Issuance of Stock. The Borrower will not issue any shares
of capital stock (other than issuances of Common Stock, Junior Preferred Stock
and Senior Exchangeable Preferred Stock which neither by its terms nor upon the
happening of any event, mature nor is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, nor is redeemable at the sole option of
the holder thereof prior to the repayment of the Obligations and which do not
create a Change of Control), and will not permit any of its Subsidiaries
directly or indirectly to issue, sell, assign, pledge or otherwise encumber or
dispose of any shares of its capital stock or other securities (or warrants,
rights or options to acquire shares or other equity securities) of such
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<PAGE>
Subsidiary, except (v) the Borrower may issue additional shares of Senior
Exchangeable Preferred Stock to the Seller, (w) the Borrower may issue
additional shares of Junior Preferred Stock and Common Stock to the Investors so
long as the proceeds thereof are applied to the making of Consolidated Capital
Expenditures pursuant to Section 8.05(e), (x) to the extent permitted by Section
8.06, (y) to the Borrower and/or any Subsidiary Guarantor or (z) to qualify
directors if required by applicable law.
8.13 Limitation on Creation of Subsidiaries. The Borrower
shall not, and shall not permit any of its Subsidiaries to, establish, create or
acquire any additional Subsidiaries without the prior written consent of the
Required Banks, provided that the Borrower and its Wholly-Owned Subsidiaries
shall be permitted to establish or create Wholly-Owned Subsidiaries so long as
(i) at least 5 days' prior written notice thereof (or such lesser notice as is
acceptable to the Administrative Agent) is given to the Administrative Agent,
(ii) such new Subsidiaries shall execute and deliver such guarantees and
security documents as the Required Banks shall request (including documents
substantially similar to or amendments to each of the Subsidiary Guaranty, the
Pledge Agreement and the Security Agreement), and in such forms as shall be
satisfactory to them, (iii) the holders of the capital stock of such new
Subsidiaries shall execute and deliver additional pledge agreements, in form and
substance satisfactory to the Administrative Agent and (iv) such new
Subsidiaries shall execute and deliver, or cause to be executed and delivered,
all other relevant documentation of the type described in Section 5 as such new
Subsidiaries would have had to deliver if such new Subsidiaries were Credit
Parties on the Initial Borrowing Date.
8.14 Minimum Consolidated EBITDA The Borrower will not permit
the Consolidated EBITDA for the Test Period ending on a date set forth below to
be less than the amount set forth opposite such date below:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
December 30, 1998 $23,000,000
March 31, 1999 $23,000,000
June 30, 1999 $23,000,000
September 30, 1999 $24,000,000
December 31, 1999 $24,000,000
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 2000 $25,000,000
June 30, 2000 $26,000,000
September 30, 2000 $26,000,000
December 31, 2000 $27,000,000
March 31, 2001 $27,000,000
June 30, 2001 $28,000,000
September 30, 2001 $28,000,000
December 31, 2001 $29,000,000
March 31, 2002 $29,000,000
June 30, 2002 $30,000,000
September 30, 2002 $30,000,000
December 31, 2002 $31,000,000
March 31, 2003 $31,000,000
June 30, 2003 $32,000,000
September 30, 2003 $32,000,000
December 31, 2003 $33,000,000
March 31, 2004 $34,000,000
June 30, 2004 $35,000,000
</TABLE>
8.15 Interest on the Junior Subordinated Exchange Notes The
Borrower will not, and will not permit any of its Subsidiaries to pay interest
on the Junior Subordinated Exchange Notes, except through the issuance of
additional Junior Subordinated Exchange Notes.
SECTION 9. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment
when due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any Unpaid
Drawing, any interest on the Loans or any Fees or any other amounts owing
hereunder or under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate delivered or required to be delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
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<PAGE>
9.03 Covenants. The Borrower or any of its Subsidiaries shall
(a) default in the due performance or observance by it of any term, covenant or
agreement contained in Sections 7.01(f)(x), 7.11 or 8, or (b) default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in Section 9.01, 9.02 or clause (a) of this Section 9.03)
contained in this Agreement and such default shall continue unremedied for a
period of at least 30 days after notice to the defaulting party by the
Administrative Agent or the Required Banks; or
9.04 Default Under Other Agreements. (a) The Borrower or any
of its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
applicable thereto or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, any such Indebtedness to become due prior to its stated maturity or (b)
any such Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment, prior to the stated maturity thereof,
provided that it shall not constitute an Event of Default pursuant to this
Section 9.04 the aggregate amount of all Indebtedness referred to in clauses (a)
and (b) above exceeds $3,500,000 at any one time; or
9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Subsidiaries; or the Borrower or any of its
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Borrower or any of its Subsidiaries; or there is
commenced against the Borrower or any of its Subsidiaries any such proceeding
which remains undismissed for a period of 60 days; or the Borrower or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; the Borrower or
any of its Subsidiaries suffers any appointment of any custodian or the like for
it or any substantial part of its property to continue undischarged or unstayed
for a period of 60 days; or the Borrower or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by the Borrower or any of its Subsidiaries for the purpose of effecting
any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, any Plan
which is subject to Title IV of ERISA shall have had or is likely to have a
trustee
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<PAGE>
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, the Borrower or a Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is reasonably likely to incur any liability to or on
account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the
Code or on account of a group health plan (as defined in Section 607(1) of ERISA
or Section 4980B(g)(2) of the Code), or the Borrower or any of its Subsidiaries
has incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) that provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or Plans (other than any Plan subject to Title IV of
ERISA); and (b) there shall result from any such event or events the imposition
of a Lien, the granting of a security interest, or a liability or a material
risk of incurring a liability; and (c) such Lien, security interests or
liability, individually or in the aggregate, in the reasonable opinion of the
Required Banks, has had, or could reasonably be expected to have, a Material
Adverse Effect; or
9.07 Security Documents. Any Security Document shall cease to
be in full force and effect or, except as expressly set forth in the Security
Agreement, shall cease to give the Collateral Agent any perfected Lien
encumbering Collateral, or shall cease to give the Collateral Agent any material
rights, powers and privileges purported to be created thereby in favor of the
Collateral Agent or any Credit Party shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any such Security Document and such default shall continue
unremedied for a period of 30 days after notice to the Borrower by the
Administrative Agent or the Required Banks; or
9.08 Subsidiary Guaranty. The Subsidiary Guaranty or any
provision thereof shall cease to be in full force or effect, or any Subsidiary
Guarantor or any Person acting by or on behalf of any Subsidiary Guarantor shall
deny or disaffirm such guarantor's obligations under such Subsidiary Guaranty or
any Subsidiary Guarantor shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to the Subsidiary Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be
entered against the Borrower or any of its Subsidiaries involving a liability of
$3,500,000 or more in the aggregate for all such judgments and decrees for the
Borrower and its Subsidiaries (in each case, not paid or to the extent not
covered by insurance) and any such judgments or decrees shall not have been
vacated, discharged or stayed or bonded pending appeal within 60 days from the
entry thereof; or
9.10 Change of Control. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (provided that,
if an Event of Default
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<PAGE>
specified in Section 9.05 shall occur with respect to the Borrower, the result
which would occur upon the giving of written notice by the Administrative Agent
as specified in clauses (i) and (ii) below shall occur automatically without the
giving of any such notice): (i) declare the Total Commitment terminated,
whereupon the Commitment of each Bank shall forthwith terminate immediately and
any Commitment Fee shall forthwith become due and payable without any other
notice of any kind; (ii) declare the principal of and any accrued interest in
respect of all Loans and all Obligations owing hereunder (including Unpaid
Drawings) and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; (iii) enforce, as Collateral
Agent (or direct the Collateral Agent to enforce), any or all of the Liens and
security interests created pursuant to the Security Documents; (iv) terminate
any Letter of Credit which may be terminated in accordance with its terms; (v)
direct the Borrower to pay (and the Borrower hereby agrees upon receipt of such
notice, or upon the occurrence of any Event of Default specified in Section 9.05
in respect of the Borrower, it will pay) to the Collateral Agent at the Payment
Office such additional amounts of cash, to be held as security for the
Borrower's reimbursement obligations in respect of Letters of Credit then
outstanding equal to the aggregate Stated Amount of all Letters of Credit then
outstanding; and (vi) apply any cash collateral held pursuant to this Agreement
to repay the Obligations.
SECTION 10. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Additional Mortgage" shall have the meaning provided in
Section 7.11(a).
"Adjusted RC Percentage" shall mean (x) at a time when no Bank
Default exists, for each Bank such Bank's Revolving Percentage and (y) at a time
when a Bank Default exists (i) for each Bank that is a Defaulting Bank, zero and
(ii) for each Bank that is a Non-Defaulting Bank, the percentage determined by
dividing such Bank's Revolving Commitment at such time by the Adjusted Total
Revolving Commitment at such time, it being understood that all references
herein to Revolving Commitments and the Adjusted Total Revolving Commitment at a
time when the Total Revolving Commitment or Adjusted Total Revolving Commitment,
as the case may be, has been terminated shall be references to the Revolving
Commitments or Adjusted Total Revolving Commitment, as the case may be, in
effect immediately prior to such termination, provided that (A) no Bank's
Adjusted RC Percentage shall change upon the occurrence of a Bank Default from
that in effect immediately prior to such Bank Default if, after giving effect to
such Bank Default and any repayment of Revolving Loans and Swingline Loans at
such time pursuant to Section 4.02(A)(a) or otherwise, the sum of (i) the
aggregate outstanding principal amount of Revolving Loans of all Non-Defaulting
Banks plus (ii) the aggregate outstanding principal amount of Swingline Loans
plus (iii) the Letter of Credit Outstandings, exceeds the Adjusted Total
Revolving Commitment, (B) the changes to the Adjusted RC Percentage that would
have become effective upon the occurrence of a Bank Default but that did not
become effective as a result of the preceding clause (A) shall become effective
on the first date after the occurrence of the relevant Bank Default on which the
sum of (i) the aggregate outstanding principal amount of the Revolving Loans of
all Non-Defaulting Banks plus (ii) the aggregate outstanding principal amount of
the Swingline Loans plus (iii) the Letter of Credit Outstandings is equal to or
less than the Adjusted
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<PAGE>
Total Revolving Commitment and (C) if (i) a Non-Defaulting Bank's Adjusted RC
Percentage is changed pursuant to the preceding clause (B) and (ii) any
repayment of such Bank's Revolving Loans, or of Unpaid Drawings with respect to
Letters of Credit or of Swingline Loans, that were made during the period
commencing after the date of the relevant Bank Default and ending on the date of
such change to its Adjusted RC Percentage must be returned to any Borrower as a
preferential or similar payment in any bankruptcy or similar proceeding of such
Borrower, then the change to such Non-Defaulting Bank's Adjusted RC Percentage
effected pursuant to said clause (B) shall be reduced to that positive change,
if any, as would have been made to its Adjusted RC Percentage if (x) such
repayments had not been made and (y) the maximum change to its Adjusted RC
Percentage would have resulted, in the sum of the outstanding principal of
Revolving Loans made by such Bank plus such Bank's new Adjusted RC Percentage of
the outstanding principal amount of Swingline Loans and of Letter of Credit
Outstandings equaling such Bank's Revolving Commitment at such time.
"Adjusted Revolving Commitment" for each Non-Defaulting Bank
shall mean at any time the product of such Bank's Adjusted RC Percentage and the
Adjusted Total Revolving Commitment.
"Adjusted Total Revolving Commitment" shall mean at any time
the Total Revolving Commitment less the aggregate Revolving Commitments of all
Defaulting Banks.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affected Eurodollar Loans" shall have the meaning provided in
Section 4.02(B)(b).
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including, but not limited to, all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i),
other than for purposes of the definition of Permissible Transferees, to vote 5%
or more of the securities having ordinary voting power for the election of
directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time modified, amended and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to
any Reinvestment Election, the amount specified in the Reinvestment Notice
delivered by the Borrower in connection therewith as the amount of the Net Cash
Proceeds from the related Asset Sale that the Borrower and/or the Subsidiary
Guarantors intend to use to purchase, construct or otherwise acquire
Reinvestment Assets.
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<PAGE>
"Applicable Margin" shall mean, with respect to each Term Loan
and Revolving Loan, the applicable percentage per annum (x) for the period
commencing on the Initial Borrowing Date through, but not including, the first
Start Date, shall be equal to (i) in the case of Eurodollar Loans, 2.25%, and
(ii) in the case of Base Rate Loans, 1.25%, and (y) from and after any Start
Date to and including the corresponding End Date, to be determined according to
the Borrower's Status for such Test Period as set forth below:
64
<PAGE>
<TABLE>
<CAPTION>
Base Rate Eurodollar
Loans Rate Loans
----- ----------
<S> <C> <C>
Level I 0.75% 1.75%
Status
Level II 1.00% 2.00%
Status
Level III 1.25% 2.25%
Status
Level IV 1.50% 2.50%
Status
</TABLE>
; provided that Level III Status shall also apply (x) from the period from the
Initial Borrowing Date to, but not including, the first Start Date and (y) at
any time when any Default or Event of Default is in existence.
"Asset Sale" shall mean the sale, transfer or other
disposition by the Borrower or any Subsidiary of the Borrower to any Person
other than the Borrower or any Subsidiary Guarantor of any asset of the Borrower
or such Subsidiary (other than sales, transfers or other dispositions in the
ordinary course of business of inventory (including disposition of equipment in
the ordinary course of business) and/or obsolete or excess equipment or
intellectual property the proceeds of which do not exceed $50,000 per annum).
"Assignment Agreement" shall have the meaning provided in
Section 12.04(b).
"Authorized Officer" shall mean any senior officer of the
Borrower designated as such in writing to the Administrative Agent by the
Borrower.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans
(including pursuant to a Mandatory Borrowing) or to fund its portion of any
unreimbursed payment under Section 2.05(c) or (ii) a Bank having notified the
Administrative Agent and/or the Borrower that it does not intend to comply with
its obligations under Section 1.01 or under Section 2.05(c).
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Base Rate" at any time shall mean the higher of (i) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the
Prime Lending Rate.
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<PAGE>
"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Borrower" shall mean, prior to the consummation of the
Recapitalization, Penhall Acquisition Corp., and after the Recapitalization, New
Penhall.
"Borrowing" shall mean the incurrence of (i) Swingline Loans
by the Borrower from BTCo on a given date or (ii) one Type of Loan pursuant to a
single Facility by the Borrower from all of the Banks having Commitments with
respect to such Facility on a pro rata basis on a given date (or resulting from
conversions on a given date), having in the case of Eurodollar Loans the same
Interest Period; provided that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans.
"BRS" shall mean Bruckmann, Rosser, Sherrill & Co., L.P., a
limited partnership organized under the laws of the State of Delaware.
"BRS Investors" shall mean each of the "BRS Investors" (as
such term is defined in the Recapitalization Agreement).
"BRS Management Agreement" shall mean the Management Services
Agreement, dated the Effective Date, between BRS (and/or its Affiliates) and the
Borrower.
"BTCo" shall mean Bankers Trust Company.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Lease" as applied to any Person shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than six months from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers' acceptances of
(x) any Bank, (y) any domestic commercial bank of recognized standing having
capital and surplus in excess of $500,000,000 or (z) any bank (or the parent
company of such bank) whose short-term commercial paper rating from
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<PAGE>
Standard & Poor's Ratings Services ("S&P") is at least A-2 or the equivalent
thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-2 or
the equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above, (iv) commercial paper
issued by any Bank or Approved Bank or by the parent company of any Bank or
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-2
or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moody's (any such company, an "Approved Company"), or guaranteed by any
industrial company with a long term unsecured debt rating of at least A or A2,
or the equivalent of each thereof, from S&P or Moody's, as the case may be, and
in each case maturing within six months after the date of acquisition and (v)
investments in money market funds substantially all of whose assets are
comprised of securities of the type described in clauses (i) through (iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset Sale,
other than the portion of such deferred payment constituting interest, but only
as and when so received) received by the Borrower and/or any Subsidiary from
such Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601 et seq.
"Change of Control" shall mean either (i) prior to a
registered initial public offering of Common Stock, (x) the Management
Investors, BRS, the BRS Investors and their Permissible Transferees shall in the
aggregate cease to own Common Stock representing more than 50% of the common
voting equity interest in the Borrower's capital stock on a fully-diluted basis
assuming the exercise of all securities exercisable, convertible or exchangeable
for or into common equity interests and (y) BRS, BRS Investors and their
Permissible Transferees shall in the aggregate cease to own Common Stock
representing 35% of the voting common equity interests with the Borrower's
capital stock on a fully diluted basis assuming the exercise of all securities
exercisable, convertible or exchangeable for or into common equity interests,
(ii) after a registered initial public offering, (x) the Management Investors,
BRS, the BRS Investors and their Permissible Transferees shall cease to own
Common Stock representing not less than 33% of the common voting equity interest
in the Borrower's capital stock or (y) BRS, BRS Investors and their Permissible
Transferees shall in the aggregate cease to own Common Stock representing 20% of
the common voting equity interests with the Borrower's capital stock on a fully
diluted basis assuming the exercise of all securities exercisable, convertible
or exchangeable for into common equity interests or (z) any Person or group (as
such term is used under the Exchange Act) of Persons, owns (beneficially or of
record) a greater percentage than BRS, the BRS Investors and their Permissible
Transferees of common equity interest in the Borrower's capital stock, in each
case, on a fully-diluted basis assuming the exercise of all securities
exercisable, convertible or exchangeable for or into common equity interests and
(iii) a "change of control" pursuant to, and as defined in the Senior Notes
Documents, the Junior Preferred Stock Documents, the Senior
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Exchangeable Preferred Stock Documents and the Certificate of Merger of the
Borrower, as filed on August 4, 1998 in connection with the Recapitalization.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
each of the Security Documents.
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Banks pursuant to the Security Documents.
"Commitment" shall mean, with respect to each Bank, such
Bank's Term Commitment and Revolving Commitment.
"Commitment Fee" shall have the meaning provided in Section
3.01(a).
"Common Stock" shall mean the Common Stock of the Borrower,
par value $0.1 per share.
"Consolidated Capital Expenditures" shall mean, for any
period, the aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including in all events all amounts expended or capitalized
under Capital Leases but excluding any amount representing capitalized interest)
by the Borrower and its Subsidiaries during that period that, in conformity with
GAAP, are or are required to be included in the property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries.
"Consolidated Current Assets" shall mean, with respect to any
Person as at any date of determination, the total assets of such Person and its
Subsidiaries determined on a consolidated basis that may properly be classified
as current assets in conformity with GAAP, provided that cash and Cash
Equivalents shall be excluded from the definition of Current Assets.
"Consolidated Current Liabilities" shall mean, with respect to
any Person as at any date of determination, the total liabilities of such Person
and its Subsidiaries determined on a consolidated basis that may properly be
classified as current liabilities in conformity with GAAP, excluding all
outstanding Revolving Loans and Swingline Loans whether or not classified as
Funded Debt, provided that the Current Maturities of Funded Debt of such Person
that are classified as a current liability in conformity with GAAP, and all
Transaction Expenses, in each case shall be excluded from the definition of
Current Liabilities.
"Consolidated EBIT" shall mean, for any period, (A) the sum of
the amounts for such period of (i) Consolidated Net Income, (ii) provisions for
cash taxes based on income, (iii) Consolidated Interest Expense, (iv)
amortization or write-off of deferred financing costs to the extent deducted in
determining Consolidated Net Income and (v) losses on sales of assets (excluding
sales in the ordinary course of business) and other extraordinary or
nonrecurring losses less (B)
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the amount for such period of gains on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary or nonrecurring gains, all
as determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" shall mean, for any period, the sum of
the amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense,
(iii) amortization expense, and (iv) without duplication, all other non-cash
charges (including non-cash stock compensation expense) included in determining
Consolidated Net Income during such period and adding back all non-cash gains,
all as determined on a consolidated basis in accordance with GAAP.
"Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate amount of all Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense (including that attributable to Capital Leases in
accordance with GAAP) of the Borrower and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries, including, without limitation, all capitalized interest, but
excluding (x) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs
under Interest Rate Agreements and (y) Transaction Expenses.
"Consolidated Net Income" shall mean, for any period, the net
income (or loss) of the Borrower and its Subsidiaries on a consolidated basis
for such period taken as a single accounting period determined in conformity
with GAAP, provided that there shall be excluded (i) the income (or loss) of any
Person (other than Subsidiaries of the Borrower) in which any other Person
(other than the Borrower or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower or any of its Subsidiaries by such Person during such
period, (ii) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries or that Person's assets are acquired by the
Borrower or any of its Subsidiaries, (iii) the income of any Subsidiary of the
Borrower to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) Transaction Expenses, (v) compensation expense resulting from
the issuance of capital stock, stock options or stock appreciation rights issued
to former or current employees, including officers, of the Borrower or any
Subsidiary of the Borrower, or the exercise of such options or rights, in each
case to the extent the obligation (if any) associated therewith is not expected
to be settled by the payment of cash by the Borrower or any Affiliate of the
Borrower, (vi) compensation expense resulting from the repurchase of capital
stock, options and rights described in clause (v) of this definition of
Consolidated Net Income and (vii) all non-cash compensation expenses.
"Contingent Obligations" shall mean, as to any Person, any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not
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contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (d) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect thereof, provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Credit Documents" shall mean this Agreement, each of the
Notes, each of the Security Documents, the Subsidiary Guaranty and any documents
executed in connection therewith.
"Credit Event" shall mean and include the making of a Loan or
the issuance of a Letter of Credit.
"Credit Party" shall mean the Borrower and the Subsidiary
Guarantors.
"Current Maturities of Funded Debt" shall mean, as applied to
any Person as at any date of determination, all payments of principal due under
the terms of any Funded Debt of such Person within 12 calendar months after that
date.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Deferred Purchase Price Obligations" shall mean certain
secured deferred purchase price obligations entered into by the Borrower prior
to the Initial Borrowing Date.
"Dividends" shall have the meaning provided in Section 8.08.
"Documents" shall mean, collectively, (a) the Credit Documents
and (b) the Transaction Documents.
"ECF Prepayment Amount" shall mean, for any fiscal year of the
Borrower, 75% of Excess Cash Flow for such period or, if the Leverage Ratio is
less that 4.75:1.00, 50% of Excess Cash Flow for such period.
"Effective Date" shall have the meaning provided in Section
12.10.
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"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other "accredited investor" (as defined by
Regulation D of the Securities Act of 1933).
"Employment Agreements" shall have the meaning provided in
Section 5.06(v).
"End Date" shall mean, for any Margin Reduction Period, the
last day of such Margin Reduction Period.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, administrative investigations or
proceedings relating in any way to any violation of or any liability under any
Environmental Law or any permit issued, or under any approval given, under any
such Environmental Law (hereafter, "Claims"), including, without limitation, (a)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal,
state, foreign or local statute, law, rule, regulation, ordinance, code, rule
of common law or written and binding policy or guide, now or hereafter in
effect and in each case as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to the environment, health, safety or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the
Toxic Substances Control Act, 15 U.S.C. Section 7401 et seq.; the Clean Air
Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 3808 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701
et seq.; and any applicable state and local or foreign counterparts or
equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of
the Borrower would be deemed to be a "single employer" within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest
Period for a Eurodollar Loan, (i) the offered quotation to first-class banks in
the New York interbank Eurodollar market by the Administrative Agent for dollar
deposits of amounts in same day funds comparable to the outstanding principal
amount of the Eurodollar Loan of the Administrative Agent for which an
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interest rate is then being determined with maturities comparable to the
Interest Period to be applicable to such Eurodollar Loan, determined as of 10:00
A.M. (New York time) on the date which is two Business Days prior to the
commencement of such Interest Period divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including without limitation
any marginal, emergency, supplemental, special or other reserves) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"Event of Default" shall have the meaning provided in Section
9.
"Excess Cash Flow" shall mean, for any fiscal year of the
Borrower, (i) Consolidated Net Income for such period plus (minus) (ii) the
amount of depreciation, depletion, amortization of intangibles, deferred
taxes and other non-cash expenses (revenues) which, pursuant to GAAP, were
deducted (added) in determining Consolidated Net Income for period minus
(plus) (iii) additions (reductions, other than reductions attributable solely
to Asset Sales) to working capital for such period (i.e., the increase or
decrease in Consolidated Current Assets minus Consolidated Current
Liabilities (excluding changes in Consolidated Current Liabilities for
borrowed money) from the beginning to the end of such period) minus (iv) the
amount of Consolidated Capital Expenditures and Permitted Acquisitions made
during such period (except to the extent (x) financed through the incurrence
of Indebtedness (other than through the incurrence of Loans) or with equity
proceeds) minus (v) the amount of Scheduled Repayments of Term Loans, and the
amount of voluntary payments of principal of outstanding Term Loans pursuant
to Section 4.01, in each case, actually made during such period minus (vi)
regularly scheduled payments of principal or "rent" (other than capitalized
interest) due in accordance with the terms of Capital Leases and not
otherwise deducted in arriving at Consolidated Net Income to the extent
actually made during such period minus (vii) cash payments on the outstanding
principal of Indebtedness permitted under Section 8.04 or on Existing
Indebtedness minus (viii) the amount of mandatory payments of principal of
outstanding Term Loans pursuant to Sections 4.02(A)(c) and (g) actually made,
but only to the extent that the net proceeds from the transactions described
in such clauses (c) and (g) were added to Consolidated Net Income during such
period minus (ix) cash payments actually made by the Borrower pursuant to
Sections 8.08(a)(ii) and (iii) during such period to the extent such payments
did not already reduce Consolidated Net Income for such period, and minus (x)
payments made pursuant to Sections 1.10 and 1.11 of the Recapitalization
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Existing Indebtedness" shall have the meaning provided in
Section 6.21.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.06(ii).
"Facility" shall mean any of the credit facilities established
under this Agreement, i.e., the Term Facility or the Revolving Facility.
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"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 3.01.
"FIRREA" shall mean Financial Institution Reform, Recovery and
Enforcement Act of 1989.
"Funded Debt" shall mean, as applied to any Person, all
Indebtedness of such Person that by its terms or by the terms of any instrument
or agreement relating thereto matures more than one year from, or is directly
renewable or extendable at the option of the debtor to a date more than one year
from (including an option of the debtor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more from), the date of the creation thereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date of this Agreement; it
being understood and agreed that determinations in accordance with GAAP for
purposes of Section 8, including defined terms as used therein and for the
purpose of calculating Excess Cash Flow, are subject (to the extent provided
therein) to Section 12.07(a).
"Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contained, electric fluid containing levels of polychlorinated
biphenyls, and radon gas; (b) any chemicals, materials or substances defined as
or included in the definition of "hazardous substances," "hazardous waste,"
"hazardous materials," "extremely hazardous waste," "restricted hazardous
waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants,"
or words of similar meaning and regulatory effect, under any applicable
Environmental Law; and (c) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any governmental authority.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person
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to pay a specified purchase price for goods or services whether or not delivered
or accepted, i.e., take-or-pay and similar obligations, (vii) all net
obligations of such Person under Interest Rate Agreements and (viii) all
Contingent Obligations of such Person, (other than Contingent Obligations
arising from the guaranty by such Person of the obligations of the Borrower
and/or its Subsidiaries to the extent such guaranteed obligations do not
constitute Indebtedness), provided that Indebtedness shall not include trade
payables, deferred revenue, taxes and accrued expenses, in each case arising in
the ordinary course of business.
"Initial Borrowing Date" shall mean the date upon which the
initial Borrowing of Loans occurs.
"Interest Coverage Ratio" shall mean, for any Test Period, the
ratio of (i) Consolidated EBITDA for such Test Period to (ii) Consolidated
Interest Expense for such Test Period, provided that any interest non payable in
cash on the Junior Subordinated Exchange Notes shall be excluded from the
definition of Consolidated Interest Expense for the purposes of determining the
Interest Coverage Ratio.
"Interest Period" with respect to any Eurodollar Loan shall
mean the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar agreement
or other similar agreement or arrangement designed to hedge the position of the
Borrower or any Subsidiary with respect to interest rates.
"Investors" shall mean, collectively, BRS, the BRS Investors,
the Management Investors and their respective "Permitted Transferees" (as such
term is defined in the Shareholders Agreement).
"Junior Preferred Stock" shall mean collectively, the Series A
Junior Preferred Stock and the Series B Junior Preferred Stock.
"Junior Preferred Stock Documents" shall mean the Junior
Preferred Stock, the Certificate of Designation therefor and any other
instruments, documents or agreement relating thereto.
"Junior Subordinated Exchange Note" shall mean the Borrower's
subordinated notes due 2009.
"L/C Supportable Obligations" shall mean and include
obligations of the Borrower or its Subsidiaries incurred in the ordinary course
of business (including without limitation pursuant to lease obligations in
respect of real property leased by the Borrower or any of its Subsidiaries) and
such other obligations of the Borrower or any of its Subsidiaries as are
reasonably acceptable to the Administrative Agent and the respective Letter of
Credit Issuer and otherwise permitted to exist pursuant to the terms of this
Agreement.
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"Leasehold" of any Person shall mean all of the right, title
and interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Issuer" shall mean BTCo, and any other Bank
which at the request of the Borrower and with the consent of the Administrative
Agent agrees, in such Bank's sole discretion, to become a Letter of Credit
Issuer for purposes of issuing Letters of Credit pursuant to Section 2.
"Letter of Credit Outstandings" shall mean, at any time, the
sum of, without duplication, (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, at any date of determination, the
ratio of (i) Consolidated Indebtedness on such date to (ii) Consolidated EBITDA
for the Test Period most recently ended (taken as one accounting period),
provided that (x) in the case of the Test Period ending on September 30, 1998,
Consolidated EBITDA for such Test Period shall be the actual Consolidated EBITDA
for such Test period multiplied by 4, (y) in the case of the Test Period ending
on December 30, 1998, Consolidated EBITDA for such Test Period shall be the
actual Consolidated EBITDA for such Test period multiplied by 2, and (z) in the
case of the Test Period ending on March 31, 1999, Consolidated EBITDA for such
Test Period shall be the actual Consolidated EBITDA for such Test period
multiplied by a fraction the numerator of which is 4 and the denominator of
which is 3.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Management Agreements" shall have the meaning provided in
Section 5.06 (iv).
"Management Investment Agreement" shall mean the Securities
Purchase and Holders Agreement, dated the Effective Date, among the Borrower and
the Investors.
"Management Investors" shall mean the executive officers and
other senior management investors of the Borrower party to the Recapitalization
Agreement and/or the Stockholders Agreement.
"Mandatory Borrowing" shall have the meaning provided in
Section 1.01(d).
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"Margin Reduction Period" shall mean each period which shall
commence on a date on which the financial statements are delivered pursuant to
Section 7.01(a) or (b), as the case may be, and which shall end on the earlier
of (i) the date of actual delivery of the next financial statements pursuant to
Section 7.01(a) or (b), as the case may be, and (ii) the latest date on which
the next financial statements are required to be delivered pursuant to Section
7.01(a) or (b), as the case may be.
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse effect
on the business, property, assets, liabilities, operations, condition (financial
or otherwise) or prospects of the Borrower or of the Borrower and its
Subsidiaries taken as a whole, after giving effect to the Transaction.
"Maximum Swingline Amount" shall mean $2,500,000.
"Minimum Borrowing Amount" shall mean (i) for Term Loans and
Revolving Loans maintained as Base Rate Loans, $250,000 and (ii) for Term Loans
and Revolving Loans maintained as Eurodollar Loans, $500,000.
"Mortgage" shall have the meaning provided in Section 5.15,
provided that after the execution and delivery thereof, any Additional Mortgage
shall also constitute a Mortgage.
"Mortgage Policies" shall have the meaning provided in Section
5.15.
"Mortgaged Properties" shall mean each of the Real Properties
listed on Annex IV hereto and designated as a "Mortgaged Property" thereon.
"Multiemployer Plan" shall have the meaning provided in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of expenses of sale (including
payment of principal, premium and interest of other Indebtedness secured by the
assets the subject of the Asset Sale and required to be, and which is, repaid
under the terms thereof as a result of such Asset Sale), and incremental taxes
paid or payable as a result thereof; provided that Net Cash Proceeds shall not
include cash deposited with the Administrative Agent pursuant to a cash
collateral arrangement pursuant to this Agreement.
"Non-Defaulting Bank" shall mean each Bank other than a
Defaulting Bank.
"Note" shall mean and include each Term Note, each Revolving
Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03(a).
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
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"Notice Office" shall mean the office of the Administrative
Agent located at 130 Liberty Street, New York, New York or such other office as
the Administrative Agent may designate to the Borrower from time to time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent, the Collateral Agent or any Bank pursuant to
the terms of this Agreement or any other Credit Document.
"Old Penhall' shall mean Penhall International, Inc., a
California corporation and predecessor in interest to the Borrower prior to the
Recapitalization.
"Participant" shall have the meaning provided in Section
2.05(a).
"Payment Office" shall mean the office of the Administrative
Agent located at 130 Liberty Street, New York, New York or such other office as
the Administrative Agent may designate to the Borrower from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisitions" shall have the meaning provide for in
Section 8.02(k).
"Permitted Joint Ventures" shall have the meaning provide for
in Section 8.06(i).
"Permitted Encumbrances" shall mean, with respect to any Real
Property subject to a Mortgage or an Additional Mortgage, such exceptions to
title as are set forth in the title insurance policy or title commitment
delivered with respect thereto, all of which exceptions must be reasonably
acceptable to the Administrative Agent.
"Permitted Liens" shall have the meaning provided in Section
8.03.
"Permissible Transferees" shall mean (i) in the case of BRS or
any BRS Investor, (A) any Affiliate of BRS (other than any corporation or other
Person (except for any corporation or other Person engaged in a business
similar, complementary or related to the nature or type of the business of the
Borrower and its Subsidiaries) controlled by, or any investment fund managed by,
BRS), (B) any managing director, general partner, limited partner, director,
officer or employee of BRS or any Affiliate thereof (collectively, "BRS
Associates"), (C) the heirs, executors, administrators, testamentary trustees,
legatees or beneficiaries of any BRS Associate and (D) any trust, the
beneficiaries of which, or a corporation or partnership, the stockholders or
partners of which, include only a BRS Associate, his or her spouse, parents,
siblings, or direct lineal descendants, and (ii) in the case of any Management
Investor, (A) his or her executor, administrator, testamentary trustee, legatee
or beneficiaries, (B) his or her spouse, parents, siblings, members of his or
her immediate family (including adopted children) and/or direct lineal
descendants or (C) a trust, the beneficiaries of which, or a corporation or
partnership, the stockholders or partners of which, include only the Management
Investor, as the case may be, and
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his or her spouse, parents, siblings, members of his or her immediate family
(including adopted children) and/or direct lineal descendants.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, limited liability company, association, trust or
other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower, a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five-year period immediately
following the latest date on which the Borrower, a Subsidiary of the Borrower,
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.14(a).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. BTCo may make commercial loans or other loans
at rates of interest at, above or below the Prime Lending Rate.
"Projections" shall have the meaning set forth in Section
5.20.
"Quarterly Payment Date" shall mean the fifteenth day of
March, June, September and December.
"RC Bank" shall mean each Bank with Revolving Commitment.
"RCRA" shall mean the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901 et seq.
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Recapitalization" shall mean the recapitalization of Old
Penhall and its subsidiaries, pursuant to and in accordance with the terms and
conditions of the Recapitalization Documents.
"Recapitalization Agreement" shall mean the Agreement and Plan
of Merger, dated June 30, 1998 and the Amended and Restated Agreement and Plan
of Merger dated August 3, 1998, by and among the Stockholders, Old Penhall,
Penhall Acquisition Corp., BRS and the stockholders of Penhall Rental Corp.
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"Recapitalization Documents" shall mean the Recapitalization
Agreement and all other documents entered into or delivered in connection with
the Recapitalization Agreement.
"Recovery Event" shall mean the receipt by the Borrower or any
of its Subsidiaries of any cash insurance proceeds or condemnation award payable
(i) by reason of theft, loss, physical destruction or damage or any other
similar event with respect to any property or asset of the Borrower or any of
its Subsidiaries, or (ii) by reason of any condemnation, taking, seizing or
similar event with respect to any property or asset of the Borrower or any of
its Subsidiaries.
"Refinanced Agreements" shall mean those agreements listed on
Annex VIII and all instruments, documents and agreements relating thereto, in
all cases as in effect on the Initial Borrowing Date.
"Refinancing" shall mean the termination of the commitments
under each Refinanced Agreement and the repayment of all loans outstanding
thereunder.
"Register" shall have the meaning provided in Section 12.16.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation T, U and X" shall mean Regulations T, U and X of
the Board of Governors of the Federal Reserve System as from time to time in
effect and any successor to all or a portion thereof establishing margin
requirements.
"Reinvestment Assets" shall mean any assets to be employed in
the business of the Borrower and its Subsidiaries as described in Sections
4.02(A)(c) and 8.02(f).
"Reinvestment Election" shall have the meaning provided in
Section 4.02(A)(c).
"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects to use all or a specified portion of the Net Cash Proceeds
of an Asset Sale to purchase, construct or otherwise acquire Reinvestment
Assets.
"Reinvestment Prepayment Amount" shall mean, with respect to
any Reinvestment Election, the amount, if any, on the Reinvestment Prepayment
Date relating thereto by which (a) the Anticipated Reinvestment Amount in
respect of such Reinvestment Election exceeds (b) the aggregate amount thereof
expended by the Borrower and its Subsidiaries to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" shall mean, with respect to any
Reinvestment Election, the earliest of (i) the date, if any, upon which the
Administrative Agent, on behalf of the Required Banks, shall have delivered a
written termination notice to the Borrower, provided that such notice may only
be given while an Event of Default exists, (ii) the date occurring one year
after such Reinvestment Election and (iii) the date on which the Borrower shall
have determined
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not to, or shall have otherwise ceased to, proceed with the purchase,
construction or other acquisition of Reinvestment Assets with the related
Anticipated Reinvestment Amount.
"Replaced Bank" shall have the meaning provided in Section
1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .22, .23 , .25, .27, or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks whose
outstanding Term Loans (or, if prior to the Initial Borrowing Date, Term
Commitments), and Revolving Commitments (or, if after the Total Revolving
Commitment has been terminated, outstanding Revolving Loans and Adjusted RC
Percentage of outstanding Swingline Loans and Letter of Credit Outstandings)
constitute greater than 50% of the sum of (i) the total outstanding Term Loans
of Non-Defaulting Banks (or, if prior to the Initial Borrowing Date, the Total
Term Commitment) and (ii) the Adjusted Total Revolving Commitment (or, if after
the Total Revolving Commitment has been terminated, the total outstanding
Revolving Loans of Non-Defaulting Banks and the aggregate Adjusted RC
Percentages of all Non-Defaulting Banks of the total outstanding Swingline Loans
and Letter of Credit Outstandings at such time).
"Revolving Commitment" shall mean, with respect to each Bank,
the amount set forth opposite such Bank's name in Annex I directly below the
column entitled "Revolving Commitment," (x) as the same may be reduced from time
to time pursuant to Sections 3.02, 3.03 and/or 9 or (y) adjusted from time to
time as a result of assignments to or from such Bank pursuant to Section 12.04.
"Revolving Facility" shall mean the Facility evidenced by the
Total Revolving Commitment.
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Maturity Date" shall mean June 15, 2004.
"Revolving Note" shall have the meaning provided in Section
1.05(a)(ii).
"Revolving Percentage" shall mean at any time for each Bank
with a Revolving Commitment, the percentage obtained by dividing such Bank's
Revolving Commitment by the Total Revolving Commitment, provided that if the
Total Revolving Commitment has been terminated, the Revolving Percentage of each
Bank shall be determined by dividing such Bank's Revolving Commitment
immediately prior to such termination by the Total Revolving Commitment
immediately prior to such termination.
"Scheduled Repayment" shall have the meaning provided in
Section 4.02(A)(b).
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"SEC" shall mean the Securities and Exchange Commission and
any successor thereto.
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Security Agreement" shall have the meaning provided in
Section 5.14(b).
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the
Security Agreement, each Mortgage and each Additional Mortgage, if any.
"Seller" shall mean certain selling shareholders as identified
in the Amended and Restated Agreement and Plan of Merger dated August 3, 1998.
"Senior Exchangeable Preferred Stock" shall mean the
Borrower's senior exchangeable preferred stock par value $.01 per share.
"Senior Exchangeable Preferred Stock Documents" shall mean the
Senior Exchangeable Preferred Stock, the Certificate of Designation therefor and
any other instruments, documents or agreement relating thereto.
"Senior Notes" shall mean the Borrower's unsecured 12 % Senior
Notes due 2006 as in effect on the Initial Borrowing Date and as the same may be
amended, modified or supplemented pursuant to the terms hereof and thereof.
"Senior Note Documents" shall mean the Senior Notes and each
of the other documents and agreements relating to the issuance by the Borrower
of the Senior Notes, as in the effect of the Initial Borrowing Date as the same
may be amended, modified or supplemented from time to time in accordance with
the terms hereof and thereof.
"Series A Junior Preferred Stock" shall mean the Series A
Junior Preferred Stock of the Borrower, par value $0.1 per share.
"Series B Junior Preferred Stock" shall mean the Series B
Junior Preferred Stock of the Borrower, par value $0.1 per share.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.06(iii).
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Start Date" shall mean, with respect to any Margin Reduction
Period, the first day of such Margin Reduction Period, provided that the first
Start Date shall be on March 31, 1999.
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"Stated Amount" of each Letter of Credit shall mean the
maximum amount available to be drawn thereunder (regardless of whether any
conditions for drawing could then be met).
"Status" shall mean the existence of Level I Status, Level II
Status, Level III Status or Level IV Status, as the case may be;
"Level I" Status exists on any date if, on such date, the
Leverage Ratio is less than or equal to 4.0:1.0
"Level II" Status exists on any date if, on such date, the
Leverage Ratio is greater than 4.0:1.0 but less than or equal
to 5.0:1.0.
"Level III" Status exists on any date if, on such date, the
Leverage Ratio is greater than 5.0:1.0 but less than or equal
to 6.0:1.0.
"Level IV" Status exists on any date if, on such date, the
Leverage Ratio is greater than 6.0:1.0.
"Stockholders" shall have the meaning as set forth in the
Recapitalization Agreement.
"Stockholders Agreement" shall mean the Securities Purchase
and Holders Agreement, dated as of August 4, 1998, by and among BRS, the BRS
Investors, the Management Investors and each other shareholder of the Borrower
party thereto as the same may be amended, modified or supplemented pursuant to
the terms hereof and thereof.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Subsidiary Guarantors" shall mean each Subsidiary of the
Borrower incorporated in the United States or any State thereof.
"Subsidiary Guaranty" shall have the meaning provided in
Section 5.13.
"Swingline Expiry Date" shall mean the date which is five
Business Days prior to the Revolving Loan Maturity Date.
"Swingline Loan" shall have the meaning provided in Section
1.01(c).
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"Swingline Note" shall have the meaning provided in Section
1.05(a)(iii).
"Syndication Agent" shall have the meaning provided in the
first paragraph of this Agreement.
"Syndication Date" shall mean the date upon which the
Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication (and the resulting addition of
institutions as Banks pursuant to Section 12.04) has been completed.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Commitment" shall mean, with respect to each Bank, the
amount, if any, set forth opposite such Bank's name on Annex I directly below
the column entitled "Term Commitment" as the same may be reduced or terminated
pursuant to Section 3.03.
"Term Facility" shall mean the Facility evidenced by the Total
Term Commitment.
"Term Loan" shall have the meaning provided in Section
1.01(a).
"Term Loan Maturity Date" shall mean June 15, 2004.
"Term Note" shall have the meaning provided in Section
1.05(a)(i).
"Test Date" shall mean, with respect to any Start Date, the
last day of the most recent fiscal quarter of the Borrower ended immediately
prior to such Start Date.
"Test Period" shall mean (i) for the first three Test Periods
ending after the Initial Borrowing Date, the periods beginning on July 1, 1998
and ending on September 30, 1998, December 30, 1998 and March 31, 1999,
respectively (in each case taken as one accounting period) and (ii) for each
Test Period ending thereafter, the four consecutive fiscal quarters then last
ended (taken as one accounting period).
"Total Commitment" shall mean the sum of the Total Term
Commitment and the Total Revolving Commitment.
"Total Revolving Commitment" shall mean the sum of the
Revolving Commitments of each of the Banks.
"Total Term Commitment" shall mean the sum of the Term
Commitments of each of the Banks."
"Total Unutilized Revolving Commitment" shall mean, at any
time, (i) the Total Revolving Commitment at such time less (ii) the sum of the
aggregate principal amount of all Revolving Loans and Swingline Loans
outstanding at such time plus the Letter of Credit Outstandings at such time.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
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"Transaction" shall mean, collectively, (i) the Refinancing,
(ii) the Recapitalization, including the issuance of the Common Stock and the
Junior Preferred Stock, (iii) the issuance of the Senior Notes, (iv) the
incurrence of Loans on the Initial Borrowing Date and (v) the issuance of the
Senior Exchangeable Preferred Stock.
"Transaction Documents" shall mean, collectively, (i) the
Recapitalization Documents, (ii) the Senior Notes Documents, (iii) the
Refinanced Agreements, (iv) the Senior Exchangeable Preferred Stock.Documents
and (v) all other documents and agreements (other than the Credit Documents)
entered into in connection with the Transaction.
"Transaction Expenses" shall mean all fees and expenses
incurred in connection with, and payable prior to or in connection with the
closing of, the Recapitalization and the transactions contemplated in connection
with the Recapitalization Documents including the financing of the
Recapitalization, and including all fees paid to any of the Banks and the
Administrative Agent hereunder, fees paid to BRS or its Affiliates permitted
hereunder; attorney's fees, accountants' fees, placement agents' fees, discounts
and commissions and brokerage, and consultant fees. Transaction Expenses shall
include the amortization of any such fees and expenses that are capitalized and
not classified as an expense on the date incurred.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar
Loan.
"UCC" shall mean the Uniform Commercial Code, as in effect
from time to time in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year exceeds the
fair market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"Unpaid Drawing" shall have the meaning provided in Section
2.04(a).
"Unutilized Revolving Commitment" for any Bank with a
Revolving Commitment at any time shall mean the excess of (i) the Revolving
Commitment of such Bank over (ii) the sum of (x) the aggregate outstanding
principal amount of Revolving Loans made by such Bank plus (y) an amount equal
to such Bank's Adjusted RC Percentage of the Letter of Credit Outstandings at
such time.
"Voting Stock" shall mean, with respect to any corporation,
the outstanding stock of all classes (or equivalent interests) which ordinarily,
in the absence of contingencies, entitles holders thereof to vote for the
election of directors (or Persons performing similar functions) of such
corporation, even though the right so to vote has been suspended by the
happening of such a contingency.
"Wholly-Owned Domestic Subsidiary" shall mean each
Wholly-Owned Subsidiary of the Borrower that is incorporated under the laws of
the United States or any State thereof.
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"Wholly-Owned Subsidiary" of any Person shall mean any
Subsidiary of such Person to the extent all of the capital stock or other
ownership interests in such Subsidiary, other than directors' qualifying shares,
is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
SECTION 11. The Administrative Agent.
11.01 Appointment. The Banks hereby designate Bankers Trust
Company as Administrative Agent (for purposes of this Section 11, the term
"Administrative Agent" shall include BTCo as Collateral Agent pursuant to the
Security Documents) to act as specified herein and in the other Credit
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of such Note shall be deemed irrevocably to authorize, the
Administrative Agent to take such action on its behalf under the provisions of
this Agreement, the other Credit Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of the Administrative Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Administrative Agent may
perform any of its duties hereunder or under the other Credit Documents by or
through its respective officers, directors, agents, employees or affiliates.
11.02 Nature of Duties. The Administrative Agent shall not
have any duties or responsibilities except those expressly set forth in this
Agreement and the Security Documents. Neither the Administrative Agent nor any
of its respective officers, directors, agents, employees or affiliates shall be
liable for any action taken or omitted by it or them hereunder or under any
other Credit Document or in connection herewith or therewith, unless caused by
its or their gross negligence or willful misconduct. The duties of the
Administrative Agent shall be mechanical and administrative in nature; the
Administrative Agent shall not have by reason of this Agreement or any other
Credit Document a fiduciary relationship in respect of any Bank or the holder of
any Note; and nothing in this Agreement or any other Credit Document, expressed
or implied, is intended to or shall be so construed as to impose upon the
Administrative Agent any obligations in respect of this Agreement or any other
Credit Document except as expressly set forth herein or therein.
11.03 Lack of Reliance on the Administrative Agent.
Independently and without reliance upon the Administrative Agent, each Bank and
the holder of each Note, to the extent it deems appropriate, has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of the Borrower and its Subsidiaries in connection with
the making and the continuance of the Loans and the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of the Borrower and its Subsidiaries and, except as expressly provided in this
Agreement, the Administrative Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Bank or the holder of
any Note with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at any time or
times thereafter. The Administrative Agent shall not be responsible to any Bank
or the holder of any Note for any recitals, statements,
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information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectability, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Borrower and its Subsidiaries or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of this Agreement or any other Credit
Document, or the financial condition of the Borrower and its Subsidiaries or the
existence or possible existence of any Default or Event of Default.
11.04 Certain Rights of the Administrative Agent. If the
Administrative Agent shall request instructions from the Required Banks with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Credit Document, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from the Required Banks;
and the Administrative Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, neither any Bank nor the
holder of any Note shall have any right of action whatsoever against the
Administrative Agent as a result of the Administrative Agent acting or
refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks.
11.05 Reliance. The Administrative Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other document or telephone message
signed, sent or made by any Person that the Administrative Agent believed to be
the proper Person, and, with respect to all legal matters pertaining to this
Agreement and any other Credit Document and its duties hereunder and thereunder,
upon advice of counsel selected by the Administrative Agent (which may be
counsel for the Borrower).
11.06 Indemnification. To the extent the Administrative Agent
is not reimbursed and indemnified by the Borrower or the Subsidiary Guarantors,
the Banks will reimburse and indemnify the Administrative Agent, in proportion
to their respective "percentages" as used in determining the Required Banks, for
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, costs, expenses or disbursements of whatsoever kind
or nature which may be imposed on, asserted against or incurred by the
Administrative Agent in performing its respective duties hereunder or under any
other Credit Document, in any way relating to or arising out of this Agreement
or any other Credit Document; provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct.
11.07 The Administrative Agent in Its Individual Capacity.
With respect to its obligation to make Loans under this Agreement, the
Administrative Agent shall have the rights and powers specified herein for a
"Bank" and may exercise the same rights and powers as though it were not
performing the duties specified herein; and the term "Banks," "Required Banks,"
"holders of Notes" or any similar terms shall, unless the context clearly
otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent may accept
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deposits from, lend money to, and generally engage in any kind of banking, trust
or other business with any Credit Party or any Affiliate of any Credit Party as
if it were not performing the duties specified herein, and may accept fees and
other consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Banks.
11.08 Holders. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
11.09 Resignation by the Administrative Agent. (a) The
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
30 Business Days' prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks
shall appoint a successor Administrative Agent hereunder or thereunder who shall
be a commercial bank or trust company reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 30 Business Day period, the Administrative Agent, with the
consent of the Borrower (which consent shall not be unreasonably withheld),
shall then appoint a successor Administrative Agent who shall serve as
Administrative Agent hereunder or thereunder until such time, if any, as the
Required Banks appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed
pursuant to clause (b) or (c) above by the 30th Business Day after the date such
notice of resignation was given by the Administrative Agent, the Administrative
Agent's resignation shall become effective and the Required Banks shall
thereafter perform all the duties of the Administrative Agent hereunder and/or
under any other Credit Document until such time, if any, as the Banks appoint a
successor Administrative Agent as provided above.
SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the negotiation, preparation, execution and delivery of the
Credit Documents and the documents and instruments
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referred to therein and any amendment, waiver or consent relating thereto
(including, without limitation, the reasonable fees and disbursements of White &
Case) and of the Administrative Agent and each of the Banks in connection with
the enforcement of the Credit Documents and the documents and instruments
referred to therein (including, without limitation, the reasonable fees and
disbursements of counsel for the Administrative Agent and one counsel (or
in-house counsel) for each of the Banks); (ii) pay and hold each of the Banks
harmless from and against any and all present and future stamp and other similar
taxes with respect to the foregoing matters and save each of the Banks harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Bank) to pay
such taxes; and (iii) indemnify each Bank (including in its capacity as the
Administrative Agent or a Letter of Credit Issuer), its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred by
any of them (whether asserted by the Borrower or otherwise) as a result of, or
arising out of, or in any way related to, or by reason of, (a) any
investigation, litigation or other proceeding (whether or not any Bank is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of the proceeds of any Loans hereunder or the
Recapitalization or the consummation of any transactions contemplated in any
Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified) or (b) the
actual or alleged presence of Hazardous Materials in the air, surface water,
groundwater, surface or subsurface of any Real Property owned or at any time
operated by the Borrower or any of its Subsidiaries, the generation, storage,
transportation or disposal of Hazardous Materials at any location whether or not
owned or operated by the Borrower or any of its Subsidiaries, the non-compliance
of any Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries with federal, state and local laws, regulations, and ordinances
(including applicable permits thereunder) applicable to any such Real Property,
or any Environmental Claim asserted against the Borrower, any of its
Subsidiaries, or any such Real Property, including, in each case, without
limitation, the reasonable fees and disbursements of counsel and other
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified). To the extent that the undertaking
to indemnify, pay or hold harmless the Administrative Agent or any Bank set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, the Borrower shall make the maximum contribution to
the payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
12.02 Right of Setoff. (a) In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, if an Event of Default then exists, each Bank is
hereby authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Credit Party or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Bank (including without limitation by branches
and agencies of such Bank wherever located) to or for the credit or the account
of any Credit Party against and on account of the Obligations and liabilities of
such Credit Party to such Bank under this Agreement or under any of the other
Credit Documents, including, without limitation, all interests in Obligations of
such Credit Party purchased by such Bank pursuant to Section 12.06(b), and all
other claims of any nature or description arising out of
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or connected with this Agreement or any other Credit Document, irrespective of
whether or not such Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
(b) Notwithstanding the foregoing subsection (a), at any time
that the Loan or any other obligation shall be secured by real property located
in California, no Bank or the Administrative Agent shall exercise a right of
setoff, lien or counterclaim or take any court or administrative action or
institute any proceeding to enforce any provision of this agreement or any Notes
unless it is taken with the consent of either (x) the Required Banks or to the
extent required by Section 12.12 of the Credit Agreement, all the Banks, at all
times prior to the time on which all credit document obligations have been paid
in full or (y) the holders of at least a majority of the outstanding other
obligations at all times after the time on which all credit document obligations
have been paid in full, if such setoff or action or proceeding would or might
(pursuant to California Code of Civil Procedure Sections 580a, 580b, 580d and
726 of the California Code of Civil Procedure or Section 2924 of the California
Civil Code, if applicable or otherwise) affect or impair the validity, priority,
or enforceability of the liens granted to the Collateral Agent pursuant to the
Security Documents or the enforceability of the Notes and other obligations
hereunder, and any attempted exercise by any Bank or the Administrative Agent of
any such right without obtaining such consent of either the parties listed in
(x) or (y) above, as applicable, shall be null and void. This subsection (b)
shall be solely for the benefit of each of the Banks and the Administrative
Agent hereunder.
12.03 Notices. (a) Except as otherwise expressly provided
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic, telex, telecopier or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered, if to a Credit
Party, at the address specified opposite its signature below or in the other
relevant Credit Documents, as the case may be, if to the Administrative Agent,
at its Notice Office; if to any Bank, at its address specified for such Bank on
Annex II; or, at such other address as shall be designated by any party in a
written notice to the other parties hereto. All such notices and communications
shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by
overnight courier, and shall be effective when received.
(b) Without in any way limiting the obligation of the Borrower
to confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent or BTCo (in the case of a Borrowing of Swingline Loans) or
any Letter of Credit Issuer, as the case may be, may prior to receipt of written
confirmation act without liability upon the basis of such telephonic notice,
believed by the Administrative Agent or BTCo or any Letter of Credit Issuer in
good faith to be from an Authorized Officer of the Borrower. In each such case,
the Borrower hereby waives the right to dispute the Administrative Agent's or
BTCo's record of the terms of such telephonic notice.
12.04 Assignments; Participations; Etc. (a) This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, provided that the
Borrower may not assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Banks. Each Bank may at any time grant
participations in any of its rights hereunder or under any of the Notes to
another financial
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institution, provided that in the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation, except that the participant shall be entitled to the benefits of
Sections 1.10, 2.06 and 4.04 to the extent that such Bank would be entitled to
such benefits if the participation had not been entered into or sold, and,
provided further that no Bank shall transfer, grant or assign any participation
under which the participant shall have rights to approve any amendment to or
waiver of this Agreement or any other Credit Document except to the extent such
amendment or waiver would (i) extend the final scheduled maturity of any Loan or
Note or Letter of Credit (unless such Letter of Credit is not extended beyond
the Revolving Loan Maturity Date) in which such participant is participating (it
being understood that any waiver of the application of any prepayment or the
method of any application of any prepayment to, the amortization of the Term
Loans shall not constitute an extension of the final maturity date), or reduce
the rate or extend the time of payment of interest or Fees thereon (except in
connection with a waiver of the applicability of any post-default increase in
interest rates), or reduce the principal amount thereof (it being understood
that any amendment or modification to the financial definitions in this
Agreement shall not constitute a reduction in the rate of interest for purposes
of this clause (i)), or increase such participant's participating interest in
any Commitment over the amount thereof then in effect (it being understood that
(x) a waiver of any Default or Event of Default or of a mandatory reduction in
the Total Commitment, or a mandatory prepayment, shall not constitute a change
in the terms of any Commitment and (y) an increase in any Commitment or Loan
shall be permitted without the consent of any participant's participation is not
increased as a result thereof), (ii) release all or substantially all of the
Collateral which support the Loans in which such participant is participating
(except as expressly permitted in any Credit Document) or (iii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement.
(b) Notwithstanding the foregoing, (x) any Bank may assign all
or a portion of its outstanding Term Loans and/or Revolving Commitment (or, if
prior to the Initial Borrowing Date, its Term Commitment) and its rights and
obligations hereunder to (i) an Affiliate of such Bank or to another Bank or
(ii) in the case of any Bank that is a fund that invests in loans, any other
fund that invests in loans and is managed or advised by the same investment
advisor of such Bank or by an Affiliate of such investment advisor and (y) with
the consent of the Administrative Agent (which consent shall not be unreasonably
withheld), any Bank may assign all or a portion of its outstanding Term Loans
and/or Revolving Commitment and its rights and obligations hereunder to one or
more Eligible Transferees (treating any fund that invests in loans and any other
fund that invests in bank loans and is managed or advised by the same investment
advisor of such fund or by an Affiliate of such investment advisor as a single
Eligible Transferee). No assignment pursuant to the immediately preceding
sentence shall to the extent such assignment represents an assignment to an
institution other than one or more Banks hereunder, be in an aggregate amount
less than $5,000,000 unless the entire Commitment and outstanding Loans of the
assigning Bank is so assigned. If any Bank so sells or assigns all or a part of
its rights hereunder or under the Notes, any reference in this Agreement or the
Notes to such assigning Bank shall thereafter refer to such Bank and to the
respective assignee to the extent of their respective interests and the
respective
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assignee shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights and benefits as it would if it were such assigning
Bank. Each assignment pursuant to this Section 12.04(b) shall be effected by the
assigning Bank and the assignee Bank executing an Assignment Agreement (the
"Assignment Agreement") substantially in the form of Exhibit L (appropriately
completed). In the event of (and at the time of) any such assignment, either the
assigning or the assignee Bank shall pay to the Administrative Agent a
nonrefundable assignment fee of $3,500 and at the time of any assignment
pursuant to this Section 12.04(b), (i) Annex I shall be deemed to be amended to
reflect the Commitment of the respective assignee (which shall result in a
direct reduction to the Commitment of the assigning Bank) and of the other
Banks, and (ii) if any such assignment occurs after the Initial Borrowing Date,
the Borrower will issue new Notes to the respective assignee and to the
assigning Bank in conformity with the requirements of Section 1.05. No transfer
or assignment under this Section 12.04(b) will be effective until recorded by
the Administrative Agent on the Register pursuant to Section 12.16. To the
extent of any assignment pursuant to this Section 12.04(b), the assigning Bank
shall be relieved of its obligations hereunder with respect to its assigned
Commitments. At the time of each assignment pursuant to this Section 12.04(b) to
a Person which is not already a Bank hereunder and which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for Federal
income tax purposes, the respective assignee Bank shall provide to the Borrower
and the Administrative Agent the appropriate Internal Revenue Service Forms
(and, if applicable, a Section 4.04(b)(ii) Certificate) described in Section
4.04(b). To the extent that an assignment of all or any portion of a Bank's
Commitments and related outstanding Obligations pursuant to Section 1.13 or this
Section 12.04(b) would, at the time of such assignment, result in increased
costs under Section 1.10, 1.11, 2.06 or 4.04 which exceed those being charged,
if any, by the respective assigning Bank prior to such assignment, then the
Borrower shall not be obligated to pay such excess increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes giving rise to such increased costs after
the date of the respective assignment). Each Bank and the Borrower agree to
execute such documents (including without limitation amendments to this
Agreement and the other Credit Documents) as shall be necessary to effect the
foregoing.
(c) Nothing in this Agreement shall prevent or prohibit any
Bank from pledging its Notes or Loans to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank and, with the
consent of the Agent, any Bank which is a fund may pledge all or any portion of
its Revolving loans and Revolving Note to its trustee in support of its
obligations to its trustee. No pledge pursuant to this clause (c) shall release
the transferor Bank from any of its obligations hereunder.
(d) Notwithstanding any other provisions of this Section
12.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participation therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
(e) Each Bank initially party to this Agreement hereby
represents, and each Person that became a Bank pursuant to an assignment
permitted by this Section 12 will, upon its becoming party to this Agreement,
represent that it is an Eligible Transferee which makes loans in
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the ordinary course of its business and that it will make or acquire Loans for
its own account in the ordinary course of such business, provided that subject
to the preceding clauses (a) and (b), the disposition of any promissory notes or
other evidences of or interests in Indebtedness held by such Bank shall at all
times be within its exclusive control.
12.05 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Administrative Agent or any Bank in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of
dealing between any Credit Party and the Administrative Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Bank would otherwise have. No notice to or demand on
any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or the Banks to any other or
further action in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of any Credit
Party in respect of any Obligations of such Credit Party hereunder, it shall
distribute such payment to the Banks (other than any Bank that has expressly
waived its right to receive its pro rata share thereof) pro rata based upon
their respective shares, if any, of the Obligations with respect to which such
payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Banks is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations of the
respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount, provided that if
all or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein,
the provisions of the preceding Sections 12.06(a) and (b) shall be subject to
the express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks.
12.07 Calculations; Computations. (a) The financial statements
to be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently
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applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks),
provided that (x) except as otherwise specifically provided herein, all
computations determining compliance with Section 8, including definitions used
therein, and in determining the amount of Excess Cash Flow, shall utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the March 31, 1998 historical
financial statements of the Borrower delivered to the Banks as described in
Section 6.10(b) but shall not give effect to purchase accounting adjustments
arising in connection with the Recapitalization, to the extent required or
permitted by APB 16 and APB 17 and their interpretations, (y) that if at any
time the computations determining compliance with Section 8, including
definitions used therein, and in determining the amount of Excess Cash Flow
utilize accounting principles different from those utilized in the financial
statements furnished to the Banks, such financial statements shall be
accompanied by reconciliation work-sheets and (z) all calculations of financial
covenants and related definitions shall be calculated to give pro forma effect
(on a basis satisfactory to the Administrative Agent) to the financial
performance relating to any Permitted Acquisitions consummated during the period
relating to such calculations.
(b) All computations of interest and fees hereunder shall be
made on the actual number of days elapsed over a year of 360 days (except, in
the case of Base Rate Loans and Fees, 365/366 days).
12.08 Governing Law; Submission to Jurisdiction; Venue;
Waiver of Jury Trial. (a) This Agreement and the other Credit Documents and
the rights and obligations of the parties hereunder and thereunder shall be
construed in accordance with and be governed by the law of the state of New
York. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York
or of the United States for the Southern District of New York, and, by
execution and delivery of this Agreement, each Credit Party hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party
party to this Agreement hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such Credit Party, and agrees not to plead
or claim, in any legal action or proceeding with respect to this Agreement or
any other Credit Document brought in any of the aforesaid courts, that any
such court lacks jurisdiction over such Credit Party. Each Credit Party party
to this Agreement further irrevocably consents to the service of process out
of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid,
to each Credit Party located outside New York City and by hand delivery to
each Credit Party located within New York City, at its address for notices
pursuant to Section 12.03, such service to become effective 30 days after
such mailing. Each Credit Party party to this Agreement hereby irrevocably
waives any objection to such service of process and further irrevocably
waives and agrees not to plead or claim in any action or proceeding commenced
hereunder or under any other Credit Document that service of process was in
any way invalid or ineffective. Nothing herein shall affect the right of the
Administrative Agent or any Bank to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed
against any Credit Party in any other jurisdiction.
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(b) Each Credit Party hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.
12.09 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on
the date (the "Effective Date") on which the Borrower, the Administrative Agent
and each of the Banks shall have signed a copy hereof (whether the same or
different copies) and shall have delivered (including by way of facsimile
device) the same to the Administrative Agent at its Payment Office and (ii) the
conditions precedent contained in Section 5 are met to the satisfaction of the
Administrative Agent and the Required Banks (determined immediately after the
occurrence of the Effective Date). Unless the Administrative Agent has received
actual notice from any Bank that the conditions contained in Section 5 have not
been met to its satisfaction, upon the satisfaction of the condition described
in clause (i) of the immediately preceding sentence and upon the Administrative
Agent's good faith determination that the conditions described in clause (ii) of
the immediately preceding sentence have been met, then the Effective Date shall
have been deemed to have occurred, regardless of any subsequent determination
that one or more of the conditions thereto had not been met (although the
occurrence of the Effective Date shall not release the Borrower from any
liability for failure to satisfy one or more of the applicable conditions
contained in Section 5). The Administrative Agent will give the Borrower and
each Bank prompt written notice of the occurrence of the Effective Date.
12.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
12.12 Amendment or Waiver. (a) Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Borrower and the Required Banks, provided that no such
change, waiver, discharge or termination shall, without the consent of each Bank
(other than a Defaulting Bank) (with Obligations being directly affected thereby
in the case of the following clause(i)), (i) extend the Term Loan Maturity Date
or Revolving Loan Maturity Date, as the case may be (it being understood that
any waiver of the application of any prepayment of or the method of application
of any prepayment to the
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amortization of, the Loans shall not constitute any such extension), or reduce
the rate or extend the time of payment of interest (other than as a result of
waiving the applicability of any post-default increase in interest rates) or
Fees thereon, or reduce the principal amount thereof (it being understood that
any amendment or modification to the financial definitions in this Agreement
shall not constitute a reduction in the rate of interest for purposes of this
clause (i)), (ii) release all or substantially all of the Collateral (in each
case except as expressly provided in the Credit Documents), (iii) amend, modify
or waive any provision of this Section 12.12(a), (iv) reduce the percentage
specified in the definition of Required Banks (it being understood that, with
the consent of the Required Banks, additional extensions of credit pursuant to
this Agreement may be included in the determination of the Required Banks on
substantially the same basis as the extensions of Term Loans and Revolving Loan
Commitments are included on the Effective Date) or (v) consent to the assignment
or transfer by the Borrower of any of its rights and obligations under this
Agreement; provided further, that no such change, waiver, discharge or
termination shall (v) increase the Commitments of any Bank over the amount
thereof then in effect without the consent of such Bank (it being understood
that waivers or modifications of conditions precedent, covenants, Defaults or
Events of Default or of a mandatory reduction in the Total Commitment shall not
constitute an increase of the Commitment of any Bank, and that an increase in
the available portion of any Commitment of any Bank shall not constitute an
increase in the Commitment of such Bank), (w) without the consent of each Letter
of Credit Issuer, amend, modify or waive any provision of Section 2 or alter its
rights or obligations with respect to Letters of Credit, (x) without the consent
of the Administrative Agent, amend, modify or waive any provision of Section 11
as same applies to the Administrative Agent or any other provision as same
relates to the rights or obligations of the Administrative Agent, (y) without
the consent of the Collateral Agent, amend, modify or waive any provision
relating to the rights or obligations of the Collateral Agent or (z) without the
consent of BTCo, alter its rights or obligations with respect to Swingline
Loans.
(b) If, in connection with any proposed change, waiver,
discharge or termination to any of the provisions of this Agreement as
contemplated by clauses (a)(i) through (v), inclusive, of this Section 12.12,
the consent of the Required Banks is obtained but the consent of one or more of
the other Banks whose consent is required is not obtained, then the Borrower
shall have the right to replace each such non-consenting Bank or Banks (so long
as all non-consenting Banks are so replaced) with one or more Replacement Banks
pursuant to Section 1.13 so long as at the time of such replacement, each such
Replacement Bank consents to the proposed change, waiver, discharge or
termination, provided that the Borrower shall not have the right to replace a
Bank solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to the second proviso
of Section 12.12(a).
12.13 Survival. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 2.06, 4.04, 11.06 or 12.01 shall
survive the execution and delivery of this Agreement and the making and
repayment of the Loans.
12.14 Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Bank, provided that the Borrower shall not be responsible for costs arising
under Section 1.10, 2.06 or 4.04 resulting from any such
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transfer (other than a transfer pursuant to Section 1.12) to the extent not
otherwise applicable to such Bank prior to such transfer.
12.15 Confidentiality. Subject to Section 12.04, the Banks
shall hold all non-public information obtained pursuant to the requirements of
this Agreement which has been identified as such by the Borrower in accordance
with its customary procedure for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by any bona fide actual or potential
transferee or participant in connection with the contemplated transfer of any
Loans or participation therein or an Affiliate of such Bank (including
attorneys, legal advisors and consultants of such Bank) (so long as such
transferee, participant or Affiliate agrees to be bound by the provisions of
this Section 12.15) or as required or requested by any governmental agency or
representative thereof or pursuant to legal process, provided that, unless
specifically prohibited by applicable law or court order, each Bank shall notify
the Borrower of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) for disclosure of any such
non-public information prior to disclosure of such information, and provided
further that in no event shall any Bank be obligated or required to return any
materials furnished by the Borrower or any Subsidiary.
12.16 Register. The Borrower hereby designates the
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 12.16, to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the Banks, the Loans made by
each of the Banks and each repayment in respect of the principal amount of the
Loans of each Bank. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment Agreement pursuant to Section 12.04(b).
Coincident with the delivery of such an Assignment Agreement to the
Administrative Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or the new Bank.
12.17 Release of BRS. On the Effective Date, upon the
satisfaction of conditions set forth in this Agreement and upon the occurrence
of the Initial Borrowing Date, BRS shall be released from all obligations in
respect of the matters set forth in Section 12.01 arising in connection with the
commitment letter, dated June 30, 1998, and the related fee letter, provided
that all obligations set forth in such fee letter are hereby expressly assumed
by the Borrower.
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12.18 No Personal Liability. No director, officer, partner,
member, employee, or stockholder, as such, past, present or future of the
Borrower or any guarantor or any successor entity, as such, shall have any
personal liability for any obligations of the Borrower or any guarantor under
the Credit Documents, the Transaction Documents and/or all other documents
associated therewith, or for any claim based on, in respect of, or by reason of,
such obligations or their creation. The Banks, Administrative Agent and
Syndication Agent, upon execution of the Credit Documents, waive and release all
such personal liability and acknowledge and consent to the Transactions for
purposes of Section 506 of the California Federal Corporation Law and Section
10-640 of the Arizona Business Corporation Act.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
<TABLE>
<S> <C>
1801 Penhall Way PENHALL INTERNATIONAL CORP.,
PO Box 4609 as Borrower from and after the Recapitalization
Anaheim, CA 92803
Attention: John Sawyer
Tel: (714) 772-6450
Fax: (714) 778-8437 By /s/ John T. Sawyer
--------------------------------
Name: John T. Sawyer
Title: President
c/o Bruckman, Rosser, Sherrill & Co., Inc. PENHALL ACQUISITION CORP.,
126 E. 56th Street as Borrower prior to the Recapitalization
New York, NY 10022
Attention: Harold O. Rosser II
Tel: (212) 521-3707
Fax: (212) 521-3799 By /s/ Rice Edmonds
----------------------------------
Name: Rice Edmonds
Title: Vice President and Treasurer
</TABLE>
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BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By /s/ Patricia Hogan
-------------------------------------
Name: Patricia Hogan
Title: Principal
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CREDIT SUISSE FIRST BOSTON
Individually and as Syndication Agent
By /s/ Robert Hetu
--------------------------------------
Name: Robert Hetu
Title: Vice President
By /s/ Chris T. Horgan
--------------------------------------
Name: Chris T. Horgan
Title: Vice President
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FLEET CAPITAL CORPORATION
By: /s/ Jennifer F. Mellitt
------------------------------------
Name: Jennifer F. Mellitt
Title: Vice President
101
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UNION BANK OF CALIFORNIA, N.A.
By: /s/ Michael Ross
-------------------------------------
Name: Michael Ross
Title: Vice President
102
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U.S. BANK NATIONAL ASSOCIATION
By: /s/ Janet E. Jordan
-------------------------------------
Name: Janet E. Jordan
Title: Vice President
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ANNEX I
COMMITMENTS
<TABLE>
<CAPTION>
Bank Revolving Commitment Term Commitment
<S> <C> <C>
Bankers Trust Company $6,600,000 $4,400,000
Credit Suisse First Boston $6,000,000 $4,000,000
Fleet Capital Corporation $6,000,000 $4,000,000
Union Bank of California, $6,000,000 $4,000,000
N.A.
U.S. Bank National $5,400,000 $3,600,000
Association
Total: $30,000,000 $20,000,000
----------- -----------
----------- -----------
</TABLE>
<PAGE>
ANNEX II
BANK ADDRESSES
<TABLE>
<CAPTION>
<S> <C>
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Attention: Timothy J. Morris
Tel. No.: (212) 250-8617
Fax No.: (212) 250-7218
Credit Suisse First Boston 11 Madison Avenue
New York, New York 10010-3629
Attention: Robert Hetu
Tel. No.: (212) 325-4542
Fax No.: (212) 325-8309
Fleet Capital 200 Glastonbury Blvd
Glastonbury, CT 06033
Attention: Jennifer Mellitt
Tel. No.: (860) 657-7658
Fax No.: (860) 657-7759
Union Bank of California 70 South Lake Avenue, Suite 900
Pasadena, CA 91101-3005
Attention: Michael Ross
Tel. No.: (626) 304-1953
Fax No.: (818) 304-1845
U.S. Bank 555 S.W. Oak Street, Suite 400
Portland, OR 07204
Attention: Janet Jordan
Tel. No.: (503) 275-5871
Fax No.: (503) 275-5428
</TABLE>
<PAGE>
ANNEX III
SUBSIDIARIES
Penhall Rental Corporation, a California corporation (a wholly
owned subsidiary of the Borrower).
Penhall Company, a California corporation (a wholly owned
subsidiary of the Borrower).
<PAGE>
ANNEX IV
REAL PROPERTY
Owned Property
1801 Penhall Way, Anaheim, California 92801
5775 Eastgate Drive, San Diego, California 92121
554 Dawson Drive, Camarillo, California 93010
3301 E. Wood Street, Phoenix, Arizona 85014
13750 Catalina Street, San Leandro, California 94577
14801 South Avalon Boulevard, Gardena, California 90248
255 S. Flower Street, Burbank, California 91502
8416 Specialty Circle, Sacramento, California 95282
1385 Umatilla Street, Denver, Colorado 80204
3845 Imperial Avenue, San Diego, California
4201 Felter Lane, Austin, Texas
[pending purchase - 4755 W. University Avenue, Las Vegas, Nevada]
Leased Property
13. Lease with Rider 1 thereto between W. Leslie Pelio, an individual, and
Penhall Company, a California corporation, dated August 27, 1997 for the
property with the address, 696 Walsh Avenue, Santa Clara, California 95050.
14. Lease between Rialto Investment Co., a partnership, and Penhall
International, Inc., a California corporation, including (a) Rider to Industrial
Real Estate Lease and (b) Option to Extend Term Lease Rider, all dated as of
April 25, 1990, for the property located at 2190 Riverside Avenue, Rialto,
California 92316.
15. Lease between Irish Construction, a California corporation, and Penhall
Company, a California corporation, entered into on June 17, 1987 for a portion
of the property located at 16332 Construction Circle West, Irvine, California
92714, assigned by Penhall Company to the Company by Assignment of Lease dated
May 1, 1998, as extended by exercise of first option to renew (exercised in
letter dated March 29, 1989), as affected by letter dated
<PAGE>
Annex IV
Page 2
February 5, 1990 providing addition of land to leased site and increasing rent
to compensate therefor. Lease has expired and was not renewed. Penhall Company
now occupies additional property (as per the February 5, 1990 letter), and is on
a month to month basis with Irish Construction.
16. Lease together with Addendum I thereto between Antonio Fowler Development
Services, a California general partnership, and Phoenix Concrete Cutting,
Inc., an Arizona corporation, d.b.a. Performance Sawing and Breaking, Inc.,
a California corporation, dated as of February 9, 1994 for the property
located at 5419 Standard Street, Bakersfield, California 93308, extended
until May 30, 2000 by Addendum I dated June 2, 1998.
17. Lease dated December 30, 1986 between Action Enterprises, a general
partnership (as lessor), and C&W Action Rentals, Inc., succeeded in
interest by RSC Holdings Inc., , a Delaware corporation (formerly known as
Acme Holdings, Inc.), as amended by First Amendment to Lease, dated June
20, 1994, assigned to Penhall Company, a California company, as of
September 16, 1996, as further amended by Second Amendment to Lease, dated
October 8, 1996, for that certain real property commonly known as 16401
Construction Circle West, Irvine, California 92714.
18. Lease between Oquendo Warehouse Partnership and Penhall Company, as
modified by Addendum to Lease, dated March 7, 1994 for that certain real
property commonly known as 4000[B] West Oquendo, Las Vegas, Nevada 89118.
Lease expired on March 31, 1997. Penhall is currently a monthly tenant
under the holdover provision contained in the lease.
19. Lease between Thaddeus B. Bruno and Penhall Company, a California
corporation, dated as of July 2, 1997 for that certain real property
commonly known as 11650 NE Marx, Multnomah, Oregon.
20. Lease between Billy M. Jones and Phoenix Concrete Cutting, d.b.a. Metro
Concrete Cutting, as modified by Exhibit "A" Special Stipulations, entered
into on February 1, 1998, for the property known as 3213 Pacific Avenue,
Buildings 3 and 4, Austell, Georgia 30001.
21. Lease between Holualoa Salt Lake City Airport Park, LLC, an Arizona limited
liability company, and Penhall Company, a California corporation dated as
of April 28, 1997 for the premises with the address, 216 North 2200 West,
Salt Lake City, Utah 84116.
22. Commercial Lease between Penhall Company and Lancaster Trust II, dated June
10, 1998, for that certain parcel of real estate located at 1201 Minters
Chapel Road, Suite 101 and Suite 103, Lot 1, Block 2, DFW Air Freight
Center Addition, City of Grapevine, Tarrant County, Texas.
23. Lease between R&B Properties (landlord) and Penhall Company (tenant) dated
June 30, 1998, for a portion of real property commonly known as 14045
Northdale Boulevard, Rogers, Minnesota.
<PAGE>
ANNEX V
EXISTING INDEBTEDNESS
1. Promissory Note to Arthur Kastner, assigned to Arthur Kastner and Jayne L.
Kastner, Trustees, under the Kastner Living Trust in the original principal
amount of $590,777.33 executed on July 4, 1994.
2. Promissory Note to James P. Sheridan in the original principal amount of
$111,271.32 executed December 31, 1997.
3. $3,692,647.48 Secured Promissory Note dated April 29, 1998 between Penhall
Company (borrower) and Highway Services, Inc. (lender).
4. Real Estate Lien Note dated October 9, 1996 to Jeannie S. Kelley in the
original principal amount of $199,750.00 for the purchase of Company's owned
real estate in Austin, Texas, secured by deed of trust from Company for the
benefit of Jeannie S. Kelley and by vendor's lien retained investing deed.
5. Promissory Note dated June 4, 1997 to Metro Concrete Cutting, Inc. (Metro
Note) in the original amount of $555,986.48 for the purchase of the assets
of Metro Concrete Cutting, Inc. to secure the Metro Note.
<PAGE>
ANNEX VI
INSURANCE
Penhall Rental Corporation
1. Pension and Welfare Fund Fiduciary Responsibility Insurance Policy (Fidelity
and Deposit Company of Maryland).
2. Commercial General Liability (American International Specialty Lines
Insurance Company).
3. Commercial Umbrella (American International Specialty Insurance Company).
4. Commercial Crime Insurance (Fidelity and Deposit Company of
Maryland/Colonial American Casualty and Surety Company).
5. Commercial Automobile Insurance (National Union Fire Insurance Company of
Pittsburgh, PA).
6. Property/Contractors Equipment Insurance (Fireman's Fund Insurance Company).
Penhall International, Corp.
1. Commercial General Liability (American International Specialty Lines
Insurance Company).
2. Workers' Compensation and Employers Liability Insurance (The Insurance
Company of the State of Pennsylvania).
3. Commercial Automobile Insurance (National Union Fire Insurance Company of
Pittsburgh, PA).
Penhall Company
1. Workers' Compensation and Employers Liability Insurance (National Union Fire
Insurance Company of Pittsburgh, PA).
<PAGE>
Annex VI
Page 2
Title Polices
1. Company is seeking a policy from First American Title Insurance Company for
1801 Penhall Way, Anaheim, California 92801. A Commitment for Title
Insurance No. OR98218998 was issued by First American Title Insurance
Company on May 8, 1998.
2. Policy issued July 19, 1992 to Company by Stewart Title Company regarding
the property located at 5775 Eastgate Drive, San Diego, California. A
Preliminary Report for Title Insurance No. 01 -172465 was issued by Stewart
Title of California on May 26, 1998.
3. Policy issued April 3, 1980 to Penhall Company by Title Insurance Company of
Minnesota regarding the property located at 554 Dawson Drive, Camarillo,
California. A Commitment for Title Insurance No. 4983340 was issued by
Lawyers Title Company on May 26,1998. The amount of policy to be issued is
$124,000.00.
4. Policy issued August 16, 1994 to Company TRW Title Insurance regarding the
property located at 3301 E. Wood Street, Phoenix, Arizona. A Commitment for
Title Insurance No. 8-0372998 was issued by Fidelity National Life Insurance
Company on June 1, 1998.
5. Policy issued May 17, 1983 to Penhall Company by First American Title
Insurance Company regarding the property located at 13750 Catalina Street,
San Leandro, California. A Commitment for Title Insurance No. SP120810 was
issued by First American Title Insurance Company on June 5, 1998.
6. Policy issued August 15, 1985 to Penhall Company by Ticor Title Insurance
regarding the property located at 14801 South Avalon Boulevard, Gardena,
California. A Preliminary Report No. 8132814 was issued by Chicago Title
Insurance Company on May 27, 1998.
7. Policy issued November 18, 1994 to Company by Chicago Title Insurance
Company regarding the property located at 255 S. Flower Street, Burbank,
California. A Preliminary Report No. 8132815 was issued by Chicago Title
Insurance Company on May 27, 1998.
8. Policy issued December 27, 1989 to Company by First American Title Insurance
Company regarding the property, Lots #19 and #20, located at 8416 Specialty
Circle, Sacramento, California. A new policy No. 902284 in the amount of
$364,000.00 was issued by First American Title Insurance Company on May 18,
1998.
9. Policy issued October 4, 1996 to Company by First American Title Insurance
Company regarding the property, Lot #18, located at Specialty Circle,
Sacramento, California. A new policy No. 251645 in the amount of $83,722.32
was issued by First American Title Insurance Company on May 18, 1998.
10. Policy issued September 15, 1997 to Company by Stewart Title of Denver, Inc.
regarding the property located at 1385 Umatilla Street, Denver, Colorado. A
Commitment for Title Insurance No. 90081356 was issued by Stewart Title of
Denver on May 15, 1998.
<PAGE>
Annex VI
Page 3
11. Policy issued January 7, 1980 to Penhall Company, Richard and Ruby Becker by
Lawyers Title Insurance Company regarding the property located at 3845
Imperial Avenue, San Diego, California. A Commitment for Title Insurance No.
246053-02 was issued by Lawyers Title Company on May 19, 1998.
12. Policy issued October 10, 1996 to Company by Old Republic National Title
Insurance Company regarding the property located in Austin, Texas. A
Commitment for Title Insurance No. 117935 was issued by Old Republic
National Title Insurance Company on June 17, 1998. The amount of policy to
be issued is $235,000.00.
<TABLE>
<CAPTION>
LINE OF COVERAGE LIMIT
<S> <C>
WORKERS'
COMPENSATION Coverage A WC
(08/04/98 - 05/09/01) Statutory
o Premium
o Assessments Est. Coverage B
o 1,000,000 per accident
1,000,000 policy limit disease
o Premium 1,000,000 ea. employee disease
o Assessments Est.
GENERAL/PRODUCTS LIABILITY 2,000,000 Gen Agg per project
(08/04/98 - 05/09/01) 2,000,000 Prod/Ops Agg
o Premium 2,000,000 Ea. Occ
o Retained Losses 100,000 Fire Dam. Legal
o Assess/Tax
10,000 Med Pay
1,000,000 EBL (Claims Made)
ALE outside Policy Limit
o Premium
o Retained Losses
o Assess/Tax
AUTOMOBILE LIABILITY/PHYSICAL DAMAGE
(08/04/98 - 05/09/01) 1,000,000 CSL
o Premium Includes Taxes 1,000,000 UM/UIM
10,000 Med Pay
</TABLE>
<PAGE>
Annex VI
Page 4
<TABLE>
<CAPTION>
LINE OF COVERAGE LIMIT
<S> <C>
o Premium Includes Taxes
UMBRELLA LIABILITY
(08/04/98 - 05/09/01)
o Premium o 20,000,000 occ/agg
o Surplus Lines Tax
o Premium
o Surplus Lines Tax
PROPERTY
(08/04/98 - 05/09/01) All Risk
10,000,000 Real & Personal
Major Sublimits
1,000,000 EE
10,000,000 Flood Ann/Agg
750,000/1,500,000 Leased Equip
2,500/25,000 Employee Tools
580,000 Unsched. Tools
25,000 Rental Reimb.
2,500,000 CA EQ
Est. Annual Premium
BOILER & MACHINERY 25,000,000 Per Occ
(08/04/98 - 05/09/01) Sublimits
1,000,000 EE
1,000,000 Haz Sub
1,000,000 Water Damage
Est. Annual Premium
</TABLE>
<PAGE>
ANNEX VII
EXISTING LIENS
<TABLE>
<CAPTION>
ENTITY TYPE OF FILING STATE DATE OF FILING FILE # SECURED PARTY
<S> <C> <C> <C> <C> <C>
Penhall International, Inc. Tax Lien - $1,353.18 Orange City, CA 10/5/93 93-0675863 Calif-Employment Development
Department
Penhall Company Small Claims Judgment San Francisco, CA 5/4/98 770022 TDC/Design Company
$2,936
Small Claims Judgment CA 9/1/94 467697 United Roofing
$3,657.76
UCC CA 3/6/97 9707160037 Peterson Tractor
UCC CA 10/1/97 9727960718 Shepherd Machinery
UCC CA 11/26/97 9733760701 Shepherd Machinery
UCC CA 12/5/97 9734560334 Shepherd Machinery
UCC CA 12/22/97 9736360054 Precision Slot Cutting
UCC CA 12/24/97 9736460502 Shepherd Machinery
UCC CA 2/10/98 9804260855 Caterpillar Financial
UCC CA 2/9/98 9804960423 Shepherd Machinery
UCC CA 2/20/98 9805460807 Caterpillar Financial
</TABLE>
<PAGE>
Annex VII
Page 2
<TABLE>
<CAPTION>
ENTITY TYPE OF FILING STATE DATE OF FILING FILE # SECURED PARTY
<S> <C> <C> <C> <C> <C>
UCC CA 4/7/98 9809760704 Caterpillar Financial
UCC NV 10/18/98 9616921 Redburn Tire
UCC NV 3/4/96 9603121 Tenco Tractor
UCC OR 12/19/97 403185 Precision Slot Cutting
UCC WA 12/19/97 973530231 Precision Slot Cutting
UCC UT 6/20/97 97569501 Scott Machinery
UCC UT 6/20/97 97569502 Scott Machinery
UCC UT 6/20/97 97-569503 Scott Machinery
UCC UT 6/23/97 97-569699 Wheeler Machinery
UCC UT 12/3/97 97-586995 Scott Machinery
Phoenix Concrete Cutting, Inc.UCC MD 9/2/97 172468175 Presidential Financial
UCC MD 3/13/98 180728406 Zep Manufacturing
UCC CA 1/23/98 9802860622 SMA Equipment
UCC CO 6/3/96 962042590 Colorado Petroleum Products
UCC AZ 4/26/96 895448 Empire Southwest
</TABLE>
<PAGE>
Annex VII
Page 3
<TABLE>
<CAPTION>
ENTITY TYPE OF FILING STATE DATE OF FILING FILE # SECURED PARTY
<S> <C> <C> <C> <C> <C>
(dba) in Georgia: UCC GA 6/17/96 96-8235 Perimeter Bobcat
Metro Loading & Hauling, Inc.
UCC GA 10/31/96 96-15215 Ford Motor Credit
Highway Services, Inc. UCC SD 6/25/97 971761001083 Butler Machinery Company
</TABLE>
<PAGE>
ANNEX VIII
REFINANCED AGREEMENTS
1. Business Loan Agreement between Bank of America and Company dated as of
May 16, 1998 (Business Loan Agreement).
2. Amendment No. 1 to Business Loan Agreement dated as of October 13, 1995.
3. Amendment No. 2 to Business Loan Agreement dated as of August 15, 1996.
4. Amendment No. 3 to Business Loan Agreement dated as of December 17, 1996.
5. Amendment No. 4 to Business Loan Agreement dated as of June 26, 1997.
6. Amendment No. 5 to Business Loan Agreement dated as of September 16, 1997.
7. Amendment No. 6 to Business Loan Agreement dated as of December 29, 1997.
8. Amendment No. 7 to Business Loan Agreement dated as of February 18, 1998.
9. Amendment No. 8 to Business Loan Agreement dated as of May 21, 1998.
<PAGE>
Exhibit 4.7
SECURITIES HOLDERS AGREEMENT
Dated as of
August 4, 1998
among
PENHALL INTERNATIONAL CORP.
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
and
MANAGEMENT STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I REPRESENTATIONS, WARRANTIES AND COVENANTS OF PENHALL........................................ 2
1.1 Representations, Warranties and Covenants of Penhall........................................ 2
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH STOCKHOLDER............................... 3
2.1 Representations, Warranties and Covenants of Each Stockholder............................... 3
2.2 Legend...................................................................................... 4
2.3 Limitation on Repurchase of Securities...................................................... 4
ARTICLE III OTHER COVENANTS AND REPRESENTATIONS......................................................... 5
3.1 Financial Statements and Other Information.................................................. 5
3.2 Sale of Penhall or any of the Companies..................................................... 5
3.3 Tag-Along Rights............................................................................ 6
ARTICLE IV CORPORATE ACTIONS.......................................................................... 10
4.1 Articles of Incorporation and By-Laws...................................................... 10
4.2 Directors.................................................................................. 10
4.3 Right to Remove Certain of Penhall's Directors.............................................. 11
4.4 Right to Fill Certain Vacancies in Penhall's Board.......................................... 11
4.5 Subsidiaries Governance..................................................................... 11
4.6 Management Rights........................................................................... 11
4.7 Confidentiality............................................................................. 12
ARTICLE V ADDITIONAL RESTRICTIONS ON TRANSFERS OF SECURITIES HELD BY MANAGEMENT STOCKHOLDERS.......... 14
5.1 Certain Definitions......................................................................... 14
5.2 Restrictions on Transfer.................................................................... 28
5.3 Options..................................................................................... 30
5.4 Right of First Refusal on Transfer of Management Stockholder Securities..................... 34
5.5 Purchaser Representative.................................................................... 35
5.6 Involuntary Transfers....................................................................... 36
5.7 Covenant Not to Compete..................................................................... 38
5.8 Obligations of J&J Investments, LLC and Michael Bruce Repchinuck Revocable Trust............ 39
ARTICLE VI REGISTRATION RIGHTS......................................................................... 40
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE VII MISCELLANEOUS............................................................................... 40
7.2 Survival of Representations and Warranties.................................................. 40
7.3 Successors and Assigns; Entire Agreement.................................................... 40
7.4 Separability................................................................................ 41
7.5 Notices..................................................................................... 41
7.6 Governing Law............................................................................... 42
7.7 Headings.................................................................................... 42
7.8 Counterparts................................................................................ 42
7.9 Further Assurances.......................................................................... 42
7.10 Remedies.................................................................................... 42
7.11 Party No Longer Owning Securities........................................................... 43
7.12 No Effect on Employment..................................................................... 43
7.13 Pronouns.................................................................................... 43
</TABLE>
ii
<PAGE>
DEFINITIONS
-----------
<TABLE>
<CAPTION>
Term As Defined in Section
- ---- ---------------------
<S> <C>
Accepting Tag-Along Holder 3.3 (b)
Accumulated Dividends 5.1 (a)
Adjusted Book Value 5.1 (b)
Affiliate 3.3 (f)
Agreement Preamble
Approved Sale 3.2 (a)
Asset Sale 5.1 (c)
Associate 3.3 (f)
Bank Credit Facility 5.1 (d)
Board Resolution 5.1 (e)
Book Value 5.1 (f)
Borrowing Base 5.1 (g)
BRS Preamble
BRS Affiliates 3.3 (a)
BRS Associates 3.3 (a)
BRS Entities Preamble
BRS Partner 3.3 (a)
BRS Permitted Transferee 3.3 (a)
BRS Stockholders Preamble
Capital Stock 5.1 (h)
Capitalized Lease Obligations 5.1 (i)
Cash Equivalents 5.1 (j)
Cause 5.1 (k)
Common Stock Background
Company, Companies Background
Competitive Business 5.7
Confidential Information 4.7 (b)
Consolidated EBITDA 5.1 (l)
Consolidated Interest Expense 5.1 (m)
Consolidated Net Income 5.1 (n)
Consolidated Non-cash Charges 5.1 (o)
Controlling, controlled by, under 3.3 (f)
common control with
Currency Agreement 5.1 (p)
Default 5.1 (q)
Disqualified Capital Stock 5.1 (r)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Escrow Amount 3.3 (c) (i)
Escrow Notice 3.3 (c) (ii)
Event of Default 5.1 (s)
Exchange Notes 5.1 (t)
Foreign Subsidiary 5.1 (u)
GAAP 5.1 (v)
Guarantee 5.1 (w)
Guarantor 5.1 (x)
HSI Acquisition 5.1 (y)
Indebtedness 5.1 (z)
Indenture 5.1 (aa)
Initial Notes 5.1 (ab)
Initial Public Offering 3.3 (d)
Initial Purchasers 5.1 (ac)
Interest Swap Obligations 5.1 (ad)
Investment 5.1 (ae)
Involuntarily Transferred 5.6 (a)
Securities
Involuntary Transfer Notice 5.6 (a)
Issue Date 5.1 (af)
Junior Subordinated Notes 5.1 (ag)
Lien 5.1 (ah)
Liquidation Preference 5.1 (ai)
Management Stockholder 5.2
Management Stockholders Preamble
Merger Agreement Background
Moody's 5.1 (j)
New Credit Facility 5.1 (aj)
Nonvolitional Event 5.6 (a)
Notes 5.1 (ak)
Obligations 5.1 (al)
Offeror 5.4 (a)
Option Period 5.1 (am)
Option Purchase Price 5.3 (c)
Option Securities 5.1 (an)
Options 5.3 (a) (ii)
Original Cost 5.1 (ao)
Penhall Preamble
Penhall Company Background
Permitted Indebtedness 5.1 (ap)
Permitted Investments 5.1 (aq)
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Permitted Transferee 5.1 (ar)
Person 5.1 (as)
PRC Background
Preferred Stock Background
Preferred Stock Company 5.3 (c)
Value
Preferred Valuation Amount 5.3 (c)
Private Exchange Notes 5.1 (at)
Purchase Money Obligations 5.1 (au)
Purchase Number 5.3 (c)
Purchase Option 5.3 (a) (i)
Put Option 5.3 (a) (ii)
Qualified Capital Stock 5.1 (av)
Refinance, Refinanced 5.1 (aw)
Refinancing
Refinancing Indebtedness 5.1 (ax)
Registration Rights Agreement 5.1 (ay)
Representatives 4.7 (b)
Restricted Payment 5.1 (az)
Restricted Security 5.1 (ba)
Restricted Subsidiary 5.1 (bb)
Sale and Leaseback Transaction 5.1 (bc)
Securities Background
Securities Act 2.1 (c)
Series A Preferred Stock Background
Series B Preferred Stock Background
Significant Transfer 3.3 (a)
Stockholder(s) Preamble
Subsidiary 5.1 (bd)
S&P 5.1 (j)
Tag-Along Acceptance Notice 3.3 (b)
Tag-Along Right 3.3 (a)
Tag-Along Rightholders 3.3 (a)
Tag-Along Sale Notice 3.3 (b)
Tag-Along Seller 3.3 (b)
Termination Date 5.3 (a)(i)
Territory 5.7
Transactions 5.1 (be)
Transfer 5.1 (bf)
Transfer Notice 5.4 (a)
Transfer Offer 5.4 (a)
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
Transfer Securities 5.4 (a)
Transferees 3.2 (a)
Transferor Stockholder 5.1 (aq)
Trustee 5.1 (bg)
Unexercised Right Notice 3.3 (b)
Unexercised Securities 3.3 (b)
Unrestricted Subsidiary 5.1 (bh)
Weighted Average Life to 5.1 (bi)
Maturity
</TABLE>
vi
<PAGE>
SECURITIES HOLDERS AGREEMENT
SECURITIES HOLDERS AGREEMENT, dated as of August 4, 1998 (the
"Agreement"), by and among (1) PENHALL INTERNATIONAL CORP., an Arizona
corporation formerly known as Phoenix Concrete Cutting, Inc. ("Penhall"), (2)
BRUCKMANN, ROSSER, SHERRILL & CO., L.P., a Delaware limited partnership ("BRS"),
the individuals and entities listed on Exhibit A hereto as the BRS Stockholders
(the "BRS Stockholders" and, together with BRS and their respective BRS
Permitted Transferees, the "BRS Entities") and (3) the individuals and entities
listed on Exhibit A hereto as "Management Stockholders" (such individuals and
entities, together with their Permitted Transferees, the "Management
Stockholders"). The BRS Entities and the Management Stockholders are sometimes
referred to hereinafter individually as a "Stockholder" and collectively as the
"Stockholders."
Background
----------
A. Pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of August 3, 1998 (the "Merger Agreement"), by and among BRS, Penhall
Acquisition Corp., an Arizona corporation, Penhall, Penhall Rental Corp., a
California corporation formerly known as Penhall International, Inc. ("PRC") and
the stockholders identified on the signature pages thereto, and a Securities
Purchase Agreement, dated as of August 4, 1998, by and among the BRS Entities
and Penhall, each of the BRS Entities acquired (i) the number of shares of
Common Stock, par value $.01 per share (the "Common Stock"), of Penhall set
forth opposite its name on Exhibit A hereto, (ii) the number of shares of 13%
Series A Cumulative Preferred Stock, par value $.01 per share ("Series A
Preferred Stock"), of Penhall set forth opposite its name on Exhibit A hereto
and (iii) the number of shares of 13% Series B Cumulative Preferred Stock, par
value $.01 per share ("Series B Preferred Stock" and, together with the Series A
Preferred Stock, the "Preferred Stock"), of Penhall set forth opposite its name
on Exhibit A hereto.
<PAGE>
B. Pursuant to the Merger Agreement and a Securities Purchase
Agreement, dated as of August 4, 1998, by and among Penhall and the stockholders
identified on the signature pages thereto, each of the Management Stockholders
acquired (i) the number of shares of Common Stock of Penhall set forth opposite
his or her name on Exhibit A hereto, and (ii) the number of shares of Series B
Preferred Stock of Penhall set forth opposite his or her name on Exhibit A
hereto.
C. As used herein, the term "Companies" shall mean, collectively, (i)
PRC, (ii) Penhall Company, a California corporation ("Penhall Company"), and
(iii) any future direct or indirect subsidiary of Penhall included in the
consolidated financial statements of Penhall, and the term "Company" shall be
construed accordingly. As used herein, the term "Securities" shall mean the
Common Stock, the Series A Preferred Stock and the Series B Preferred Stock now
and hereafter held by any Stockholder, including shares of Common Stock, Series
A Preferred Stock, Series B Preferred Stock and all other securities of Penhall
(or a successor to Penhall) received on account of ownership of the Common
Stock, the Series A Preferred Stock or the Series B Preferred Stock including
all securities issued in connection with any merger, consolidation, stock
dividend, stock distribution, stock split, reverse stock split, stock
combination, recapitalization, reclassification, subdivision, conversion or
similar transaction in respect thereof. A reference to any class of Securities
shall be deemed to include reference to all Securities issued in respect
thereof.
D. The Stockholders and Penhall wish to set forth certain agreements
regarding their future relationships and their rights and obligations with
respect to the Securities.
Terms
-----
In consideration of the mutual representations, warranties and
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
2
<PAGE>
ARTICLE I
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF PENHALL
--------------------
1.1 Representations, Warranties and Covenants of Penhall. Penhall
represents and warrants to, and covenants and agrees with, each of the
Stockholders as follows:
(a) Penhall is a corporation validly existing and in good standing
under the laws of the State Arizona.
(b) Penhall has full corporate power and corporate authority to
make, execute, deliver and perform this Agreement and to carry out all of the
transactions provided for herein.
(c) Penhall has taken such corporate action as is necessary or
appropriate to enable it to perform its obligations hereunder, and this
Agreement constitutes the legal, valid and binding obligation of Penhall,
enforceable against Penhall in accordance with the terms hereof.
(d) As of the date hereof, the authorized capital stock of Penhall
consists of (i) 5,000,000 shares of Common Stock, of which 1,000,000 shares are
issued and outstanding and (ii) 250,000 shares of preferred stock, par value
$0.01 per share, of which (A) 25,000 shares have been designated as Series A
Preferred Stock, of which _______ shares are issued and outstanding, (B) 50,000
shares have been designated as Series B Preferred Stock, of which _______ shares
are issued and outstanding and (C) 10,000 shares have been designated as 10.5%
Senior Exchangeable Preferred Stock, par value $.0.01 per share (the "Senior
Exchangeable Preferred Stock"), all of which are issued and outstanding. Except
as set forth herein or in the Amended and Restated Articles of Incorporation of
Penhall, as of the date hereof, (x) there are no rights, subscriptions,
warrants, options, conversion rights, or agreements of any kind outstanding to
purchase from Penhall, or otherwise require Penhall to issue, any shares of
capital stock of Penhall or securities or obligations of any kind convertible
into or exchangeable for any shares of capital stock of Penhall; (y) Penhall is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock; and (z) the
Securities and the Senior Exchangeable Preferred Stock constitute all of the
outstanding shares of Penhall's capital stock.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF EACH STOCKHOLDER
-----------------------------
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2.1 Representations, Warranties and Covenants of Each Stockholder. Each
of the Stockholders severally represents and warrants to, and covenants and
agrees with, Penhall that:
(a) Such Stockholder has full legal right, capacity, power and
authority (including the due authorization by all necessary corporate action in
the case of corporate Stockholders) to enter into this Agreement and to perform
such Stockholder's obligations hereunder without the need for the consent of any
other person or entity; and this Agreement has been duly authorized, executed
and delivered and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with the terms
hereof.
(b) Such Management Stockholder's residence address and social
security number are as set forth below such Management Stockholder's signature
to this Agreement.
(c) Such Stockholder will not effect a Transfer (as defined in
Section 5.1) of any Securities except in compliance with the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
(and applicable state securities laws) or pursuant to an available exemption
therefrom, and, without limiting the foregoing, will not effect a Transfer of
any Securities prior to the lapse of such period of time following acquisition
thereof as may be required to comply with applicable state securities laws.
2.2 Legend. The certificates representing the Securities, including
certificates issued upon any voluntary or involuntary transfer of such
Securities, unless such transfer is pursuant to a registered public offering of
the Securities or the conditions specified in Section 5.2 hereof are satisfied,
shall bear the following legend in addition to any other legend required under
applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANS FERRED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO PENHALL INTERNATIONAL CORP., THAT SUCH REGISTRATION IS
NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE
TERMS AND CONDITIONS OF A SECURITIES HOLDERS AGREEMENT BY AND AMONG
PENHALL INTERNATIONAL CORP. AND THE STOCKHOLDERS SPECIFIED THEREIN, A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF PENHALL
INTERNATIONAL CORP. THE SALE, TRANSFER OR OTHER DISPOSITION OF THE
SECURITIES IS SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THE
SECURITIES ARE TRANSFERABLE ONLY UPON PROOF OF COMPLIANCE THEREWITH.
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2.3 Limitation on Repurchase of Securities. Each Management Stockholder
understands that Penhall has entered into certain financing agreements which
contain prohibitions, restrictions and limitations on the ability of Penhall to
purchase any of the Securities and to pay dividends on the Common Stock, Series
A Preferred Stock and Series B Preferred Stock. Notwithstanding the foregoing,
Penhall agrees to act in good faith to obtain waivers of such prohibitions,
restrictions and limitations.
ARTICLE III
OTHER COVENANTS AND REPRESENTATIONS
-----------------------------------
3.1 Financial Statements and Other Information. So long as BRS owns any
of the Securities, Penhall shall deliver to BRS:
(a) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of Penhall,
consolidated balance sheets of Penhall and its subsidiaries as of the end of
such period, and consolidated statements of income and cash flows of Penhall and
its subsidiaries for the period then ended prepared in conformity with GAAP (as
defined under Section 5.1) applied on a consistent basis, except as otherwise
noted therein, and subject to the absence of footnotes and to year-end
adjustments; and
(b) as soon as available and in any event within 90 days after the
end of each fiscal year of Penhall, a consolidated balance sheet of Penhall and
its subsidiaries as of the end of such year, and consolidated statements of
income and cash flows of Penhall and its subsidiaries for the year then ended
prepared in conformity with GAAP applied on a consistent basis, except as
otherwise noted therein, together with an auditor's report thereon of a firm of
established national reputation.
3.2 Sale of Penhall or any of the Companies.
---------------------------------------
(a) If the Board of Directors of Penhall and holders of at least a
majority of Penhall's Common Stock then outstanding approve the sale of Penhall
or any of the Companies to an unaffiliated third person (whether by merger,
consolidation, reorganization, sale of all or substantially all of its assets or
sale of a majority of the outstanding capital stock) (an "Approved Sale"), each
Stockholder and his or its transferees (including Permitted Transferees)
("Transferees") will consent to, vote for, and raise no objections against, and
waive dissenters and appraisal rights (if any) with respect to, the Approved
Sale, and will sell all of his or its Securities in such Approved Sale upon the
terms and conditions approved by the Board of Directors of Penhall and the
holders of a majority of the Common Stock then outstanding.
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Each Stockholder and Transferee will take all reasonably necessary and desirable
actions in connection with the consummation of an Approved Sale.
(b) The obligations of each of the Stockholders and the
Transferees with respect to an Approved Sale are subject to the satisfaction of
the conditions that: (i) upon the consummation of the Approved Sale, all of the
Stockholders and the Transferees will receive the same form and amount of
consideration per share of the applicable Securities (and, for purposes of
clarification, the Series A Preferred Stock and the Series B Preferred Stock
shall be treated as the same applicable Security), or if any holder of
Securities is given an option as to the form and amount of consideration to be
received, all Stockholders and Transferees will be given the same option, (ii)
the terms of the Approved Sale shall not include any provisions subjecting a
Stockholder or its Transferees to any indemnification obligation or other
liability beyond the value of the consideration received in the Approved Sale by
such Stockholder or Transferees and (iii) all Stockholders and Transferees shall
be subject to the same form of indemnification obligation under the terms of the
Approved Sale.
3.3 Tag-Along Rights.
----------------
(a) Except as otherwise provided in Section 3.3(e), BRS and each
BRS Entity who or which receives shares from BRS after the date hereof as a BRS
Permitted Transferee covenant and agree with the other Stockholders and their
Transferees and assigns that it will not effect a Transfer of shares of Common
Stock and/or Preferred Stock in any transaction that constitutes a "Significant
Transfer" (as hereinafter defined) unless all other Stockholders and their
Transferees and assigns (collectively, the "Tag-Along Rightholders") are offered
an equal opportunity (the "Tag-Along Right") to participate in such transaction
or transactions on a pro rata basis (based on the number of shares of Common
Stock or Preferred Stock, as the case may be, outstanding on a fully-diluted
basis) and on identical terms. As used herein, a "Significant Transfer" means a
Transfer, which either alone or taken together with all prior Transfers by BRS
and BRS Entities to any person or persons other than a BRS Permitted Transferee
(as hereinafter defined), involves one-third (1/3) or more of the shares of
Common Stock or Preferred Stock held by BRS on the date hereof. A "BRS Permitted
Transferee" shall mean, (A) any other BRS Entity or other Stockholder, (B) any
general partner of a BRS Entity (a "BRS Partner") and any corporation,
partnership or other entity that is an Affiliate (as hereinafter defined) of any
BRS Entity or BRS Partner (collectively, "BRS Affiliates"), (C) any managing
director, director, general partner, limited partner, officer or employee of any
BRS Entity or any BRS Affiliate, or any spouse, lineal descendant or immediate
family member of any BRS Entity or any heir, executor, administrator,
testamentary trustee, legatee or beneficiary of a BRS Entity or any of the
foregoing persons
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described in this clause (C) (collectively, "BRS Associates") and (D) any trust,
the beneficiaries of which, or any corporation, limited liability company or
partnership, the stockholders, members or general and limited partners of which
include only BRS Entities, BRS Affiliates, or BRS Associates.
(b) Prior to any sale of Common Stock and/or Preferred Stock
subject to the provisions of Section 3.3(a), the seller (the "Tag-Along Seller")
shall notify Penhall in writing of the proposed sale. Such notice (the
"Tag-Along Sale Notice") shall set forth: (i) the number of shares of Common
Stock and/or Preferred Stock subject to the proposed sale; (ii) the name and
address of the proposed purchaser; and (iii) the proposed amount and form of
consideration and terms and conditions of payment offered by such proposed
purchaser. Penhall shall promptly, and in any event within ten days, mail or
hand deliver or cause to be mailed or hand delivered the Tag-Along Sale Notice
to the Tag-Along Rightholders. Each Tag-Along Rightholder may exercise the
Tag-Along Right by delivery of a written notice (the "Tag-Along Acceptance
Notice") to the Tag-Along Seller and Penhall within thirty days of the date
Penhall mailed or caused to be mailed the Tag-Along Sale Notice. The Tag-Along
Acceptance Notice shall state the number of shares of Common Stock and/or
Preferred Stock that the Tag-Along Rightholder proposes to include in the
proposed sale. Penhall shall deliver notice (the "Unexercised Right Notice") to
all Stockholders, within ten (10) days following the thirty-day period specified
above, of any Tag-Along Rightholder not exercising his, her or its right to
include Securities in the proposed sale. All other Stockholders (including
without limitation the BRS Entities and the Tag-Along Seller) shall have the
opportunity to sell additional Securities in an aggregate amount equal to the
amount of Securities as to which any Tag-Along Rightholder shall not have
exercised a Tag- Along Right (the "Unexercised Securities"), on a pro rata basis
(based on the number of shares of Common Stock or Preferred Stock, as the case
may be, outstanding on a fully-diluted basis, but excluding from such
determination the Unexercised Securities). Any Stockholder exercising his, her
or its right to sell additional Securities in accordance with the foregoing
sentence must do so by delivering to the Tag-Along Seller a Tag- Along
Acceptance Notice within ten (10) days following delivery by Penhall of the
Unexercised Right Notice. If no Tag-Along Acceptance Notice is received during
the thirty-day period referred to above, the Tag-Along Seller shall have the
right for a 90-day period to effect the proposed sale of shares of Common Stock
and/or Preferred Stock on terms and conditions no more favorable than those
stated in the Tag-Along Sale Notice. Any Stockholder delivering a Tag-Along
Acceptance Notice shall participate in the proposed transaction as set forth in
Section 3.3(a). Concurrently with the consummation of the Significant Transfer,
the Tag-Along Seller shall (i) notify each Tag-Along Rightholder who has
delivered a Tag-Along Acceptance Notice (an "Accepting Tag-Along Holder"), (ii)
remit to the Accepting Tag-Along Holder the
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aggregate consideration for the shares of Common Stock and/or Preferred Stock to
be sold by the Accepting Tag-Along Holders in the Significant Transfer as
contemplated pursuant to Section 3.3(a) hereof, and (iii) furnish such other
evidence of the completion and time of completion of the Significant Transfer
and the terms thereof as may be reasonably requested by the Accepting Tag-Along
Holders.
(c) (i) Notwithstanding the other requirements of this Section
3.3, a Tag-Along Seller may sell Common Stock and/or Preferred Stock at any time
without complying with the requirements of Section 3.3(b) so long as the
Tag-Along Seller deposits into escrow with a nationally recognized financial
institution at the time of sale that amount of consideration received in the
sale equal to the "Escrow Amount." As used herein, the "Escrow Amount" shall
equal that amount of consideration that all Tag-Along Rightholders would have
been entitled to receive if they had the opportunity to participate in the sale
on a pro rata basis, determined as if each Tag-Along Rightholder (A) delivered a
Tag-Along Acceptance Notice to the Tag-Along Seller in the time period set forth
in Section 3.3(b) and (B) proposed to include all of her, his or its shares of
Common Stock and/or Preferred Stock in such sale.
(ii) The Tag-Along Seller shall notify Penhall in writing
of a sale pursuant to this Section 3.3(c) no later than the date of such sale.
Such notice (the "Escrow Notice") shall set forth the information required in
the Tag- Along Sale Notice, and in addition, such notice shall state the name of
the escrow agent and, if the consideration (in whole or in part) for the sale
was cash, then the account number of the escrow account. Penhall shall promptly,
and in any event within ten days, mail or cause to be mailed the Escrow Notice
to each Tag-Along Rightholder. Such Tag-Along Rightholder may exercise the
Tag-Along Right by delivery to the Tag-Along Seller and Penhall, within thirty
days of the date Penhall mailed or caused to be mailed the Escrow Notice, of (A)
a written notice specifying the number of shares of Common Stock and/or
Preferred Stock it proposes to sell and (B) the certificates for such Common
Stock and/or Preferred Stock, with stock powers duly endorsed in blank and with
signatures guaranteed. Penhall shall deliver an Unexercised Right Notice to all
Stockholders, within ten (10) days following the thirty-day period specified
above, of any Tag-Along Rightholder not exercising his, her or its right to
include Securities in the sale. All other Stockholders (including without
limitation the BRS Entities and the Tag-Along Seller) shall have the opportunity
to include additional Securities in the sale in an aggregate amount equal to the
amount of the Unexercised Securities, on a pro rata basis (based on the number
of shares of Common Stock or Preferred Stock, as the case may be, outstanding on
a fully-diluted basis, but excluding from such determination the Unexercised
Securities). Any Stockholder exercising his, her or its right to include
additional Securities
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in the sale in accordance with the foregoing sentence must do so by delivering
to the Tag-Along Seller, within ten (10) days following delivery by Penhall of
the Unexercised Right Notice, (A) a written notice specifying the additional
number of shares of Common Stock and/or Preferred Stock it proposes to sell and
(B) the certificates for such Common Stock and/or Preferred Stock, with stock
powers duly endorsed in blank and with signatures guaranteed.
(iii) Promptly after the expiration of the thirtieth day
after Penhall has mailed or caused to be mailed the Escrow Notice, or, promptly
after the expiration of the tenth day after Penhall has delivered the
Unexercised Right Notice, as the case may be, (A) the Tag-Along Seller shall
purchase that number of shares of Common Stock and/or Preferred Stock as the
Tag-Along Seller would have been required to include in the sale had the
Tag-Along Seller complied with the provisions of Section 3.3(b), (B) all shares
of Common Stock and/or Preferred Stock not required to be purchased by the
Tag-Along Seller shall be returned to the Tag-Along Rightholders thereof and (C)
all remaining funds and other consideration held in escrow shall be released to
the Tag-Along Seller. If the Tag-Along Seller received consideration other than
cash in his, her or its sale, the Tag-Along Seller shall purchase the shares of
Common Stock and/or Preferred Stock tendered by paying to the Tag-Along
Rightholders the same non-cash consideration and cash in the same proportion as
received by the Tag-Along Seller in the sale. The Tag-Along Seller shall pay all
costs and expenses of the escrow agent, and any interest on the Escrow Amount
shall accrue to the benefit of Penhall.
(d) The Tag-Along Rights provided pursuant to this Section 3.3
shall terminate on the one hundred eightieth (180th) day following an Initial
Public Offering, or upon a distribution by BRS of all the Securities to its
partners. An "Initial Public Offering" shall mean the sale by Penhall in an
underwritten public offering made pursuant to an effective registration
statement under the Securities Act of Common Stock for gross offering proceeds
of at least $30 million.
(e) Notwithstanding anything to the contrary, a Tag-Along Seller
may make any of the following sales without offering the Tag-Along Rightholders
the opportunity to participate: (a) sales pursuant to an effective registration
statement under the Securities Act; and (b) sales pursuant to an Approved Sale.
(f) As used herein, "Affiliate" of any person means any person,
directly or indirectly, controlling, controlled by or under common control with
such person, and includes any person who is an officer, director or employee of
such person and any person who would be deemed to be an "affiliate" or an
"associate" of such person, as those terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended. As used in this definition, "controlling" (including,
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with its correlative meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through owner ship of securities,
partnership or other ownership interests, by contract or otherwise).
ARTICLE IV
CORPORATE ACTIONS
4.1 Articles of Incorporation and By-Laws. Each Stockholder has
reviewed the Amended and Restated Articles of Incorporation and By-Laws of
Penhall in the forms attached hereto as Exhibits B-1 and B-2, respectively, and
hereby approves and ratifies the same.
4.2 Directors. (a) Each Stockholder and Permitted Transferee agrees
that it shall take, at any time and from time to time, all action necessary
(including voting the Common Stock owned by him, her or it, calling special
meetings of stockholders and executing and delivering written consents) to
ensure that the Board of Directors of Penhall is composed at all times of no
less than three and no more than seven persons (with the exact number to be
determined by BRS from time to time). If the Board of Directors is composed of
three or four persons, then one individual shall be designated by the Management
Stockholders holding a majority of the Common Stock owned by the Management
Stockholders (who shall be, subject to the rights of the Management Stockholders
under Section 4.3, John T. Sawyer for so long as he is President of Penhall) and
the remainder shall be designated by BRS. If the Board of Directors is composed
of five or more persons, then two individuals shall be designated by the
Management Stockholders holding a majority of the Common Stock owned by the
Management Stockholders (who shall be, subject to the rights of the Management
Stockholders under Section 4.3, Management Stockholders and officers of Penhall
during the term of their directorship) and the remainder shall be designated by
BRS.
(b) Each Stockholder agrees to take all necessary action to cause
the Board of Directors of Penhall to be as set forth in Section 4.2(a)
(including, without limitation, voting or causing to be voted or acting by
written consent with respect to, all shares of Common Stock entitled to be voted
thereon now or hereafter owned or held by such Stockholder in favor of such
persons) and to act itself (if a member of the Board of Directors) or cause its
nominee (if any) on the Board of Directors to vote or act by written consent to
cause the Board of Directors of Penhall to be as set forth in Section 4.2(a).
(c) Pursuant to the authority of Section 10-704 of the Arizona
Business Corporation Act, the Stockholders, being all
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of the shareholders of Penhall entitled to vote, do hereby dispense with the
formality of a meeting and approve and ratify the election of the following
persons as the directors of Penhall to hold office until the next annual meeting
of stockholders and until their respective successors shall have been elected
and qualified or until resignation, removal or death as provided in the Bylaws
of Penhall and this Agreement:
Harold O. Rosser II
Bruce C. Bruckmann
John T. Sawyer
4.3 Right to Remove Certain of Penhall's Directors. Each of BRS and the
Management Stockholders holding a majority of the Common Stock owned by the
Management Stockholders, as the case may be, may request that any director
designated by it be removed (with or without cause) by written notice to the
other Stockholders, and, in any such event, each Stockholder shall promptly
consent in writing or vote or cause to be voted all shares of Common Stock now
or hereafter owned or controlled by it for the removal of such person as a
director. In the event any person ceases to be a director, such person shall
also cease to be a member of any committee of the Board of Directors of Penhall.
4.4 Right to Fill Certain Vacancies in Penhall's Board. In the event
that a vacancy is created on Penhall's Board of Directors at any time by the
death, disability, retirement, resignation or removal (with or without cause) of
a director designated by BRS or the Management Stockholders holding a majority
of the Common Stock owned by the Management Stockholders, as the case may be, or
if otherwise there shall exist or occur any vacancy on Penhall's Board of
Directors in a directorship subject to designation by BRS or the Management
Stockholders holding a majority of the Common Stock owned by the Management
Stockholders, as the case may be, such vacancy shall not be filled by the
remaining members of Penhall's Board of Directors, but each Stockholder hereby
agrees promptly to consent in writing or vote or cause to be voted all shares of
Common Stock now or hereafter owned or controlled by it to elect that individual
designated to fill such vacancy and serve as a director, as shall be designated
by BRS or the Management Stockholders holding a majority of the Common Stock
owned by the Management Stockholders, as the case may be.
4.5 Subsidiaries Governance. Each Stockholder agrees that the
board of directors of each of the Companies shall be comprised of one individual
designated by BRS (so long as the BRS Entities continue to own at least 50% of
the Common Stock held by BRS Entities on the date hereof). Each Stockholder
agrees to vote all of its Securities and to cause its representatives on the
Board of Directors of Penhall, subject to their fiduciary duties, to vote and
take other appropriate action to effectuate the agreement set forth in this
Sections 4.5 in respect of each of the Companies.
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4.6 Management Rights. For so long as BRS Entities own in the aggregate
at least 30% of the outstanding Common Stock on a fully diluted basis and there
has not been an Initial Public Offering:
(a) Right of Consultation. BRS shall have the right, and Penhall
shall cause each of the Companies to grant to BRS the right, to consult with and
advise the management of Penhall and its subsidiaries, at any time or from time
to time, on all matters relating to the operation of Penhall and its
subsidiaries, including, without limitation, significant changes in management
personnel and compensation or employee benefits, the introduction of new
products or new lines of business, important acquisitions or dispositions of
plant and equipment, significant research and development programs, the purchase
or sale of important patents, trademarks, licenses and concessions, and the
proposed compromise of any significant litigation.
(b) Observation Rights. BRS shall have the right, and Penhall
shall cause each of the Companies to grant to BRS the right, to have its
representatives (in addition to its representatives that are directors) attend
meetings of the Board of Directors (and committees thereof) of Penhall and each
of the Companies. Penhall shall give, or shall cause each of the Companies to
give, as appropriate, to BRS (i) at least three days' notice of each regular
meeting of the Board of Directors of Penhall and each of the Companies, (ii)
such notice as is practicable under the circumstances to enable BRS's
representatives to attend each special or emergency meeting of the Board of
Directors of Penhall and each of the Companies, (iii) on or prior to the date of
each meeting of the Board of Directors of Penhall and each of the Companies all
information given to the directors at such meeting and (iv) within 90 days
following each meeting of the Board of Directors of Penhall and each of the
Companies, copies of the minutes of such meeting.
(c) Inspection and Access. In addition to the reporting
requirements set forth in Section 3.1 hereof, Penhall shall provide to BRS
Entities true and correct copies of all quarterly and annual financial reports
of each of the Companies and budgets prepared by or on behalf of Penhall and of
each of the Companies, and such other documents, reports, financial data and
other information as BRS Entities may reasonably request. Penhall shall permit
any authorized representatives designated by BRS Entities to visit and inspect
any of the properties of Penhall or any of its subsidiaries, including its and
their books of account (and to make copies and take extracts therefrom), and to
discuss its and their affairs, finances and accounts with its and their officers
and their current and prior independent public accountants (and by this
provision Penhall authorizes such accountants to discuss with such
representatives the affairs, finances and accounts of Penhall and its
subsidiaries, whether or not a
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representative of Penhall is present), all at such reasonable times and as often
as BRS Entities may reasonably request.
4.7 Confidentiality. (a) Each Stockholder hereby agrees that
Confidential Information (as defined below) has been and will be made available
to him or it in connection with such Stockholder's interest in Penhall and its
subsidiaries. Each Stockholder agrees that he or it will not use the
Confidential Information in any way that is reasonably likely to result in a
material detriment to the business of Penhall and its subsidiaries. Each
Stockholder further acknowledges and agrees that he or it will not disclose any
Confidential Information to any person; provided that Confidential Information
may be disclosed (i) to such Stockholder's Representatives (as defined below) in
the normal course of the performance of their duties, (ii) to the extent
required by applicable statute, law, rule or regulation (including complying
with any oral or written questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process to which an
Stockholder is subject) or by GAAP, (iii) to any third party to whom such
Stockholder is contemplating a transfer of his or its Securities, provided that
such transfer would not be in violation of the provisions of this Agreement and
as long as such third party is advised of the confidential nature of such
information and agrees to be bound by a confidentiality agreement in form and
substance reasonably satisfactory to Penhall and substantially similar to the
provisions hereof or (iv) if the prior consent of the Board of Directors of
Penhall shall have been obtained. Nothing contained herein shall prevent the use
of Confidential Information in connection with the assertion or defense of any
claim by or against Penhall or any Stockholder.
(b) "Confidential Information" means any information concerning
Penhall, its financial condition, business, subsidiaries, operations or
prospects in the possession of or to be furnished to any Stockholder or
Stockholder representative in his or its capacity as a shareholder of Penhall or
Stockholder representative or pursuant to this Agreement or by virtue of his or
its present or former position as, or right to designate, a director of Penhall;
provided that the term "Confidential Information" does not include information
which (a) was or becomes generally available publicly other than as a result of
a disclosure by an Stockholder or his or its partners, directors, officers,
employees, agents, counsel, investment advisers, consultants or representatives
(all such persons being collectively referred to as "Representatives") in
violation of this Section 4.7 or (b) was or becomes available to such
Stockholder on a nonconfidential basis from a source other than Penhall, any
regulatory entity or a Stockholder or his or its Representatives, provided that
such source is or was (at the time of receipt of the relevant information) not,
to the best of such Stockholder's knowledge,
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bound by a confidentiality agreement with Penhall or another person.
ARTICLE V
ADDITIONAL RESTRICTIONS ON TRANSFERS OF
SECURITIES HELD BY MANAGEMENT STOCKHOLDERS
------------------------------------------
5.1 Certain Definitions. The terms defined below shall have the
following meanings:
(a) "Accumulated Dividends" mean, with respect to any share of
Preferred Stock, the dividends that have accumulated on such share as of such
specific date for dividend periods ending on or prior to such date and that have
not previously been paid in cash;
(b) "Adjusted Book Value" means (i) in the case of the Common
Stock, Original Cost plus the amount of increase, if any, or less the amount of
decrease, if any, in Book Value per share of Common Stock calculated as of the
end of the fiscal quarter immediately preceding the employee's Termination Date
(as defined in Section 5.3(a)) as compared to the Book Value per share of Common
Stock calculated as of the date hereof and after giving effect to the
recapitalization of Penhall pursuant to the Merger Agreement (it being
understood that in calculating such Book Value, any reductions in Book Value
attributable to after tax interest expense or dividends on preferred stock,
including the Series A Preferred Stock, Series B Preferred Stock and Senior
Exchangeable Preferred Stock, shall be disregarded), and (ii) in the case of the
Series B Preferred Stock, the aggregate Liquidation Preference applicable to the
Series B Preferred Stock;
(c) "Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by Penhall
or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than Penhall or a Restricted Subsidiary of
Penhall of (a) any Capital Stock of any Restricted Subsidiary of Penhall; or (b)
any other property or assets of Penhall or any Restricted Subsidiary of Penhall
other than in the ordinary course of business; provided, however, that Asset
Sales shall not include (i) a transaction or series or related transactions for
which Penhall or its Restricted Subsidiaries receive aggregate consideration of
less than $1,000,000, (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of Penhall as permitted under
Section 5.01 of the Indenture, (iii) disposals or replacements of obsolete or
outdated equipment in the ordinary course of business and (iv) a disposition
consisting of a
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Permitted Investment or Restricted Payment permitted under Section 4.10 of the
Indenture.
(d) "Bank Credit Facility" means the New Credit
Facility and any other agreement or agreements between Penhall and/or one or
more of the Guarantors and a financial institution or institutions, providing
for the making of loans, on a term or revolving basis, the issuance of letters
of credit and/or the creation of bankers' acceptances.
(e) "Board Resolution" means, with respect to any
Person, a copy of a resolution certified by the Secretary or an Assistant
Secretary of such Person to have been duly adopted by the Board of Directors of
such Person and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
(f) "Book Value", which shall be determined in
accordance with GAAP as applied by Penhall in the preparation of its regular
financial statements, means, at any particular balance sheet date, total assets
minus the sum of (x) total liabilities and (y) the aggregate Liquidation
Preference applicable to all outstanding preferred stock, including the Series A
Preferred Stock, Series B Preferred Stock and Senior Exchangeable Preferred
Stock; and, notwithstanding any generally accepted accounting principle that may
be to the contrary, Book Value per share of Common Stock shall be determined by
dividing the result so obtained by the total number of shares of Common Stock
outstanding as of the end of the fiscal quarter immediately preceding the
employee's Termination Date, calculated on a fully diluted basis assuming the
exercise in full of all outstanding warrants, options or other convertible
securities.
(g) "Borrowing Base" means the sum of (i) 85% of
the net book value of the accounts receivable of Penhall and the
Restricted Subsidiaries of Penhall and (ii) 50% of the net book value of the
inventory of Penhall and the Restricted Subsidiaries of Penhall.
(h) "Capital Stock" means (i) with respect to any
Person that is a corporation, any and all shares, interests, participations or
other equivalents (however designated and whether or not voting) of corporate
stock, including each class of common stock and preferred stock of such Person
and including any warrants, options or rights to acquire any of the foregoing
and instruments convertible into any of the foregoing, and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
(i) "Capitalized Lease Obligations" means, as to
any Person, the obligations of such Person under a lease that are required to be
classified and accounted for as capital lease
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obligations under GAAP and, for purposes of this definition, the amount of such
obligations at any date shall be the capitalized amount of such obligations at
such date, determined in accordance with GAAP.
(j) "Cash Equivalents" means (i) marketable
direct obligations issued by, or unconditionally guaranteed by, the United
States Government or issued by any agency thereof and backed by the full faith
and credit of the United States, in each case maturing within one year from the
date of acquisition thereof; (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either Standard & Poor's Corporation ("S&P")
or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing
no more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
(k) "Cause", when used in connection with the
termination of a Management Stockholder's employment with Penhall or any of the
Companies, means that the Management Stockholder shall have, in the judgment of
a majority of the board of directors of Penhall or the relevant Company: (i)
committed a felony adversely affecting such Management Stockholder's ability to
carry on his normal duties, or committed an act of fraud, embezzlement or theft
in connection with his duties with Penhall or such Company or in the course of
his employment with Penhall or such Company; (ii) wrongfully caused significant
damage to property of Penhall or such Company; (iii) engaged in conduct which
constitutes a material violation of published corporate policy of Penhall or
such Company, (iv) been convicted of a criminal offense (whether felony or a
misdemeanor) the nature of which renders him unfit to serve in his present
capacity with Penhall or such Company; or (v) persistently failed to adequately
perform his duties and responsibilities assigned in connection with his
employment with Penhall or such Company by either the board of directors or a
superior executive officer of Penhall or such Company;
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(l) "Consolidated EBITDA" means, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
Penhall and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense, (C)
Consolidated Non-cash Charges, less any non-cash items increasing Consolidated
Net Income for such period, (D) fees and expenses of the HSI Acquisition and the
Transactions, including but not limited to capitalization of costs and expenses
related thereto, and (E) non-recurring severance and transaction costs incurred
in connection with any acquisition, all as determined on a consolidated basis in
accordance with GAAP for Penhall and its Restricted Subsidiaries.
(m) "Consolidated Interest Expense" means, for
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of Penhall and its Restricted Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP (excluding any accrued and unpaid
interest on the Junior Subordinated Notes; provided, that such interest is not
payable in cash prior to the maturity of the Notes), including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by Penhall and
its Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
(n) "Consolidated Net Income" means, for any
period, the aggregate net income (or loss) of Penhall and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, that aggregate net income (or loss) of Penhall and its
Restricted Subsidiaries for such period shall be determined before any reduction
in respect of accrued and unpaid preferred stock dividends and before any
reduction for accrued and unpaid interest on the Junior Subordinated Notes that
is not payable in cash prior to the maturity of the Notes; and provided,
however, that there shall be excluded from aggregate net income (or loss) of
Penhall and its Restricted Subsidiaries for such period (a) after-tax gains or
losses from Asset Sales (less fees and expenses related thereto) or abandonments
or reserves relating thereto, (b) after-tax items classified as extraordinary or
nonrecurring gains or losses, (c) the net income (but not loss) of any
Restricted Subsidiary of Penhall to the extent that the declaration of dividends
or similar distributions by that Restricted Subsidiary of that income is
restricted by a contract, operation of law or otherwise, except to
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the extent of cash dividends or distributions paid to Penhall or to a Restricted
Subsidiary of Penhall by such Restricted Subsidiary, (d) the net income (or
loss) of any Person, other than a Restricted Subsidiary of Penhall, except to
the extent of cash dividends or distributions paid to Penhall or to a Restricted
Subsidiary of Penhall by such Person, (e) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, and (f) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued).
(o) "Consolidated Non-cash Charges" means, for
any period, the aggregate depreciation, amortization and other non-cash charges
or expenses of Penhall and its Restricted Subsidiaries reducing Consolidated Net
Income of Penhall and its Restricted Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
(p) "Currency Agreement" means any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect Penhall or any Restricted Subsidiary of Penhall
against fluctuations in currency values.
(q) "Default" means an event or condition the
occurrence of which is, or with the lapse of time or the giving of notice or
both would be, an Event of Default.
(r) "Disqualified Capital Stock" means that
portion of any Capital Stock which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of the
holder thereof, in each case on or prior to the final maturity date of the
Notes, other than Capital Stock of Penhall which certain management stockholders
have the right to put to Penhall pursuant to the terms hereof.
(s) "Event of Default" has the meaning provided
in Section 6.01 of the Indenture.
(t) "Exchange Notes" means the 12% Senior Notes
due 2006, Series B to be issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement or, with respect to Initial Notes issued under
the Indenture subsequent to the Issue Date pursuant to Section 2.02 of the
Indenture, a registration rights agreement substantially identical to the
Registration Rights Agreement.
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(u) "Foreign Subsidiary" means any Subsidiary of
Penhall which (i) is not organized under the laws of the United States, any
state thereof or the District of Columbia and (ii) conducts substantially all of
its business operations in a country other than the United States of America.
(v) "GAAP" means generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States, which are in effect
as of the Issue Date.
(w) "Guarantee" means the guarantee of the Notes
by the Guarantors.
(x) "Guarantor" means (i) each of the
Subsidiaries of Penhall on the Issue Date and (ii) each of Penhall's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Guarantor; provided that any Person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of the Indenture. Notwithstanding the above, no
direct or indirect Foreign Subsidiary of the Company will be considered a
Guarantor.
(y) "HSI Acquisition" means the acquisition by
Penhall Company of substantially all of the assets of Highway
Services Inc. prior to the Issue Date.
(z) "Indebtedness" means with respect to any
Person, without duplication, (i) all Obligations of such Person for borrowed
money, (ii) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) all Capitalized Lease Obligations of such
Person, (iv) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all Obligations
under any title retention agreement (but excluding trade accounts payable and
other accrued liabilities arising in the ordinary course of business that are
not overdue by 90 days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any Lien on any property or asset of such Person, the amount of such Obligation
being deemed to
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be the lesser of the fair market value of such property or asset or the amount
of the Obligation so secured, (viii) all Obligations under currency agreements
and interest swap agreements of such Person, and (ix) all Disqualified Capital
Stock issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance on such date of all unconditional
Obligations as described above, and the maximum liability upon the occurrence of
the contingency giving rise to the Obligation, on any contingent Obligations at
such date; provided, however, that the amount outstanding at any time of any
Indebtedness incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
(aa) "Indenture" means the Indenture, dated as of
August 1, 1998, between Penhall Acquisition Corp. and the
Trustee, as amended or supplemented from time to time in
accordance with the terms thereof.
(ab) "Initial Notes" means, collectively, (i) the
12% Senior Notes due 2006, Series A, of Penhall issued on the Issue Date and
(ii) one or more series of 12% Senior Notes due 2006 that are issued under the
Indenture subsequent to the Issue Date pursuant to Section 2.02 of the
Indenture, in each case for so long as such securities constitute Restricted
Securities.
(ac) "Initial Purchasers" means BT Alex. Brown
Incorporated and Credit Suisse First Boston Corporation.
(ad) "Interest Swap Obligations" means the
obligations of any Person pursuant to any arrangement with any other Person,
whereby, directly or indirectly, such Person is entitled to receive from time to
time periodic payments calculated by applying either a floating or a fixed rate
of interest on a stated notional amount in exchange for periodic payments made
by such other Person calculated by applying a fixed or a floating rate of
interest on the same notional amount and shall include, without
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limitation, interest rate swaps, caps, floors, collars and similar agreements.
(ae) "Investment" means, with respect to any
Person, any direct or indirect loan or other extension of credit (including,
without limitation, a guarantee) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any Person. "Investment" shall exclude
extensions of trade credit by Penhall and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of
Penhall or such Restricted Subsidiary, as the case may be.
(af) "Issue Date" means the date of original
issuance of the 12% Senior Notes due 2006, Series A, of Penhall.
(ag) "Junior Subordinated Notes" means Penhall's
10.5% Junior Subordinated Notes due 2007 which may be issued in exchange for
Senior Exchangeable Preferred Stock.
(ah) "Lien" means any lien, mortgage, deed of
trust, pledge, security interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
(ai) "Liquidation Preference" means, on any specific
date, with respect to any share of Series A Preferred Stock or Series B
Preferred Stock, the sum of (i) $1,000 per share plus (ii) the Accumulated
Dividends with respect to such share;
(aj) "New Credit Facility" means the Credit
Agreement dated as of the Issue Date, between Penhall, the lenders party thereto
in their capacities as lenders thereunder and Bankers Trust Company, as
Administrative Agent and Credit Suisse First Boston, as Syndication Agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding or deleting
Restricted Subsidiaries of Penhall as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
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(ak) "Notes" mean, collectively, the Initial
Notes, the Private Exchange Notes, if any, and the Exchange Notes, treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms of the Indenture, that are issued pursuant to the
Indenture.
(al) "Obligations" means all obligations for
principal, premium, interest, penalties, fees, matured indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
(am) "Option Period" means, as to a particular
Management Stockholder, (i) in the event such Management Stockholder does not
incur a Termination Date (as defined in Section 5.3(a)) on or prior to the later
of the fifth (5th) anniversary of the date hereof and the one hundred eightieth
(180th) day following an Initial Public Offering, the period beginning on the
date hereof and ending on (and including) the later of the fifth (5th)
anniversary of the date hereof and the one hundred eightieth (180th) day
following an Initial Public Offering, and (ii) in the event such Management
Stockholder incurs a Termination Date on or prior to the later of the fifth
(5th) anniversary of the date hereof and the one hundred eightieth (180th) day
following an Initial Public Offering, the period beginning on the date hereof
and ending on (and including) the date which is 120 days after the later of such
Termination Date or the date Penhall receives the notice of termination of such
Management Stockholder referred to in Section 5.3(a);
(an) "Option Securities" mean the Securities of
Penhall other than the Common Stock of Penhall designated as "Non-option Common
Stock" in Exhibit C hereto.
(ao) "Original Cost" for each share of Common
Stock or Series B Preferred Stock means (i) in the case of the Common Stock,
$1.00 per share for shares acquired on the date hereof, or the purchase price
per share for shares acquired subsequent to the date hereof (adjusted for any
stock dividend payable upon, or subdivision or combination of, the Common Stock)
and (ii) in the case of the Series B Preferred Stock, $1,000 (adjusted for any
subdivision or combination of the Series B Preferred Stock);
(ap) "Permitted Indebtedness" means, without
duplication, each of the following:
(i) Indebtedness under the Notes and the Guarantees thereof;
(ii) Indebtedness incurred pursuant to any Bank Credit
Facility in an aggregate principal amount at any time outstanding not
to exceed an amount equal to (x) $20 million plus (y) the greater of
(i) $30 million, less the amount of
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any required permanent repayments of Bank Credit Facilities made in
accordance with Section 4.15 of the Indenture (which are accompanied by
a corresponding permanent commitment reduction thereunder) or (ii) the
Borrowing Base;
(iii) other Indebtedness of Penhall and its Restricted
Subsidiaries outstanding on the Issue Date;
(iv) Interest Swap Obligations of Penhall covering
Indebtedness of Penhall or any of its Restricted Subsidiaries and
Interest Swap Obligations of any Restricted Subsidiary of Penhall
covering Indebtedness of such Restricted Subsidiary; provided, however,
that such Interest Swap Obligations are entered into to protect Penhall
and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture to the extent
the notional principal amount of such Interest Swap Obligation does not
exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in
the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of Penhall and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary of Penhall to
Penhall or to a Restricted Subsidiary of Penhall for so long as such
Indebtedness is held by Penhall or a Restricted Subsidiary of Penhall,
in each case subject to no Lien (other than a Lien in connection with a
Bank Credit Facility) held by a Person other than Penhall or a
Restricted Subsidiary of Penhall; provided that if as of any date any
Person other than Penhall or a Restricted Subsidiary of Penhall owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness (other than a Lien in connection with a Bank Credit
Facility), such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of Penhall to a Restricted Subsidiary of
Penhall for so long as such Indebtedness is held by a Restricted
Subsidiary of Penhall, in each case subject to no Lien (other than a
Lien in connection with the a Bank Credit Facility); provided that (a)
any Indebtedness of Penhall to any Restricted Subsidiary of Penhall is
unsecured and subordinated in right of payment, pursuant to a written
agreement, to Penhall's obligations under the Indenture and the Notes
and (b) if as of any date any Person other than a Restricted Subsidiary
of Penhall owns or holds any such
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Indebtedness or any Person holds a Lien in respect of such Indebtedness
(other than a Lien in connection with a Bank Credit Facility), such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by Penhall;
(viii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course
of business; provided, however, that such Indebtedness is extinguished
within five business days of incurrence;
(ix) Indebtedness of Penhall or any of its Restricted
Subsidiaries represented by letters of credit for the account of
Penhall or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self-insurance or similar requirements in the
ordinary course of business;
(x) Refinancing Indebtedness;
(xi) additional Indebtedness of Penhall and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $5,000,000
at any one time outstanding (which may, but need not, be incurred under
a Bank Credit Facility);
(xii) Obligations in respect of performance and surety bonds
and completion guarantees provided by Penhall or any Restricted
Subsidiary of Penhall in the ordinary course of business, in accordance
with customary industry practice, in amounts and for purposes customary
in Penhall's industry;
(xiii) Indebtedness arising from agreements of Penhall or a
Restricted Subsidiary of Penhall providing for adjustment of purchase
price, earn out or other similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Restricted Subsidiary of Penhall or any of its Restricted Subsidiaries,
other than guarantees of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary
for the purpose of financing such acquisition; provided that the
maximum assumable liability in respect of all such Indebtedness shall
at no time exceed the gross proceeds actually received by Penhall and
its Restricted Subsidiaries in connection with such disposition;
(xiv) Guarantees of Indebtedness permitted to be incurred
under the Indenture and guarantees of third-party loans to employees or
officers of Penhall or its Restricted Subsidiaries permitted by clause
(vii) of the definition of "Permitted Investments;"
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(xv) Capitalized Lease Obligations and Purchase Money
Obligations of Penhall or any of its Restricted Subsidiaries in an
aggregate principal amount not to exceed $5,000,000 at any one time
outstanding;
(xvi) Indebtedness of Penhall or any of its Restricted
Subsidiaries that is subordinate to the Notes and is incurred in order
to repurchase Capital Stock of Penhall from employees, officers or
directors of Penhall or any of its Subsidiaries upon the death,
disability or termination of employment of such employees, officers or
directors or as otherwise required by existing employment agreements in
an aggregate principal amount not to exceed $1,000,000 in any calendar
year; and
(xvii) Indebtedness incurred as a result of accrued and unpaid
interest being added to the principal amount of the Junior Subordinated
Notes in accordance with the terms of such Junior Subordinated Notes;
provided that such interest is not payable in cash prior to the
maturity of the Notes.
(aq) "Permitted Investments" means (i) Investments
by Penhall or any Restricted Subsidiary of Penhall in any Person that is or will
become immediately after such Investment a Restricted Subsidiary of Penhall or
that will merge or consolidate into Penhall or a Restricted Subsidiary of
Penhall, (ii) Investments in Penhall by any Restricted Subsidiary of Penhall;
provided that any Indebtedness evidencing such Investment is unsecured and
subordinated in right of payment, pursuant to a written agreement, to Penhall's
obligations under the Notes and the Indenture; (iii) Investments in cash and
Cash Equivalents; (iv) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of Penhall's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (v) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (vi) Investments made by Penhall or its Restricted
Subsidiaries as a result of consideration received in connection with an Asset
Sale made in compliance with Section 4.15 of the Indenture; (vii) loans and
advances to, or guarantees of third-party loans to, employees and officers of
Penhall and its Restricted Subsidiaries for relocation expenses and purchasing
Capital Stock of Penhall not in excess of $2.0 million at any one time
outstanding; (viii) Investments the payment for which consists exclusively of
Qualified Capital Stock of Penhall; (ix) guarantees of Indebtedness permitted to
be incurred under the Indenture; and (x) additional Investments not to exceed
$2.5 million at any time outstanding.
(ar) "Permitted Transferee" means in the case of
any Management Stockholder (a "Transferor Stockholder"), (A) Penhall or
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any BRS Entity, (B) any spouse or lineal descendant (natural or adopted) of a
Management Stockholder, or any executor, administrator or testamentary trustee
(in their capacity as such) of a Management Stockholder and (C) any trust, the
beneficiaries of which, or any corporation, limited liability company or
partnership, the stockholders, members or general and limited partners of which
include only such Transferor Stockholder and his or her spouse or lineal
descendants (natural or adopted).
(as) "Person" means an individual, partnership,
corporation, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
(at) "Private Exchange Notes" has the meaning set
forth in the Registration Rights Agreement.
(au) "Purchase Money Obligations" of any Person
means any obligations of such Person or any of its Subsidiaries to any seller or
any other person incurred or assumed in connection with the purchase,
installation, construction or improvement of real or personal property to be
used in the business of such Person or any of its Subsidiaries within 180 days
of such purchase, installation, construction or improvement.
(av) "Qualified Capital Stock" means any Capital
Stock that is not Disqualified Capital Stock.
(aw) "Refinance" means, in respect of any security
or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem,
defease or retire, or to issue a security or Indebtedness in exchange or
replacement for, such security or Indebtedness in whole or in part. "Refinanced"
and "Refinancing" shall have correlative meanings.
(ax) "Refinancing Indebtedness" means any
Refinancing by Penhall or any Restricted Subsidiary of Penhall of Indebtedness
incurred in accordance with Section 4.12 of the Indenture (other than pursuant
to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xii), (xiii), (xiv) or
(xvi) of the definition of Permitted Indebtedness), in each case that does not
(1) result in an increase in the aggregate principal amount of Indebtedness of
such Person as of the date of such proposed Refinancing (plus the amount of any
premium required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by Penhall in
connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness solely of Penhall, then such
Refinancing Indebtedness shall be Indebtedness solely of
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<PAGE>
Penhall and (y) if such Indebtedness being Refinanced is subordinate or junior
to the Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
(ay) "Registration Rights Agreement" means the
Registration Rights Agreement dated as of the Issue Date among Penhall, the
Guarantors and the Initial Purchasers.
(az) "Restricted Payment" shall have the meaning
set forth in Section 4.10 of the Indenture.
(ba) "Restricted Security" has the meaning assigned
to such term in Rule 144(a)(3) under the Securities Act.
(bb) "Restricted Subsidiary" of any Person means any
Subsidiary of such Person which at the time of determination is not an
Unrestricted Subsidiary.
(bc) "Sale and Leaseback Transaction" means any
direct or indirect arrangement with any Person or to which any such Person is a
party, providing for the leasing to Penhall or a Restricted Subsidiary of any
property, whether owned by Penhall or any Restricted Subsidiary at the Issue
Date or later acquired, which has been or is to be sold or transferred by
Penhall or such Restricted Subsidiary to such Person or to any other Person from
whom funds have been or are to be advanced by such Person on the security of
such property.
(bd) "Subsidiary", with respect to any
Person, means (i) any corporation of which the outstanding Capital Stock having
at least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly or
indirectly, by such Person or (ii) any other Person of which at least a majority
of the voting interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
(be) "Transactions" shall have the meaning set
forth in the Offering Memorandum dated July 28, 1998 relating to the 12% Senior
Notes due 2006 of Penhall.
(bf) "Transfer" means the making of any sale,
exchange, assignment, hypothecation, gift, security interest, pledge or other
encumbrance, or any contract therefor, any voting trust or other agreement or
arrangement with respect to the transfer of voting rights (including any proxy
or similar arrangement (whether or not revocable)) or any other beneficial
interest in any of the Securities, the creation of any other claim thereto or
any other transfer or disposition whatsoever, whether voluntary or involuntary,
affecting the right, title, interest or possession in or to such Securities.
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<PAGE>
(bg) "Trustee" means the party named as such in the
Indenture until a successor replaces it in accordance with the provisions of the
Indenture and thereafter means such successor.
(bh) "Unrestricted Subsidiary" of any Person means
(i) any Subsidiary of such Person that at the time of determination shall be or
continue to be designated an Unrestricted Subsidiary by the Board of Directors
of such Person in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, Penhall or any Restricted Subsidiary of Penhall;
provided that (x) Penhall certifies to the Trustee that such designation
complies with Section 4.10 of the Indenture and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of Penhall or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, Penhall is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12
of the Indenture and (y) immediately before and immediately after giving effect
to such designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
(bi) "Weighted Average Life to Maturity" means, when
applied to any Indebtedness at any date, the number of years obtained by
dividing (a) the then outstanding aggregate principal amount of such
Indebtedness into (b) the sum of the total of the products obtained by
multiplying (i) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (ii) the number of years (calculated to
the nearest one-twelfth) which will elapse between such date and the making of
such payment.
5.2 Restrictions on Transfer. (a) Notwithstanding anything to the
contrary contained herein, until (i) the later to occur of (x) the fifth (5th)
anniversary of the date hereof and (y) the one hundred eightieth (180th) day
following an Initial Public Offering or, if earlier, (ii) the one hundred
eightieth (180th) day following an Initial Public Offering, no Management
Stockholder nor
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<PAGE>
his Permitted Transferees shall effect a Transfer of any Securities other than
(i) pursuant to Section 3.2 in connection with an Approved Sale, (ii) pursuant
to Section 3.3 in connection with the exercise of Tag-Along Rights, (iii)
pursuant to Section 5.3 in connection with the Options (as hereinafter defined),
(iv) pursuant to the Registration Rights Agreement under Article VI, (v) with
the consent of Penhall (as evidenced by a resolution duly adopted by at least a
majority of the non-employee members of Penhall's Board of Directors) or (vi) to
a Permitted Transferee of the Transferor Stockholder in question. Following the
Option Period, each Management Stockholder and his Permitted Transferees agree
that none of them will effect a Transfer of any Securities without first
complying with the provisions of Section 5.4 hereof, if then in effect.
In exercising the consent and approval provided for in clause (iv)
above, Penhall may employ its sole discretion in evaluating the nature of the
proposed transferee and Penhall may impose such conditions on Transfer as it
deems appropriate in its sole discretion, including, but not limited to,
requirements that the transferee be an employee of Penhall or its subsidiaries
and that the transferee purchase the Management Stockholder's (or his Permitted
Transferee's) Securities as a "Management Stockholder" subject to the
restrictions of this Agreement and, in particular, this Article V. In the event
any Transfer is authorized pursuant to clause (iv) above or proposed to be made
to a Permitted Transferee (other than Penhall or a BRS Entity) under clause (v)
above, each such transferee shall take such Securities subject to and be fully
bound by the terms of this Agreement with the same effect as if it were a party
hereto and, without limiting the foregoing, such Transfer shall not be made or
effective unless the purported transferee executes an agreement, in form and
substance satisfactory to Penhall, pursuant to which such transferee shall agree
to be bound as a "Management Stockholder" by the terms and conditions of this
Agreement and such other provisions as Penhall may determine. Any purported
Transfer in violation of this Section 5.2 shall be null and void and of no force
and effect and the purported transferee shall have no rights or privileges in or
with respect to Penhall. Notwithstanding the foregoing provisions, each
Management Stockholder agrees that he or it will not effect a Transfer of any
Securities except in compliance with the registration requirements of the
Securities Act (and applicable state securities laws) or pursuant to an
available exemption therefrom, and, without limiting the foregoing, will not
effect a Transfer of any Securities prior to the lapse of such period of time
following acquisition thereof as may be required to comply with applicable state
securities laws.
(b) Prior to any proposed Transfer of any
Securities pursuant to clauses (iv) and (v) of subparagraph (a) above, the
holder thereof shall give written notice to Penhall describing the manner and
circumstances of the proposed Transfer
29
<PAGE>
accompanied, if requested by Penhall, by a written opinion of legal counsel
reasonably satisfactory to Penhall, addressed to Penhall and the transfer agent,
if other than Penhall, and reasonably satisfactory in form and substance to each
addressee, to the effect that the proposed Transfer of the Securities may be
effected without registration under the Securities Act and applicable state
securities laws. Each certificate evidencing the Securities transferred shall
bear the legend set forth in Section 2.2, except that such certificate shall not
bear such legend if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
any provision of the Securities Act or applicable state securities laws.
(c) A notation will be made in the appropriate
transfer records of Penhall with respect to the restrictions on Transfer of the
Securities referred to in this Agreement.
5.3 Options.
(a) General Terms. In the event that on or prior
to the later of the fifth (5th) anniversary of the date hereof and the one
hundred eightieth (180th) day following an Initial Public Offering, any
Management Stockholder shall cease to be employed by Penhall or any of the
Companies for any reason (including, but not limited to, death, temporary or
permanent disability, retirement, resignation or termination by Penhall or such
Company with or without Cause), other than by reason of a leave of absence
approved by Penhall or such Company, such Management Stockholder or such
Management Stockholder's Permitted Transferees (or, in the case of death, his or
their estate) shall give prompt notice to Penhall of such termination of
employment, and:
(i) Penhall, or one or more designee(s)
selected by a majority of the members of the Board of Directors of Penhall,
shall have the right and option (the "Purchase Option"), at any time within 120
days from the later of the effective date of such termination of employment (the
"Termination Date") and the date of Penhall's receipt of aforesaid notice, to
purchase from such Management Stockholder, or such Management Stockholder's
Permitted Transferees, as the case may be, any or all of the Option Securities
then owned by such Management Stockholder and such Management Stockholder's
Permitted Transferees at the Option Purchase Price (as hereinafter defined); and
(ii) such Management Stockholder shall have
the right and option (the "Put Option" and, together with the Purchase Option,
the "Options") to require Penhall, at any time within 120 days after the
Termination Date, to purchase from such Management Stockholder any or all of the
Option Securities then owned by such Management Stockholder at the Option
Purchase Price. Penhall or its designee(s) shall give notice to the terminated
Management Stockholder (or such Management Stockholder's Permitted
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<PAGE>
Transferees) of its intention to exercise the Purchase Option not later than
within 120 days after the later of the Termination Date or the date of Penhall's
receipt of the aforesaid notice. The Termination Date for a Permitted Transferee
shall be the Termination Date with respect to the Management Stockholder who
first acquired the Option Securities held by such Permitted Transferee. A
terminated Management Stockholder shall give notice to Penhall of his intention
to exercise the Put Option not later than within 120 days after the Termination
Date.
(b) Exercise of Options. The Options shall be
exercised, in the case of the Purchase Option, by written notice to the
terminated Management Stockholder and Permitted Transferees signed by an officer
of Penhall on behalf of Penhall or by its designee(s), as the case may be, and,
in the case of the Put Option, by written notice to Penhall signed by the
terminated Management Stockholder or Permitted Transferees, prior to the end of
the 120-day period. Such notice shall set forth the number of shares of Option
Securities desired to be purchased or sold and shall set forth a time and place
of closing which shall be no earlier than 10 days and no later than 60 days
after the date such notice is sent. At such closing, the seller shall deliver
the certificates evidencing the number of shares of Option Securities to be
purchased by or sold to Penhall and/or its designee(s), accompanied by stock
powers duly endorsed in blank or duly executed instruments of transfer, and any
other documents that are necessary to transfer to Penhall and/or its designee(s)
good title to the Option Securities to be transferred, free and clear of all
pledges, security interests, liens, charges, encumbrances, equities, claims and
options of whatever nature other than those imposed under this Agreement, and
concurrently with such delivery, Penhall and/or its designee(s) shall deliver to
the seller the full amount of the Option Purchase Price for such Option
Securities.
(c) Option Purchase Price. If the Management
Stockholder shall cease to be employed by Penhall or any of the Companies by
reason of termination without Cause, the "Option Purchase Price" for the Common
Stock and/or Series B Preferred Stock to be purchased from such Management
Stockholder or such Management Stockholder's Permitted Transferees pursuant to
the Options (such number of shares of Common Stock and/or such number of shares
of Series B Preferred Stock, each being referred to as the "Purchase Number")
shall equal the price calculated as set forth in the table below opposite the
applicable Termination Date of such Management Stockholder:
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<PAGE>
<TABLE>
<CAPTION>
Option
If the Termination Date Occurs: Purchase Price
- ------------------------------- --------------
<S> <C>
On or prior to the first Original Cost
anniversary of the date multiplied by the
hereof Purchase Number
After the first anniversary Original Cost
of the date hereof, and on or multiplied by
prior to the second anniversary 80% of the Purchase
of the date hereof Number, plus Adjusted Book
Value multiplied by 20% of the
Purchase Number
After the second anniversary of Original Cost multiplied
the date hereof, and on or by 60% of the Purchase Number,
prior to the third anniversary plus Adjusted Book Value
of the date hereof multiplied by 40% of the
Purchase Number
After the third anniversary of Original Cost
the date hereof, and on or multiplied by 40% of the
prior to the fourth anniversary Purchase Number, plus
of the date hereof Adjusted Book Value
multiplied by 60% of the
Purchase Number
After the fourth anniversary of Original Cost
the date hereof, and on or prior multiplied by 20% of the
to the fifth anniversary of the Purchase Number, plus
date hereof Adjusted Book Value
multiplied by 80% of the
Purchase Number
After the fifth anniversary of Adjusted Book Value
the date hereof multiplied by the Purchase
Number
</TABLE>
If the Management Stockholder shall cease to be employed by
Penhall or any of the Companies because of death or temporary or permanent
disability, the Option Purchase Price for all shares of Common Stock and/or
Series B Preferred Stock to be purchased from the Management Stockholder (and
such Management Stockholder's Permitted Transferees) pursuant to the Options
shall equal the Adjusted Book Value multiplied by the Purchase Number.
Notwithstanding anything to the contrary contained herein, if
the Management Stockholder shall cease to be employed by Penhall or any of the
Companies for any reason other than termination without Cause, death or
disability (including, but not limited to, termination for Cause or voluntary
termination by the
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<PAGE>
Management Investor), the Option Purchase Price for all shares of Common Stock
and/or Series B Preferred Stock to be purchased from the Management Stockholder
(and such Management Stockholder's Permitted Transferees) pursuant to the
Options shall equal the Original Cost multiplied by the Purchase Number.
Notwithstanding anything to the contrary contained herein, if
Penhall's Consolidated EBITDA growth rate, measured for the period from the date
hereof to the end of the fiscal quarter immediately preceding a Termination
Date, shall be less than 5% per annum compounded annually, Penhall shall not be
obligated to pay Adjusted Book Value for any shares, and the Options shall be
exercisable (i) in the case of Common Stock, at the lesser of Original Cost and
Adjusted Book Value and (ii) in the case of Preferred Stock, at the lesser of
Original Cost and the Preferred Valuation Amount (as defined below). For
purposes of this paragraph, the "Preferred Valuation Amount" shall be an amount
per share equal to the Preferred Stock Company Value (as defined below) divided
by the total number of shares of Preferred Stock outstanding. The "Preferred
Stock Company Value" shall be an amount equal to the difference of (x) the
product of Penhall's Consolidated EBITDA for the latest full twelve month period
multiplied by (A) 6.5 for the period from the date hereof until February 4, 2000
or (B) 6 for the period from and after February 4, 2000, less (y) the total
amount of outstanding indebtedness of Penhall.
Penhall will make payment for shares purchased from the
Management Investor following a Termination Date (a) in cash if the aggregate
amount owed as the result of the exercise of the Options is less than $500,000
or (b) if such amount is $500,000 or more, in cash or, at Penhall's option, by
means of a promissory note substantially in the form attached as Exhibit D
hereto; provided, however, that Penhall shall have the option to make such
payment by means of a promissory note regardless of the aggregate amount owed if
the Purchase Option or the Put Option has been exercised with respect to a
Management Stockholder who has voluntarily terminated his employment or has been
terminated for Cause.
(d) Notwithstanding the foregoing, Penhall shall
not be obligated to purchase shares to the extent that (a) such purchase would
be illegal under applicable law, or (b) such purchase would result in a default
or an event of default (with or without the giving of notice, the passage of
time or both) under the terms of any indebtedness for borrowed money, it being
understood that Penhall will act in good faith to obtain waivers of any such
provisions.
(e) The Options will lapse upon the earliest to
occur of (i) the expiration of the Option Period with respect to all Securities
held by Management Stockholders, (ii) the 180th day following an Initial Public
Offering and (iii) a transfer of
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<PAGE>
Securities by BRS as to which Tag-Along Rights apply, but only with respect to
Securities sold pursuant to such Tag-Along Rights.
5.4 Right of First Refusal on Transfer of Management
Stockholder Securities.
(a) Right of First Refusal. In the event that
any time after the expiration of the Option Period, a Management Stockholder (or
his Permitted Transferees) receives a bona fide offer (a "Transfer Offer") to
purchase any or all of the Securities (the "Transfer Securities") then owned by
the Management Stockholder (or his Permitted Transferees) from any person (the
"Offeror") which the Management Stockholder (or his Permitted Transferees)
wishes to accept, then the Management Stockholder (and his Permitted
Transferees) shall give Penhall and the other Stockholders written notice
thereof ("Transfer Notice"), which Transfer Notice shall state in reasonable
detail all material terms of such proposed sale or other transfer, the identity
of the Offeror, the price or other consideration for which the Securities are
proposed to be sold or transferred, and the number of Securities to be sold or
transferred, and shall also contain an irrevocable offer to sell the Transfer
Securities to Penhall at the price and on the terms contained in the Transfer
Offer. After its receipt of the Transfer Notice, Penhall and/or its designee(s)
shall have the right and option to purchase all, but not less than all (unless
other Stockholders purchase the remainder), of the Transfer Securities at the
price and on the terms of the Transfer Offer set forth in the Transfer Notice.
Within 30 days after receipt of the Transfer Notice, Penhall and/or its
designee(s) shall notify such Management Stockholder (or his Permitted
Transferees) whether or not it wishes to purchase the Transfer Securities and,
if so, indicating the number of Transfer Securities desired to be purchased.
In the event that Penhall and/or its
designee(s) does not elect to purchase all such Transfer Securities, the selling
Management Stockholder (or his Permitted Transferees) shall give notice of such
failure to the other Stockholders, and the other Stockholders shall thereupon
have the right and option to purchase in the aggregate all, but not less than
all, the Transfer Securities not to be purchased by Penhall and/or its
designee(s) and may give notice to the selling Management Stockholder (or his
Permitted Transferees) (with a copy to Penhall) of such intention at any time
not later than 30 days after the date on which such notice is sent by the
selling Management Stockholder (or his Permitted Transferees) to such other
Stockholders. Each electing Stockholder's notice shall indicate the number of
Transfer Securities it desires to purchase. If the other Stockholders elect to
purchase an aggregate number of Transfer Securities in excess of the number of
Transfer Securities which Penhall and/or its designee(s) did not elect to
purchase, the Transfer Securities shall be allocated among the other
Stockholders
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<PAGE>
who desire to purchase such Transfer Securities in accordance with the
allocation provisions which are set forth in Section 5.3(a)(i). Promptly upon
determining the number of the selling Management Stockholder's Securities which
each purchasing Stockholder will purchase and the purchase price therefor,
Penhall shall send notices thereof to the selling Management Stockholder and
each of the purchasing Stockholders.
(b) Exercise and Nonexercise of Right of First
Refusal. Exercise of the option provided for in Section 5.4(a) shall be effected
by the giving of written notice to the Management Stockholder (and his Permitted
Transferees) by Penhall (on its own behalf and/or on behalf of its designee(s),
as the case may be), signed by an officer of Penhall, and, if applicable, the
other Stockholders, prior to the end of the period during which the option is
exercisable (and such notice shall be effective when given). If Penhall and/or
its designee(s) and the other Stockholders in the aggregate elect to purchase
all of the Transfer Securities, the closing of the purchase and sale of the
Transfer Securities pursuant to any such option exercise shall be held at such
place and such date to be established by Penhall in the later of its notice to
the selling Management Stockholder in response to the Transfer Notice and its
notice to the other Stockholders of the allocation of the number of Transfer
Securities which such Stockholders are to purchase, which in no event shall be
earlier than 10 days or later than 60 days from the date of such notice.
In the event Penhall and/or its designee(s) and the other
Stockholders fail to exercise the purchase option provided for in Section
5.4(a), then, subject to the other provisions of this Agreement, for a period of
45 days, the Transfer Securities may be sold or transferred by or an behalf of
the Management Stockholder (or his Permitted Transferees) to the Offeror
specified in the Transfer Notice at a price not less than the price per
Securities specified therein and otherwise on terms no less favorable to the
Management Stockholder and no more favorable to the Offeror than those contained
in the Transfer Notice.
(c) The options provided for in Section 5.4(a)
will lapse upon the one hundred eightieth (180th) day following an Initial
Public Offering.
5.5 Purchaser Representative. If Penhall or any Stockholder
enters into any negotiation or transaction for which Rule 506 (or any similar
rule then in effect) promulgated by the Securities and Exchange Commission under
the Securities Act may be available with respect to such negotiation or
transaction (including a merger, consolidation or other reorganization), each
Stockholder will, at the request of Penhall, appoint a purchaser representative
(as such term is defined in Rule 501(h) promulgated by the Securities and
Exchange Commission under the Securities Act)
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<PAGE>
reasonably acceptable to Penhall. If any Stockholder appoints the purchaser
representative designated by Penhall, Penhall will pay the fees of such
purchaser representative, but if any Stockholder declines to appoint the
purchaser representative designated by Penhall, such Stockholder will appoint,
at his own expense, another purchaser representative (reasonably acceptable to
Penhall).
5.6 Involuntary Transfers.
---------------------
(a) Option to Purchase. In the event that the
Securities owned by a Management Stockholder (or his Permitted Transferees)
shall be subject to sale or other transfer by reason of any of the following
events (a "Nonvolitional Event"): (i) bankruptcy or insolvency proceedings,
whether voluntary or involuntary, or (ii) a divorce (whether in connection with
a settlement of the divorce or entry of a decree or judgment of divorce), or
(iii) distraint, levy, execution or other involuntary transfer, then the
Management Stockholder (and his Permitted Transferees) shall give Penhall
written notice thereof ("Involuntary Transfer Notice") promptly upon the
occurrence of such Nonvolitional Event, which Involuntary Transfer Notice shall
state the terms of such proposed sale or other transfer, the identity of the
proposed purchaser or other transferee, the price or other consideration, if
readily determinable, for which the Securities are proposed to be sold or
transferred, and the number of Securities to be sold or transferred (the
"Involuntarily Transferred Securities"). After its receipt of the Involuntary
Transfer Notice or, failing such receipt, after Penhall otherwise obtains actual
knowledge of such a proposed sale or other transfer, Penhall and/or its
designee(s) shall have the right and option to purchase all, but not less than
all, of the Involuntarily Transferred Securities, such option to be exercisable
at any time within 120 days after receipt of the Involuntary Transfer Notice or,
failing such receipt, after Penhall otherwise obtains actual knowledge of such a
proposed sale or other transfer.
In the event that Penhall and/or its
designee(s) does not elect to purchase all such Involuntarily Transferred
Securities, the Management Stockholder (or his Permitted Transferees) shall give
notice of such failure to the other Stockholders, and the other Stockholders
shall thereupon have the right and option to purchase in the aggregate all, but
not less than all, the Involuntarily Transferred Securities not to be purchased
by Penhall and/or its designee(s) and may give notice to the Management
Stockholder (or his Permitted Transferees) (with a copy to Penhall) of such
intention at any time not later than 45 days after the date on which such notice
is sent by the selling Management Stockholder (or his Permitted Transferees) to
such other Stockholders. Each electing Stockholder shall indicate the number of
Involuntarily Transferred Securities it desires to purchase.
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<PAGE>
If the other Stockholders elect to purchase an aggregate
number of Involuntarily Transferred Securities in excess of the number of
Involuntarily Transferred Securities which Penhall and/or its designee(s) did
not elect to purchase, the Involuntarily Transferred Securities shall be
allocated among the other Stockholders who desire to purchase such Involuntarily
Transferred Securities in proportion to the number of Involuntarily Transferred
Securities (on a fully diluted basis) owned by each of them; provided that no
such other Stockholder shall become bound to purchase a number of offered
Involuntarily Transferred Securities greater than the number of shares of
Involuntarily Transferred Securities it or he had elected to purchase. If the
foregoing allocation procedure does not allocate all the Involuntarily
Transferred Securities (because one or more Stockholders would otherwise have
been allocated more than the number of shares of Involuntarily Transferred
Securities it or he elected to purchase), then the remaining such shares of
Involuntarily Transferred Securities shall be allocated among the other
Stockholders who desire to purchase such Involuntarily Transferred Securities in
proportion to the number of shares of Involuntarily Transferred Securities (on a
fully diluted basis) owned by each of them, and such allocation procedure shall
continue until all such Involuntarily Transferred Securities shall have been
allocated. Promptly upon determining the number of the Involuntarily Transferred
Securities which each purchasing Stockholder will purchase and the purchase
price thereof, Penhall shall send notices thereof to the Management Stockholder
and each of the purchasing Stockholders.
(b) Purchase Price. Any purchase pursuant to the
foregoing option contained in Section 5.6(a) shall be at the lowest of (i) the
price applicable to such proposed sale or transfer, (ii) if during the Option
Period, at the applicable Option Purchase Price set forth under Section 5.2(c)
multiplied by the number of Involuntarily Transferred Securities if such
Management Stockholder shall be employed by Penhall or any of the Companies at
the time of such Involuntary Transfer or shall not be employed by Penhall or any
of the Companies by reason of termination without Cause, death or disability and
(iii) if during the Option Period, at Original Cost multiplied by the number of
Involuntarily Transferred Securities if such Management Stockholder shall not be
employed by Penhall or any or the Companies at the time of such Involuntary
Transfer by any reason other than termination without Cause, death or
disability.
(c) Exercise and Nonexercise of Option. Exercise
of the option provided for in Section 5.6(a) shall be effected by the giving of
written notice to the Management Stockholder (and his Permitted Transferees) and
the proposed purchaser or transferee by Penhall (on its own behalf and/or on
behalf of its designee(s), as the case may be), signed by an officer of Penhall,
and, if applicable, by the purchasing Stockholders prior to the end of the
37
<PAGE>
period during which the option is exercisable (and such notice shall be
effective when given). The closing of the purchase and sale of the Involuntarily
Transferred Securities pursuant to any such option exercise shall be held at
such place and such date to be established by Penhall, which in no event shall
be less than 10 or more than 60 days from the date of such notice.
In the event Penhall and/or its designee(s) or the other
Stockholders fail to exercise the purchase option provided for in Section
5.6(a), then the Involuntarily Transferred Securities may be sold or transferred
by or on behalf of the Management Stockholder (and his Permitted Transferees) on
the terms contained in the Involuntary Transfer Notice, but the transferee or
purchaser shall be subject to all of the obligations contained in this Agreement
which were applicable to the Management Stockholder in respect of the
Involuntarily Transferred Securities and, without limiting the generality of the
foregoing, if the Management Stockholder incurs a Termination Date on or prior
to the expiration of the Option Period, the Purchase Option contained in Section
5.3 hereof shall apply to the Involuntarily Transferred Securities at the
applicable Option Purchase Price.
5.7 Covenant Not to Compete. Each Management Stockholder
hereby agrees that during the term of his employment by Penhall or any of the
Companies and for the period specified opposite such Management Stockholder's
name on Exhibit E hereto after the Management Stockholder has incurred a
Termination Date for any reason other than termination without Cause, such
Management Stockholder shall not, directly or indirectly, as owner, partner,
agent, employee, consultant or otherwise, (i) engage in any business in the
Territory (as defined below) which provides services or sells or leases products
similar or equivalent to the products or services provided or sold on the date
hereof by Penhall or any of the Companies (a "Competitive Business") or (ii)
solicit, attempt to solicit for employment or otherwise engage the services of,
or become associated in any Competitive Business with, any person who was an
employee, officer or director of Penhall or any of the Companies at any time
during the twelve (12) months preceding the date of this Agreement.
Notwithstanding the foregoing, the provisions of this Section 5.7 shall not
apply to any Management Stockholder incurring a Termination Date in the event
that Penhall fails to purchase the Securities of such Management Stockholder
when obligated to purchase such Securities under Section 5.3 after the exercise
by such Management Stockholder of the Put Option. For purposes of this
Agreement, "Territory" shall mean each and every county located in the states of
California, Arizona, Nevada, Minnesota, Alabama, Arkansas, Colorado, Delaware,
Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New
Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah,
38
<PAGE>
Virginia, Washington, West Virginia, Wisconsin, Wyoming, and all other counties
of other states of the United States or foreign jurisdictions in which Penhall
or any of the Companies has conducted business, or during the period applicable
to any Management Stockholder, shall have conducted business. None of the
foregoing shall prevent any Management Stockholder from owning up to 5% of the
outstanding equity of a publicly-traded company or from making indirect
investments through an investment partnership or other investment entity in any
corporation, partnership, limited liability company or other person or entity.
The parties agree that to the extent any provision or portion
of this Section 5.7 shall be held, found or deemed to be unreasonable, unlawful
or unenforceable by a court of competent jurisdiction, then any such provision
or portion shall be deemed to be modified to the extent necessary in order that
any such provision or portion shall be legally enforceable to the fullest extent
permitted by applicable law; and the parties do further agree that any court of
competent jurisdiction shall, and the parties hereto do hereby expressly
authorize, require and empower any court of competent jurisdiction to, enforce
any such provision or portion in order that any such provision or portion shall
be enforced to the fullest extent permitted by applicable law.
As the violation by a Management Stockholder of the provisions
of this Section 5.7 would cause irreparable injury to Penhall and the Companies,
and there is no adequate remedy at law for such violation, Penhall shall,
notwithstanding anything to the contrary herein, have the right in addition to
any other remedies available, at law or in equity, to seek to enjoin such
Management Stockholder in a court of equity from violating such provisions. Each
Management Stockholder hereby waives any and all defenses he or she may have on
the ground of lack of jurisdiction or competence of the court to grant an
injunction or other equitable relief, or otherwise. The existence of this right
shall not preclude any other rights and remedies at law or in equity which
Penhall may have. The prevailing party in any enforcement action or court
proceeding under this Section 5.7 shall be entitled to the extent permitted by
law to reimbursement from the other party for all of the prevailing party's
costs, expenses and attorneys' fees.
5.8 Obligations of J&J Investments, LLC and Michael Bruce
Repchinuck Revocable Trust. Notwithstanding anything to the contrary contained
herein, the obligations of J&J Investments, LLC and Michael Bruce Repchinuck
Revocable Trust under this Agreement shall be the obligations of John T. Sawyer
and M. Bruce Repchinuck (including, without limitation, under Article V),
respectively, and such obligations (including, without limitation, under Article
V) shall be determined with reference to the employment of John T. Sawyer and M.
Bruce Repchinuck, respectively.
39
<PAGE>
ARTICLE VI
REGISTRATION RIGHTS
-------------------
The Stockholders shall have registration rights with respect
to the Common Stock as set forth in the Registration Rights Agreement attached
hereto as Exhibit F (the "Registration Rights Agreement"). Each of the
Stockholders agrees not to effect any public sale or distribution of any
securities of Penhall during the periods specified in the Registration Rights
Agreement, except as permitted thereby, and each such Stockholder agrees to be
bound by the rights of priority to participate in offerings as set forth
therein.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Amendment and Modification. This Agreement may be amended
or modified, or any provision hereof may be waived, provided that such
amendment, modification or waiver is set forth in a writing executed by (i)
Penhall, (ii) BRS (so long as BRS Entities and its Permitted Transferees own in
the aggregate at least 5% of the outstanding Common Stock on a fully diluted
basis) and (iii) the holders of a majority of the outstanding Common Stock on a
fully diluted basis (including Common Stock owned by the BRS Entities) held by
the Stockholders; provided, however, that, without the approval of the holders
of a majority of the outstanding Common Stock then held by the Management
Stockholders, (x) the provisions of this Agreement cannot be amended to treat
the Management Stockholders differently than the other Stockholders and (y) the
provisions of this Agreement may not be amended or modified to the detriment of
the Management Stockholders. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.
7.2 Survival of Representations and Warranties. The
representations and warranties set forth in Section 2.1 of this Agreement will
survive the execution and delivery of this Agreement, regardless of any
investigation made by an Stockholder or on its behalf. No other representations,
warranties or covenants set forth herein shall so survive.
7.3 Successors and Assigns; Entire Agreement. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns and executors, administrators and heirs; provided, however, that except
as set forth in this Agreement, no party may assign, delegate or otherwise
transfer any
40
<PAGE>
of its rights or obligations under this Agreement. This Agreement sets forth the
entire agreement and understanding among the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
7.4 Separability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
7.5 Notices. All notices provided for or permitted hereunder
shall be made in writing by hand-delivery, registered or certified first-class
mail, telex, telecopier or air courier guaranteeing overnight delivery to the
other party at the following addresses (or at such other address as shall be
given in writing by any party to the others):
If to Penhall, to:
Penhall International Corp.
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Harold O. Rosser II
with a required copy to:
Penhall International Corp.
c/o Penhall Rental Corp.
1801 Penhall Way
Anaheim, CA 92803
Attn: John Sawyer
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: G. Daniel O'Donnell, Esq.
If to any BRS Entity, to:
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Harold O. Rosser II
41
<PAGE>
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: G. Daniel O'Donnell, Esq.
If to the Management Stockholders or any of them,
to their addresses as listed in the books of Penhall or the relevant Company.
All such notices shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
7.6 Governing Law. The validity, performance, construction and
effect of this Agreement shall be governed by and construed in accordance with
the internal law of California, without giving effect to principles of conflicts
of law.
7.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect its meaning, construction or effect. Unless otherwise
specified, section references herein refer to sections of this Agreement and
schedules and exhibits refer to schedules and exhibits attached hereto.
7.8 Counterparts. This Agreement may be executed in two or
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same instrument.
7.9 Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
7.10 Remedies. In the event of a breach or a threatened
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The parties
agree that the provisions of this Agreement shall be specifically enforceable,
it being agreed by the parties that the remedy at law, including monetary
damages, for breach of such provision will be inadequate compensation for any
loss and that any defense in any
42
<PAGE>
action for specific performance that a remedy at law would be adequate is
waived.
7.11 Party No Longer Owning Securities. If a party hereto
ceases to own any Securities, such party will no longer be deemed to be a
Stockholder or Management Stockholder for purposes of this Agreement.
7.12 No Effect on Employment. Nothing herein contained shall
confer on any Management Stockholder the right to remain in the employ of
Penhall or any of the Companies or any of its subsidiaries or Affiliates.
7.13 Pronouns. Whenever the context may require, any pronouns
used herein shall be deemed also to include the corresponding neuter, masculine
or feminine forms.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
PENHALL INTERNATIONAL CORP.
By:/s/John T. Sawyer
----------------------------------------
John T. Sawyer
President
BRUCKMANN, ROSSER, SHERRILL & CO., L.P.
By: BRS Partners, Limited Partnership,
the general partner,
By: BRSE Associates, Inc., its general
partner
By:/s/ Stephen F. Edwards
----------------------------------------
Stephen F. Edwards
BRS STOCKHOLDERS
*
-------------------------------------------
Name: Bruce C. Bruckmann
SS#: ###-##-####
Residence Address:
125 East 84th Street, Apt. 5A
New York, NY 10028
*
-------------------------------------------
Name: Harold O. Rosser II
SS#: ###-##-####
Residence Address:
499 Silvermine Road
New Canaan, CT 06840
44
<PAGE>
*
-------------------------------------------
Name: Stephen C. Sherrill
SS#: ###-##-####
Residence Address:
765 Park Avenue, Apt. 4B
New York, NY 10021
*
-------------------------------------------
Name: Donald Bruckmann
SS#: ###-##-####
Residence Address:
66 East 79th Street
New York, NY 10021
*
-------------------------------------------
Name: H. Virgil Sherrill
SS#: ###-##-####
Residence Address:
One Sutton Place South
New York, NY 10022
*
-------------------------------------------
Name: Nancy Zweng
SS#: ###-##-####
Residence Address:
125 East 84th Street, Apt. #5A
New York, NY 10028
*
-------------------------------------------
Name: Paul D. Kaminski
SS#: ###-##-####
Residence Address:
54 W. 9th Street
New York, NY 10011
BCB PARTNERSHIP
By: Bruce C. Bruckmann, General Partner
By: *
----------------------------------------
Name: Bruce C. Bruckmann
Title: General Partner
45
<PAGE>
NAZ PARTNERSHIP
By: Nancy Zweng, General Partner
By: *
----------------------------------------
Name:
Title:
BT ALEX BROWN
CUSTODIAN FBO
PAUL D. KAMINSKI IRA
By: Paul D. Kaminski
By: *
----------------------------------------
Name:
Title:
*
-------------------------------------------
Name: Marilena Tibrea
SS#:
Residence Address:
*
-------------------------------------------
Name: J. Rice Edmonds
SS#:
Residence Address:
*
-------------------------------------------
Name: Susan Kaider
SS#:
Residence Address:
*
-------------------------------------------
Name: Bonnie Dietrich
SS#:
46
<PAGE>
Residence Address:
*
-------------------------------------------
Name: Walker Simmons
SS#:
Residence Address
*By:/s/ Stephen F. Edwards
---------------------------------------
Attorney-in-Fact
Name: Stephen F. Edwards
47
<PAGE>
MANAGEMENT STOCKHOLDERS
-----------------------
/s/ Gary T. Bush
--------------------------------
Name: Gary T. Bush
SS#: ###-##-####
Residence Address:
1165 Avon Avenue
San Leandro, CA 94579
/s/ C. George Bush
--------------------------------
Name: C. George Bush
SS#: ###-##-####
Residence Address:
#6 Brentwood
Coto De Caza, CA 92679
/s/ Scott E. Campbell
--------------------------------
Name: Scott E. Campbell
SS#: ###-##-####
Residence Address:
25651 Via Viento
Mission Viejo, CA 92691
/s/ David A. Ellison
--------------------------------
Name: David A. Ellison
SS#: ###-##-####
Residence Address:
25229 W. Carson Way
Stevenson Ranch, CA 91381
/s/ Alfred R. Fenton
--------------------------------
Name: Alfred R. Fenton
SS#: ###-##-####
Residence Address:
3001 W. Waltann Lane
Phoenix, AZ 85023
/s/ Vincent M. Gutierrez
--------------------------------
Name: Vincent M. Gutierrez
SS#:
Residence Address:
48
<PAGE>
/s/ Lawrence E. Henkels
--------------------------------
Name: Lawrence E. Henkels
SS#:###-##-####
Residence Address:
1781 E. Lakewood Drive
Salt Lake City, UT 84117
/s/ David P. Henning
--------------------------------
Name: David P. Henning
SS#: ###-##-####
Residence Address:
8975 Pomona Ct.
Las Vegas, NV 89147
/s/ Jack S. Hobbs
--------------------------------
Name: Jack S. Hobbs
SS#: ###-##-####
Residence Address:
2324 Walman Lane
San Diego, CA 92109
/s/ Richard M. Lawler
--------------------------------
Name: Richard M. Lawler
SS#: ###-##-####
Residence Address:
9813 Vanessa Avenue
Bakersfield, CA 93312
Name: Alan G. Lowry
--------------------------------
Name: Alan G. Lowry
SS#: ###-##-####
Residence Address:
9878 Halifax St.
Ventura, CA 93004
/s/ Randel E. Mathews
--------------------------------
Name: Randel E. Mathews
SS#: ###-##-####
Residence Address:
33865 Robles Drive
Dana Point, CA 92629
49
<PAGE>
/s/ Leif McAfee
--------------------------------
Name: Leif McAfee
SS#: ###-##-####
Residence Address:
1544 Vancouver Way
Livermore, CA 94550
/s/ Joseph P. Morrello
--------------------------------
Name: Joseph P. Morrello
SS#: ###-##-####
Residence Address:
12715 SW Adrian Court
Lake Oswego, OR 97034
/s/ David S. Neal
--------------------------------
Name: David S. Neal
SS#: ###-##-####
Residence Address:
967 Kingwood Circle
Highland Village, TX 75077
NORLING LIVING TRUST
DATED OCTOBER 5, 1995
By: /s/ ROBERT C. NORLING
------------------------------
ROBERT C. NORLING
Trustee
By: /s/ KAREN D. NORLING
------------------------------
KAREN D. NORLING
Trustee
/s/ Richard S. Reel
---------------------------------
Name: Richard S. Reel
SS#: ###-##-####
50
<PAGE>
Residence Address:
26761 Merino Circle
Mission Vieno, CA 92691
MICHAEL BRUCE REPCHINUCK REVOCABLE
TRUST
By: /s/ Michael Bruce Repchinuck
---------------------------------
Michael Bruce Repchinuck
Trustee
/s/ John T. Sawyer
------------------------------------
Name: John T. Sawyer
SS#:
Residence Address:
J&J Investments, LLC
A Nevada Limited Liability Company
By: /s/ Brian Sweeney
---------------------------------
Brian Sweeney
General Manager
/s/ Kevin Sheridan
------------------------------------
Name: Kevin Sheridan
SS#: ###-##-####
Residence Address:
1705 W. 32nd St.
Austin, TX 78703
/s/ Bruce F. Varney
------------------------------------
Name: Bruce F. Varney
SS#: ###-##-####
Residence Address:
10926 Sunray Place
La Mesa, CA 91941
/s/ Stefan A. Frame
------------------------------------
Name: Stefan A. Frame
SS#: ###-##-####
Residence Address:
6201 Gressa Brook Circle
Aurtell, GA 30168
51
<PAGE>
/s/ Chris W. Marr
------------------------------------
Name: Chris W. Marr
SS#:
Residence Address:
3840 Brook Valley Circle
Stockton, CA 92519
/s/ Gary E. Johnson
------------------------------------
Name: Gary E. Johnson
SS#: ###-##-####
Residence Address:
832 N. Grandview Avenue
Fullerton, CA 92832
/s/ P. Doug Powell
------------------------------------
Name: P. Doug Powell
SS#: ###-##-####
Residence Address:
40 Nevada Street
Redwood City, CA 94062
/s/ Martin W. Houge
------------------------------------
Name: Martin W. Houge
SS#: ###-##-####
Residence Address:
26391 Ambia
Mission Viego, CA 92642
/s/ Steven C. Anderson
------------------------------------
Name: Steven C. Anderson
SS#: ###-##-####
Residence Address:
/s/ Keith Martin
------------------------------------
Name: Keith Martin
SS#: ###-##-####
Residence Address:
350 Alpine Heights Road
Alipine, CA 91901
52
<PAGE>
/s/ Gary Aamold
------------------------------------
Name: Gary Aamold
SS#: ###-##-####
Residence Address:
1305 Olive Lane
North Plymouth, MN 55447
/s/ Peter Lewis
------------------------------------
Name: Peter Lewis
SS#: ###-##-####
Residence Address:
141-186 201st Street, N.W.
Blackriver, MN 55330
53
<PAGE>
Exhibit 10.1
Penhall Acquisition Corp.
$100,000,000
12% Senior Notes due 2006
PURCHASE AGREEMENT
July 28, 1998
BT ALEX. BROWN INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
c/o BT Alex. Brown
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Penhall Acquisition Corp., an Arizona corporation (the
"Issuer"), hereby confirms its agreement with you (the "Initial Purchasers"), as
set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Issuer proposes to issue and sell to the Initial Purchasers
$100,000,000 aggregate principal amount of its 12% Senior Notes due 2006 (the
"Notes"). The Notes will be unconditionally guaranteed upon consummation of the
Mergers (as defined below) (the "Guarantees" and together with the Notes, the
"Securities") on a senior basis by each of Phoenix Concrete Cutting, Inc.'s (the
"Company") subsidiaries listed on the signature page of the Assumption Agreement
(as defined below) (the "Guarantors"). The Securities are to be issued under an
indenture to be dated as of August 1, 1998, by and among the Issuer and United
States Trust Company of New York, as Trustee (the "Trustee"), as supplemented by
the First Supplemental Indenture to be dated as of the Effective Time (as
defined below) by and among the Company, the Guarantors and the Trustee
(collectively, the "Indenture"). Upon the consummation of the Mergers the Issuer
will be merged with and into the Company and the Company will, pursuant to the
terms of an Assumption Agreement dated August 4, 1998 by and among the Company
and the Guarantors (the "Assumption Agreement"), assume all of the Issuer's
obligations under the Notes and the Indenture and the Company and the Guarantors
will become a party hereto for the purposes set forth above.
<PAGE>
2
The Issuer is issuing the Securities to effect a
recapitalization (the "Recapitalization") of Penhall International, Inc., a
California corporation ("PII" and when referred to herein prior to the Mergers,
together with its subsidiaries the "Penhall Group"). The Recapitalization will
be effected through the transactions contemplated by the Agreement and Plan of
Merger (the "Merger Agreement") dated June 30, 1998 by and among PII, the
stockholders of PII, the Company, Bruckmann, Rosser, Sherrill & Co., L.P.
("BRS") and the Issuer. Pursuant to the Merger Agreement, a newly formed,
wholly-owned subsidiary ("Phoenix Merger Sub") of the Company will be merged
with and into PII (the "Reorganization Merger"), with PII continuing as the
surviving corporation. Pursuant to the terms of the Merger Agreement, following
a series of equity transfers contemplated within the Merger Agreement, the
Company will receive common equity in PII such that the Company will become the
corporate parent and will own all the outstanding capital stock of PII.
Immediately, following the Reorganization Merger, the Issuer will be merged with
and into the Company (the "Recapitalization Merger" and, together with the
Reorganization Merger, the "Mergers"), with the Company continuing as the
surviving corporation and the successor obligor on the Notes (the "Surviving
Corporation"). Prior to or simultaneously with the consummation of the
Recapitalization Merger, the Issuer will issue the Securities and enter into a
new senior secured credit facility (such senior secured credit facility,
including that certain credit agreement and all related security and collateral
documents, the "New Credit Facility") providing for $20.0 million of term loans
and up to $30.0 million of revolving loans, and all indebtedness of the Company
other than approximately $3.7 million of notes payable will be repaid (the
"Refinancing"). In addition, pursuant to the terms of the Merger Agreement, BRS
and certain affiliated entities, and certain members of PII management, have
agreed to purchase $21.1 million and $.2 million, respectively of common and
preferred equity of the Surviving Corporation (the "Equity Contribution") and
certain management stockholders of PII have agreed to convert $8.7 million of
the equity they receive in the Company into common and preferred equity of the
Surviving Corporation after the Recapitalization Merger (the "Equity Rollover").
As part of the consideration for the Mergers an existing stockholder of PII has
agreed to acquire shares of 10.5% Senior Exchangeable Preferred Stock issued by
the Company (the "Senior Exchangeable Preferred Stock"). Following the
consummation of the Recapitalization Merger, the Company will change its
corporate name to "Penhall International Corp." and PII will change its
corporate name to "Penhall Rental Corp."
<PAGE>
3
The Securities will be offered and sold to the Initial
Purchasers without being registered under the Securities Act of 1933, as amended
(the "Act"), in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Issuer has
prepared a preliminary offering memorandum dated July 1, 1998 (the "Preliminary
Memorandum") and a final offering memorandum dated July 28, 1998 (the "Final
Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein
being referred to as a "Memorandum") setting forth or including a description of
the terms of the Securities, the terms of the offering of the Securities, the
terms of the Mergers and the Refinancing, a description of the Issuer and the
Penhall Group and any material developments relating to the Issuer and the
Penhall Group occurring after the date of the most recent historical financial
statements included therein.
The Initial Purchasers and their direct and indirect
transferees of the Securities will be entitled to the benefits of the
Registration Rights Agreement, substantially in the form attached hereto as
Exhibit A (the "Registration Rights Agreement"), pursuant to which the Surviving
Corporation and the Guarantors will agree, among other things, to file a
registration statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") registering the Notes or the Exchange
Notes (as defined in the Registration Rights Agreement) under the Act.
2. Representations and Warranties. The Issuer and, at and as
of the Effective Time (as defined below), the Company and the Guarantors,
jointly and severally, represent and warrant to and agree with each of the
Initial Purchasers that:
(a) Neither the Preliminary Memorandum as of its date nor the
Final Memorandum nor any amendment or supplement thereto as of the date thereof
and at all times subsequent thereto up to the Closing Date (as defined in
Section 3 below) contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance upon and
in conformity with information relating to the Initial Purchasers furnished to
the Issuer, the Company or any of their agents or advisors in writing by the
Initial Purchasers expressly for use
<PAGE>
4
in the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(b) As of the Effective Time, the Surviving Corporation will
have the capitalization set forth in the pro forma column of the Final
Memorandum under the heading "Capitalization;" all of the subsidiaries of the
Company after giving effect to the Mergers are listed in Schedule 2 attached
hereto (each, a "Subsidiary" and collectively, the "Subsidiaries"); except as
described in the Final Memorandum, all of the outstanding shares of capital
stock of the Issuer, the Company and the Subsidiaries have been, and as of the
Closing Date will be, duly authorized and validly issued, are or on the Closing
Date will have been fully paid and nonassessable and were not or on the Closing
Date will not have been issued in violation of any preemptive or similar rights
except for liens under the New Credit Facility; except as described in the Final
Memorandum, all of the outstanding shares of capital stock of the Subsidiaries
after giving effect to the Mergers will be owned, directly or indirectly, by the
Company, free and clear of all liens, encumbrances, equities and claims or
restrictions on transferability or voting (other than those imposed by the Act
and the securities or "Blue Sky" laws of certain jurisdictions or pursuant to
the New Credit Facility); except as set forth in the Final Memorandum, there are
no (i) options, warrants or other rights to purchase, (ii) agreements or other
obligations to issue or (iii) other rights to convert any obligation into, or
exchange any securities for, shares of capital stock of or ownership interests
in the Issuer, the Company or any of the Subsidiaries outstanding. Except for
the Subsidiaries or as disclosed in the Final Memorandum, the Company does not
own, directly or indirectly, any shares of capital stock or any other equity or
debt securities or have any equity interest in any firm, partnership, joint
venture or other entity.
(c) Each of the Issuer (up until the time of the
Recapitalization Merger), the Company and the Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation and has all requisite corporate power and
authority to own its properties and conduct its business as described in the
Final Memorandum; each of the Company and the Subsidiaries is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
where the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified would
not, individually or in the aggregate, have a material adverse effect on the
business, condition (financial
<PAGE>
5
or otherwise) or results of operations of the Company and the Subsidiaries,
taken as a whole (any such event, a "Material Adverse Effect").
(d) The Issuer has, and immediately after the effective time
of the Recapitalization and the Recapitalization Merger (the "Effective Time")
the Company will have, all requisite corporate power and authority to execute,
deliver and perform each of its respective obligations under the Notes, the
Exchange Notes and the Private Exchange Notes (as defined in the Registration
Rights Agreement). The Notes, when issued, will be in substantially the form
contemplated by the Indenture. The Notes, the Exchange Notes and the Private
Exchange Notes have each been duly and validly authorized by the Issuer and,
immediately after the Effective Time, will have been duly and validly authorized
by the Company and, when executed and delivered by the Issuer and the Company,
as the case may be, and authenticated by the Trustee in accordance with the
provisions of the Indenture and the Registration Rights Agreement and, in the
case of the Notes, when delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will constitute valid and legally
binding obligations of the Issuer and the Company, as applicable, entitled to
the benefits of the Indenture, and enforceable against the Issuer and the
Company, as applicable, in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether considered in a proceeding in
equity or at law).
(e) The Issuer has and, immediately after the Effective Time,
each of the Company and the Guarantors will have, all requisite corporate power
and authority to execute, deliver and perform its obligations under the
Indenture. The Indenture meets the requirements for qualification under the
Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly
and validly authorized by the Issuer. Immediately after the Effective Time, the
Indenture will have been duly and validly authorized by the Company and the
Guarantors. When executed and delivered by the Issuer, the Company and the
Guarantors (assuming the due authorization, execution and delivery by and
enforceability against, the Trustee), the Indenture will constitute a valid and
legally binding agreement of each of the Issuer, the Company and the Guarantors,
enforceable against the Issuer, the Company and the Guarantors in accordance
with its
<PAGE>
6
terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity and the discretion of the court before
which any proceeding therefor may be brought (regardless of whether considered
in a proceeding in equity or at law).
(f) The Issuer has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Registration Rights
Agreement. The Company and the Guarantors have all requisite corporate power and
authority to execute and deliver the Assumption Agreement and to perform each of
their respective obligations under the Registration Rights Agreement which arise
from the assumption thereof. The Registration Rights Agreement has been duly and
validly authorized by the Issuer, and, immediately after the Effective Time and
assumption thereof pursuant to the Assumption Agreement, will have been duly and
validly authorized by each of the Company and the Guarantors and, when executed
and delivered by each of the Issuer, the Company and the Guarantors (to the
extent a party thereto), assuming the due authorization, execution and delivery
by and enforceability against, the Initial Purchasers, each of the Registration
Rights Agreement and the Assumption Agreement will constitute a valid and
legally binding agreement of each of the Issuer, the Company and the Guarantors
(to the extent a party thereto) enforceable against the Issuer, the Company and
the Guarantors in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought (regardless of whether considered in a proceeding in equity or at law)
and (B) any rights to indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations.
(g) The Issuer has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The Company and the Guarantors
have all requisite corporate power and authority to perform each of their
respective obligations under this Agreement which arise as a result of their
assumption of this Agreement pursuant to the Assumption Agreement. This
Agreement and the consummation by the Issuer of the transactions contemplated
hereby have been duly and validly
<PAGE>
7
authorized by the Issuer and at and immediately after the Effective Time, will
have been duly and validly authorized by each of the Company and the Guarantors.
This Agreement has been duly executed and delivered by the Issuer and at and
immediately after the Effective Time the Company and the Guarantors will have
duly executed and delivered the Assumption Agreement.
(h) Each of the Issuer, the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and perform its
respective obligations under the Merger Agreement and the New Credit Facility to
the extent a party thereto and to consummate the transactions contemplated in
the Final Memorandum under the caption "The Transactions."
(i) Assuming the accuracy of the representations and
warranties of the Initial Purchasers contained in this Agreement, no consent,
approval, authorization or order of any court or governmental agency or body, or
third party is required for the issuance and sale by the Issuer of the Notes to
the Initial Purchasers or the consummation by the Company and the Guarantors of
the other transactions contemplated hereby, except (i) such as have been on or
prior to the Closing Date will have been obtained, (ii) such as may be required
under state securities or "Blue Sky" laws in connection with the purchase and
resale of the Securities by the Initial Purchasers, (iii) as may be required by
federal or state securities regulatory authorities in connection with or
pursuant to the Registration Rights Agreement or (iv) that if not obtained could
not reasonably be expected to have a Material Adverse Effect. Except as
described in the Final Memorandum and the New Credit Facility (including the
schedules thereto), none of the Issuer or, to the knowledge of the Issuer after
due inquiry, the Company or the Subsidiaries is (i) in violation of its
certificate of incorporation or bylaws (or similar organizational document),
(ii) in breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to any of them or any of their respective properties or
assets, except for any such breach or violation that would not, individually or
in the aggregate, have a Material Adverse Effect, or (iii) in breach of or
default under (nor has any event occurred that, with notice or passage of time
or both, would constitute a default under) or in violation of any of the terms
or provisions of any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, permit, certificate, contract, or other agreement to which any
of them is a party or to which any of them or their respective properties or
assets is subject (collectively, the "Contracts"), except for any such breach,
default, violation or
<PAGE>
8
event that would not, individually or in the aggregate, have a Material Adverse
Effect.
(j) The execution, delivery and performance by each of the
Issuer, the Company and the Guarantors of this Agreement, the Indenture and the
Registration Rights Agreement, the Guarantees, the Merger Agreements and the New
Credit Facility, to the extent a party thereto, and the consummation by the
Issuer, the Company and the Guarantors of the transactions contemplated hereby
and thereby (including, without limitation, the issuance and sale of the
Securities to the Initial Purchasers) will not conflict with or constitute or
result in a breach of or a default under (or an event that with notice or
passage of time or both would constitute a default under) or violation of any of
(i) to the knowledge of the Issuer after due inquiry, the terms or provisions of
any Contract, except for any such conflict, breach, violation, default or event
that would not, individually or in the aggregate, have a Material Adverse
Effect, (ii) the certificate of incorporation or bylaws (or similar
organizational document) of the Issuer, the Company or any of the Subsidiaries,
or (iii) (assuming compliance with all applicable state securities or "Blue Sky"
laws, the accuracy of the representations and warranties of the Initial
Purchasers in Section 8 hereof and compliance with the Act with respect to the
exchange of the Notes for Exchange Notes and the obligations of the parties
hereto under the Registration Rights Agreement) any statute, judgment, decree,
order, rule or regulation applicable to the Issuer, or to the knowledge of the
Issuer after due inquiry, the Company or any of the Subsidiaries or any of their
respective properties or assets, except for any such conflict, breach or
violation, default or event that would not, individually or in the aggregate,
have a Material Adverse Effect.
(k) Immediately after the Effective Time, the Guarantees and
the Guarantees to be endorsed on the Exchange Notes and the Private Exchange
Notes (the "Exchange Guarantees") will have been duly and validly authorized by
the Guarantors. When the Notes are duly and validly authorized, executed, issued
and authenticated in accordance with the terms of the Indenture and delivered
against payment therefor in accordance with the terms hereof, the Guarantees,
immediately after the Effective Time, will be the legally valid and binding
obligations of the Guarantors enforceable against the Guarantors, in accordance
with their terms and entitled to the benefits of the Indenture, except (i) as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws now or hereinafter in
effect relating to or
<PAGE>
9
affecting creditors' rights generally and (ii) by general principles of equity
or by the discretion of the court before which any proceeding therefor may be
brought (regardless of whether considered in a proceeding in equity or at law).
When the Exchange Notes and the Private Exchange Notes are duly executed,
issued, authenticated and delivered in accordance with the terms of the
Indenture, the Guarantees of the Exchange Notes and the Private Exchange Notes
will be the legal, valid and binding obligations of the Guarantors enforceable
against the Guarantors in accordance with their terms and entitled to the
benefits of the Indenture, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws now or hereinafter in effect relating to or affecting creditors'
rights generally and (ii) by general principles of equity or by the discretion
of the court before which any proceeding therefor may be brought (regardless of
whether considered in a proceeding in equity or at law).
(l) The audited consolidated financial statements and the
notes thereto of each of the Penhall Group and Highway Services, Inc. included
in the Final Memorandum present fairly in all material respects the financial
position, results of operations and cash flows of each of the Penhall Group and
Highway Services, Inc. at the dates and for the periods to which they relate and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein. Each of KPMG
Peat Marwick L.L.P., Moss Adams L.L.P., and John A. Knutson & Co. P.L.L.P. (the
"Independent Accountants") is an independent public accounting firm within the
meaning of the Act and the rules and regulations promulgated thereunder.
(m) The pro forma financial statements (including the notes
thereto) and the other pro forma financial information included in the Final
Memorandum (i) comply as to form in all material respects with the applicable
requirements of Regulation S-X promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements, and (iii) have been properly computed on the bases described
therein; the assumptions used in the preparation of the pro forma financial data
and other pro forma financial information included in the Final Memorandum are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
<PAGE>
10
(n) Except as may be disclosed in the Final Memorandum, there
is not, to the knowledge of the Issuer, pending or threatened any action, suit,
proceeding, inquiry or investigation to which the Issuer, the Company or the
Subsidiaries are a party, or to which the property or assets of the Issuer, the
Company or the Subsidiaries are subject, before or brought by any court,
arbitrator or governmental agency or body that (i) would be required to be
described in a prospectus pursuant to the Act that is not described in the Final
Memorandum, or (ii) if determined adversely to the Issuer, the Company or the
Subsidiaries, would, individually or in the aggregate, have a Material Adverse
Effect or which seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Notes to be sold hereunder or
the consummation of the other transactions described in the Final Memorandum. To
the knowledge of the Issuer, after due inquiry, there are no material contracts
or other documents that would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum.
(o) To the knowledge of the Issuer after due inquiry, the
Company and the Subsidiaries possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, presently required or necessary to own or lease, as the case may be,
and to operate its respective properties and to carry on its respective
businesses as now conducted as set forth in the Final Memorandum ("Permits"),
except where the failure to obtain such Permits would not, individually or in
the aggregate, have a Material Adverse Effect; to the knowledge of the Issuer,
each of the Company and the Subsidiaries has fulfilled and performed all of its
obligations with respect to such Permits and to the knowledge of the Issuer, no
event has occurred that would reasonably be expected to allow, or after notice
or lapse of time would reasonably be expected to allow, revocation or
termination thereof or result in any other material impairment of the rights of
the holder of any such Permit, except where such revocation or termination would
not, individually or in the aggregate, have a Material Adverse Effect; and none
of the Issuer, the Company or the Subsidiaries has received any notice of any
proceeding relating to revocation or modification of any such Permit, except
where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
<PAGE>
11
(p) Since the date of the most recent financial statements
appearing in the Final Memorandum, except as described therein, (i) there has
been no material adverse change in the business, condition (financial or
otherwise), or results of operations of the Company and the Subsidiaries, taken
as a whole, (ii) none of the Issuer, the Company or the Subsidiaries has
purchased any of its outstanding capital stock, or declared, paid or otherwise
made any dividend or distribution of any kind on its capital stock (other than
with respect to any of such Subsidiaries, the purchase of, or dividend or
distribution on, capital stock owned by the Company) and (iii) there shall not
have been any material change in the capital stock or long-term indebtedness of
the Issuer, the Company or the Subsidiaries (other than in the ordinary course
of business).
(q) The Issuer has not had any historical operations of its
own, and has been formed for the sole purpose of issuing the Notes and effecting
the Mergers, the Recapitalization, the Reorganization, the Refinancing and
related transactions. The Issuer has (i) no material liabilities or obligations,
direct or contingent, and has not entered into or agreed to enter into any
material transactions or contracts (written or oral) other than this Agreement,
the Registration Rights Agreement, the Indenture, the Merger Agreement and other
ancillary agreements relating to the Mergers and the transactions described in
the previous sentence and (ii) has not purchased any of its outstanding stock or
declared, paid or otherwise made any dividend or distribution of any kind on its
capital stock.
(r) To the knowledge of the Issuer, each of the Company and
the Subsidiaries has filed all necessary federal, state and foreign income and
franchise tax returns, except where the failure to so file such returns would
not, individually or in the aggregate, have a Material Adverse Effect, and has
paid all material taxes shown as due thereon except as may be set forth or
adequately reserved for in the financial statements included in the Final
Memorandum in accordance with GAAP; and other than tax deficiencies which the
Company or the Subsidiaries are contesting in good faith and for which the
Company or the Penhall Group has provided adequate reserves, the Issuer has no
knowledge of any tax deficiency that has been asserted against the Company or
the Subsidiaries that would have, individually or in the aggregate, a Material
Adverse Effect.
(s) The statistical and market-related data included in the
Final Memorandum are based on or derived from sources which the Issuer, the
Company and the Guarantors believe to be reliable and accurate.
<PAGE>
12
(t) None of the Issuer, the Company, the Subsidiaries or any
agent acting on their behalf has taken or will take any action that might cause
this Agreement or the sale of the Notes to violate Regulation T, U or X of the
Board of Governors of the Federal Reserve System, in each case as in effect, or
as the same may hereafter be in effect, on the Closing Date.
(u) To the knowledge of the Issuer, the Company and the
Subsidiaries have good and marketable title to all real property and own all
personal property described in the Final Memorandum as being owned by it and
good and marketable title to a leasehold estate in the real and personal
property described in the Final Memorandum as being leased by it free and clear
of all liens, charges, encumbrances or restrictions, except as described in the
Final Memorandum or as contemplated by the New Credit Facility or to the extent
the failure to have such title or ownership or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect. To the knowledge of the Issuer, all
leases, contracts and agreements to which the Company or any of the Subsidiaries
is a party or by which any of them are bound are valid and enforceable against
the Company or the Subsidiaries, as the case may be, and are valid and
enforceable against the other party or parties thereto and are in full force and
effect with only such exceptions as would not, individually or in the aggregate,
have a Material Adverse Effect. To the best knowledge of the Issuer, the Company
or the Subsidiaries, as the case may be, own or possess adequate licenses or
other rights to use all patents, trademarks, service marks, trade names,
copyrights and know-how necessary (in any material respect) to conduct the
businesses now operated by them as described in the Final Memorandum except
where the failure to own or possess such licenses or other rights could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and none of the Issuer or to the knowledge of the Issuer after
due inquiry, the Company or the Subsidiaries has received any notice of
infringement of or conflict with (or knows of any such infringement of or
conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would have a Material
Adverse Effect.
(v) Except as disclosed in the Final Memorandum or as would
not, individually or in the aggregate, have a Material Adverse Effect, to the
knowledge of the Issuer after due inquiry, (A) the Company and the Subsidiaries
are in compliance
<PAGE>
13
with and have no liability under applicable Environmental Laws (as defined
below), (B) the Company and the Subsidiaries have made all filings and provided
all notices required under any applicable Environmental Law, and have and are in
compliance with all Permits required under applicable Environmental Laws and
each of them is in full force and effect, (C) there is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter or request for information
pending or threatened against the Company or the Subsidiaries under any
Environmental Law, (D) no lien, charge, encumbrance or restriction has been
recorded under any Environmental Law with respect to any material assets,
facility or property owned, operated, leased or controlled by the Company or the
Subsidiaries, (E) neither the Company nor the Subsidiaries have received notice
that they have been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), or any comparable state law, and (F) no property or
facility currently owned or leased, by the Company or any of the Subsidiaries is
(i) listed or proposed for listing on the National Priorities List under CERCLA
or is (ii) listed on the Comprehensive Environmental Response, Compensation,
Liability Information System List promulgated under CERCLA, or, in each of
clauses (i) or (ii), comparable list maintained by any state or local
governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
health and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials or substances into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), (ii) the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling of hazardous materials or
substances and (iii) underground and above ground storage tanks and related
piping, and emissions, discharges, releases or threatened releases therefrom.
(w) To the knowledge of the Issuer, except as described in the
Final Memorandum, there is no material strike, labor dispute, slowdown or work
stoppage with the employees of the Company
<PAGE>
14
or any of the Subsidiaries or to the knowledge of the Issuer or any of the
Guarantors threatened against the Company or any of the Subsidiaries except for
such strikes, labor disputes, slowdowns or work stoppages that would not,
individually or in the aggregate, have a Material Adverse Effect.
(x) To the knowledge of the Issuer, the Company and the
Subsidiaries carry insurance in such amounts and covering such risks as are
adequate for the conduct of their business and the value of their properties
except where the failure to carry such insurance would not, individually or in
the aggregate, have a Material Adverse Effect.
(y) To the knowledge of the Issuer, the Company and the
Subsidiaries (i) make and keep accurate books and records in all material
respects and (ii) maintain internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements and to maintain accountability for its assets, (C)
access to their assets are permitted only in accordance with management's
authorization and (D) the reported accountability for their assets are compared
with existing assets at reasonable intervals.
(z) None of the Issuer, the Company or the Subsidiaries will
be an "investment company" or "promoter" or "principal underwriter" for an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
(aa) The Securities, the Indenture, the Registration Rights
Agreement, the New Credit Facility and the Merger Agreement will conform in all
material respects to the descriptions thereof in the Final Memorandum.
(bb) Notwithstanding any other registration rights that
holders of the securities of the Issuer, the Company or the Subsidiaries might
possess, such securities holders have agreed to waive the rights to have such
securities registered under the registration statements required to be filed by
the Issuer, the Company and the Guarantors pursuant to the Registration Rights
Agreement.
(cc) Immediately after the consummation of the transactions
contemplated by this Agreement and the Merger Agreement, the fair market value
of the assets of each of the Company and the Subsidiaries (each on a
consolidated basis) will exceed the sum of its stated liabilities and identified
contingent liabilities; the present fair salable value of the
<PAGE>
15
assets of each of the Company and the Subsidiaries (each on a consolidated
basis) is greater than the amount that will be required to pay the probable
liabilities on its debts as they become absolute and matured; none of the
Company or the Subsidiaries (each on a consolidated basis) is, nor will any of
the Company or the Subsidiaries (each on a consolidated basis) be, after giving
effect to the execution, delivery and performance of this Agreement and the
Merger Agreement, and the consummation of the transactions contemplated hereby
and thereby, (a) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted, or (b) unable to pay its debts
(contingent or otherwise) as they mature or (c) otherwise insolvent.
(dd) None of the Issuer, the Company, the Subsidiaries or any
of their respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Act) has directly, or through any agent (other than the Initial Purchasers
and persons acting on their behalf as to which no representation is made), (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of any "security" (as defined in the Act) that is or could be integrated
with the sale of the Securities in a manner that would require the registration
under the Act of the Securities or (ii) engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Act) in connection with the offering of the Securities or in any
manner involving a public offering of the Securities within the meaning of
Section 4(2) of the Act. Assuming the accuracy of and compliance with the
representations, warranties and covenants of the Initial Purchasers in Section 8
hereof, and compliance by the Initial Purchasers with the offering and transfer
procedures and restrictions described elsewhere in this Agreement and the Final
Memorandum, it is not necessary in connection with the offer, sale and delivery
of the Securities to the Initial Purchasers in the manner contemplated by this
Agreement to register any of the Securities under the Act or to qualify the
Indenture under the TIA prior to the effectiveness of any Registration
Statement.
(ee) No securities of the Issuer, the Company or any
Subsidiary are of the same class (within the meaning of Rule 144A under the Act)
as the Securities and listed on a national securities exchange registered under
Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer
quotation system.
(ff) None of the Issuer, the Company or the Subsidiaries has
taken, nor will any of them take, directly or indirectly,
<PAGE>
16
any action designed to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Securities.
(gg) None of the Issuer, the Company, the Subsidiaries, any of
their respective Affiliates or any person acting on its or their behalf (other
than the Initial Purchasers) has engaged in any directed selling efforts (as
that term is defined in Regulation S under the Act ("Regulation S")) with
respect to the Securities; the Issuer, the Company, the Subsidiaries and their
respective Affiliates and any person acting on its or their behalf (other than
the Initial Purchasers) have complied with the offering restrictions requirement
of Regulation S.
(hh) The Issuer has delivered or made available to the Initial
Purchasers true and correct executed copies of the Merger Agreement and all of
the ancillary documents related thereto and there have been no amendments,
alterations or modifications thereto or waivers of any of the provisions
thereof. The representations and warranties of the Issuer, the Company and each
Subsidiary set forth in the Merger Agreement will be true and correct as of the
Closing Date (except to the extent that any such representation or warranty was
expressly made as of any other date, in which case such representation and
warranty was true and correct as of such date) except to the extent the failure
of any such representation or warranty to be true would not have a Material
Adverse Effect.
(ii) Except as set forth in the Final Memorandum, the Company
and the Subsidiaries have no liability for any prohibited transaction within the
meaning of Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or funding deficiency within the meaning of Section 302 of
ERISA or any complete or partial withdrawal liability under Section 4201 of
ERISA with respect to any pension, profit sharing or other plan which is subject
to ERISA to which the Company or any Subsidiary makes or ever has made a
contribution and in which any employee of the Company or any Subsidiary is or
has ever been a participant, which prohibited transaction liability or
withdrawal liability is reasonably likely to have a Material Adverse Effect.
With respect to such plans, the Penhall Group is to the best knowledge of the
Issuer, in compliance in all material respects with all applicable provisions of
ERISA.
(jj) The Company has consummated the acquisition of all of the
assets of Highway Services, Inc. ("HSI") pursuant to the terms of the Asset
Purchase Agreement dated April 29, 1998
<PAGE>
17
by and among HSI, Gary Aamold, Peter Lewis, John Roudebush and Penhall Company.
Any certificate signed by any officer of the Company or any
Guarantor and delivered to any Initial Purchaser or to counsel for the Initial
Purchasers shall be deemed a joint and several representation and warranty by
the Company and each of the Guarantors to each Initial Purchaser as to the
matters covered thereby.
3. Purchase, Sale and Delivery of the Securities. On the basis
of the representations, warranties, agreements and covenants herein contained
and subject to the terms and conditions herein set forth, the Issuer and, at and
as of the Effective Time, the Company and the Guarantors agree to issue and sell
to the Initial Purchasers, and the Initial Purchasers, acting severally and not
jointly, agree to purchase, the Securities in the respective amounts set forth
on Schedule 1 hereto from the Issuer at 97% of their principal amount. The
Company agrees, immediately upon the consummation of the Recapitalization
Merger, to assume all of the Issuer's obligations under the Notes and the
Indenture. One or more certificates in definitive form for the Securities that
the Initial Purchasers have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Initial Purchasers request upon notice to the Issuer at least 36 hours prior to
the Closing Date, shall be delivered by or on behalf of the Issuer to the
Initial Purchasers, against payment by or on behalf of the Initial Purchasers of
the purchase price therefor by wire transfer of federal (same day) funds to such
account or accounts as the Issuer shall specify prior to the Closing Date, or by
such means as the parties hereto shall agree prior to the Closing Date. Such
delivery of and payment for the Securities shall be made at the offices of
Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York at 9:00 A.M.
(New York time), on August 4, 1998, or at such other place, time or date not
later than seven full business days thereafter as the Initial Purchasers, on the
one hand, and the Issuer, on the other hand, may agree upon, such time and date
of delivery against payment being herein referred to as the "Closing Date." The
Issuer will make such certificate or certificates for the Notes available for
checking and packaging by the Initial Purchasers at the offices of Dechert Price
& Rhoads in New York, New York, at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchasers. The Initial Purchasers
propose to make an offering of the Securities at the
<PAGE>
18
price and upon the terms set forth in the Final Memorandum, as soon as
practicable after this Agreement is entered into and as in the judgment of the
Initial Purchasers is advisable.
5. Covenants of the Issuer, the Company and the Guarantors.
The Issuer and, at and as of the Effective Time, the Company and the Guarantors
covenant and agree, jointly and severally, with each of the Initial Purchasers
that:
(a) The Issuer will not and, at and after the Effective Time,
the Company and the Guarantors will not amend or supplement the Final Memorandum
or any amendment or supplement thereto of which the Initial Purchasers shall not
previously have been advised and furnished a copy for a reasonable period of
time prior to the proposed amendment or supplement and as to which the Initial
Purchasers shall not have given their consent, which consent shall not be
unreasonably withheld. The Issuer and the Company will, prior to the Closing
Date, upon the reasonable request of the Initial Purchasers or counsel for the
Initial Purchasers, make any amendments or supplements to the Preliminary
Memorandum or the Final Memorandum that may be necessary or advisable in
connection with the resale of the Notes by the Initial Purchasers.
(b) The Issuer will and, at and after the Effective Time, the
Company and the Guarantors will, cooperate with the Initial Purchasers in
arranging for the qualification of the Notes for offering and sale under the
securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers
may designate and will continue such qualifications in effect for as long as may
be necessary to complete the resale of the Securities; provided, however, that
in connection therewith, neither the Issuer, the Company nor any of the
Guarantors shall be required to qualify as a foreign corporation or as a dealer
in securities or to execute a general consent to service of process in any
jurisdiction or subject itself to taxation in excess of a nominal dollar amount
in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the
distribution by the Initial Purchasers of the Securities or the Private Exchange
Notes, any event occurs or information becomes known as a result of which the
Final Memorandum as then amended or supplemented would include any untrue
statement of a material fact, or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Final
<PAGE>
19
Memorandum to comply with applicable law, the Issuer or the Company will
promptly notify the Initial Purchasers thereof and will prepare, at the expense
of the Company, an amendment or supplement to the Final Memorandum that corrects
such statement or omission or effects such compliance.
(d) The Issuer will and, at and after the Effective Time, the
Company will, without charge, provide to the Initial Purchasers and to counsel
for the Initial Purchasers as many copies of the Preliminary Memorandum and the
Final Memorandum or any amendment or supplement thereto as the Initial
Purchasers may reasonably request.
(e) The Issuer will and, at and after the Effective Time the
Company will, apply the net proceeds from the sale of the Securities as set
forth under "Use of Proceeds" and "The Transactions" in the Final Memorandum.
(f) For a period of five years hereafter the Company will
furnish to the Initial Purchasers copies of all reports and other communications
(financial or otherwise) furnished by the Company to the Trustee or to the
holders of the Notes and, promptly after their preparation, copies of any
reports or financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of securities
of the Company may be listed.
(g) None of the Issuer, the Company or any of their respective
Affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any "security" (as defined in the Act) that could be
integrated with the sale of the Securities in a manner that would require the
registration under the Act of the Securities.
(h) Except following the effectiveness of the Registration
Statement, the Issuer will not and, at and after the Effective Time, the Company
will not, and will not permit any of the Subsidiaries to, engage in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Securities or
in any manner involving a public offering of the Securities within the meaning
of Section 4(2) of the Act.
(i) For so long as any of the Securities remain outstanding
and are restricted securities as defined in Rule 144 under the Act, the Company
will make available at its expense, upon request, to any holder of such
Securities and any prospective purchasers thereof the information specified in
<PAGE>
20
Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13
or 15(d) of the Exchange Act.
(j) The Issuer and on and after the Closing Date the Company
and the Guarantors will use their best efforts to (i) permit the Securities to
be designated PORTAL securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers, Inc. relating to
trading in the Private Offerings, Resales and Trading through Automated Linkages
market (the "Portal Market") and (ii) permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(k) In connection with Securities offered and sold in an
offshore transaction (as defined in Regulation S) neither the Issuer nor the
Company will register any transfer of such Securities not made, to its
knowledge, in accordance with the provisions of Regulation S and will not,
except in accordance with the provisions of Regulation S, if applicable, issue
any such Securities in the form of definitive securities.
6. Expenses. The Issuer agrees to pay all costs and expenses
incident to the performance of each of the Issuer's, the Company's and the
Guarantors' obligations under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated pursuant to
Section 11 hereof, including all costs and expenses incident to (i) the
printing, word processing or other production of documents with respect to the
transactions contemplated hereby, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the
delivery to the Initial Purchasers of copies of the foregoing documents, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Issuer, the Company or the Guarantors, (iv)
preparation (including printing), issuance and delivery to the Initial
Purchasers of the Securities, (v) the qualification of the Securities under
state securities and "Blue Sky" laws, including filing fees and fees and
reasonable disbursements of counsel for the Initial Purchasers relating thereto,
(vi) expenses in connection with any meetings with prospective investors in the
Securities, (vii) fees and expenses of the Trustee including fees and expenses
of counsel for the Trustee, (viii) all expenses and listing fees incurred in
connection with the application for quotation of the Securities on the PORTAL
Market and (ix) any fees charged by investment rating agencies for the rating of
the Securities. If the sale of the Securities provided
<PAGE>
21
for herein is not consummated because any condition to the obligations of the
Initial Purchasers set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated or because of any failure, refusal or inability on the
part of the Issuer, the Company or the Guarantors to perform all obligations and
satisfy all conditions on their part to be performed or satisfied hereunder in
all material respects (other than, in any case, solely by reason of a default by
the Initial Purchasers of their obligations hereunder), the Company agrees to
promptly reimburse the Initial Purchasers upon demand for all reasonable
out-of-pocket expenses (including reasonable fees, disbursements and charges of
Cahill Gordon & Reindel, counsel for the Initial Purchasers) that shall have
been incurred by the Initial Purchasers in connection with the proposed purchase
and sale of the Securities. Except as specifically set forth herein, the Initial
Purchasers shall pay their own costs and expenses including the costs and
expenses of their counsel.
7. Conditions of the Initial Purchasers' Obligations. The
obligation of the Initial Purchasers to purchase and pay for the Securities
shall, in their sole discretion, be subject to the satisfaction or waiver of the
following conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have
received (i) the opinion, dated as of the Closing Date and addressed to the
Initial Purchasers, of Dechert Price & Rhoads ("DP&R"), counsel for the Issuer
which opinion shall be satisfactory to counsel for the Initial Purchasers, and
substantially in the form of Exhibit A hereto, (ii) a reliance letter, dated as
of the Closing Date and addressed to the Initial Purchasers, of DP&R, allowing
the Initial Purchasers to rely on the opinion required to be delivered pursuant
to Section 6.3(f) of the Merger Agreement, which opinion shall be satisfactory
to counsel for the Initial Purchasers and (iii) a reliance letter, dated as of
the Closing Date and addressed to the Initial Purchasers, of DP&R, allowing the
Initial Purchasers to rely on the opinion delivered in connection with the
execution and delivery of the New Credit Facility, which opinion shall be
satisfactory to counsel for the Initial Purchasers;
(b) On the Closing Date, the Initial Purchasers shall have
received the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Jennings, Strouss & Salmon, P.L.C., special Arizona counsel to
the Issuer and the
<PAGE>
22
Company, in form and substance satisfactory to counsel for the Initial
Purchasers, to the extent that:
(i) Each of the Issuer and the Company is duly
incorporated, validly existing and in good standing in its jurisdiction
of incorporation and has all requisite corporate power and authority to
own its properties and conduct its business as described in the Final
Memorandum. Each of the Issuer and the Company is duly qualified to do
business as a foreign corporation in good standing in each of the
jurisdictions where the conduct of its business or the ownership of
property would require such qualification.
(ii) To the knowledge of such counsel, all of the
outstanding shares of capital stock of the Issuer and the Company
(including the capital stock issued in connection with the Equity
Contribution, the Equity Rollover and the Senior Exchangeable Preferred
Stock) have been duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or
similar rights, to our knowledge, except for liens under the New Credit
Facility.
(iii) Each of the Issuer and the Company has all
requisite corporate power and authority to execute, deliver and perform
each of its obligations under the Indenture, the Securities, the
Exchange Securities and the Private Exchange Securities; the Indenture
has been duly and validly authorized by each of the Issuer and the
Company.
(iv) The issuance of the Notes has been duly and
validly authorized by the Issuer and the Company.
(v) The issuance of the Exchange Notes and the Private
Exchange Notes has been duly and validly authorized by the Company.
(vi) Each of the Issuer and the Company has all
requisite corporate power and authority to execute, deliver and perform
its obligations under the Registration Rights Agreement; the
Registration Rights Agreement has been duly and validly authorized by
the Company and the Issuer.
(vii) The Guarantees have been duly and validly
authorized for issuance and sale to the Initial Purchasers.
<PAGE>
23
(viii) Each of the Issuer and the Company has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the Assumption Agreement and
to consummate the transactions contemplated hereby; this Agreement, the
Assumption Agreement and the consummation by the Issuer and the Company
of the transactions contemplated hereby and thereby have been duly and
validly authorized by each of the Issuer and the Company. This
Agreement has been duly executed and delivered by each of the Issuer
and the Company.
(ix) To the knowledge of such counsel, the execution,
delivery and performance of this Agreement, the Indenture, the
Registration Rights Agreement, the Assumption Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Securities
to the Initial Purchasers) will not conflict with or constitute or
result in a breach or a default under (or an event that with notice or
passage of time or both would constitute a default under) or violation
of any of (i) the articles of incorporation or bylaws (or similar
organizational document) of the Issuer or the Company, or (ii)
(assuming compliance with all applicable state securities or "Blue Sky"
laws and assuming the accuracy of the representations and warranties of
the Initial Purchasers in Section 8 hereof) any present law or
regulation of any governmental agency or authority of the State of
Arizona or the Arizona General Business Corporation Act, or (iii) based
solely on a review of judgments, decrees, orders and rulings disclosed
by the Issuer, the Company and the Arizona Guarantors in officers'
certificates, any judgment, decree, order or rule known to such counsel
to be applicable to the Issuer or the Company or any of their
respective properties or assets, except for any such conflict, breach
or violation which would not, individually or in the aggregate, have a
Material Adverse Effect.
(x) No consent, approval, authorization or order of
any governmental authority is required for the issuance and sale by the
Issuer or the Company of the Securities to the Initial Purchasers or
the consummation by the Issuer or the Company of the other transactions
contemplated hereby, except such as may be required under Blue Sky
laws, as to which such counsel need express no opinion, and those which
have previously been obtained.
<PAGE>
24
(xi) Upon the payment of any filing fee and proper
filing of the certificate of the Articles of Merger and Plan of Merger
with the Arizona Corporation Commission, the Recapitalization Merger
will be effective, as contemplated by the Merger Agreement, assuming
publication in accordance with the laws of the State of Arizona.
Such counsel shall also state that in rendering the opinion
required by Section 7(a) and (d) hereof, each of Dechert Price & Rhoads and
Cahill Gordon & Reindel may rely upon the opinions provided hereby. Such counsel
shall also allow the Initial Purchasers to rely upon the opinions required to be
delivered by such counsel pursuant to the terms of the Merger Agreement and in
connection with the execution of the New Credit Facility, which opinions shall
be in form and substance satisfactory to counsel for the Initial Purchasers.
(c) On the Closing Date, the Initial Purchasers shall have
received the opinion, dated as of the Closing Date and addressed to the Initial
Purchasers, of Gibson, Dunn & Crutcher LLP, special California counsel to PII
and Penhall Company (the "California Guarantors"), in form and substance
satisfactory to counsel for the Initial Purchasers, to the extent that:
(i) Each of the California Guarantors is validly
existing as a corporation under the laws of, and is in good standing in
the State of California and has all requisite corporate power and
authority to own its properties and conduct its business as described
in the Final Memorandum.
(ii) Each of the California Guarantors has all
requisite corporate power and authority to execute, deliver and perform
each of its obligations under the Indenture, the Securities, the
Exchange Securities and the Private Exchange Securities; the
Supplemental Indenture, which provides that each of the California
Guarantors shall thereby become a party to the Indenture, has been duly
and validly authorized by each of the California Guarantors.
(iii) The Guarantees have been duly and validly
authorized by each of the California Guarantors. The Guarantees to be
endorsed on the Exchange Notes and the Private Exchange Notes (the
"Exchange Guarantees") have been duly and validly authorized by each of
the California Guarantors.
<PAGE>
25
(iv) Each of the California Guarantors has all
requisite corporate power and authority to execute, deliver and perform
its obligations under the Registration Rights Agreement; the Assumption
Agreement, which provides that each of the California Guarantors shall
thereby become a party to this Agreement and the Registration Rights
Agreement, has been duly and validly authorized by the California
Guarantors.
(v) Each of the California Guarantors has all
requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed by each of
the California Guarantors.
(vi) The execution, delivery and performance of this
Agreement, the Indenture, the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Securities
to the Initial Purchasers) will not conflict with or constitute or
result in a breach or a default under (or an event that with notice or
passage of time or both would constitute a default under) or violation
of any of (i) the certificate of incorporation or bylaws (or similar
organizational document) of either of the California Guarantors, or
(ii) (assuming compliance with all applicable state securities or "Blue
Sky" laws and compliance of the Reorganization Merger and Certificate
of Merger with the requirements of the California Corporations Code and
assuming the accuracy of the representations and warranties of the
Initial Purchasers in Section 8 hereof) the California Corporations
Code or any other present law or regulation of any governmental agency
or authority of the State of California applicable to the California
Guarantors that, in our experience, is generally applicable to
transactions in the nature of those contemplated by this Agreement, the
Indenture or the Registration Rights Agreement, or (iii) any judgment,
decree, order or rule known to such counsel to be applicable to the
California Guarantors or any of their respective properties or assets,
except for any such conflict, breach or violation which would not,
individually or in the aggregate, have a Material Adverse Effect.
(vii) No consent, approval, authorization or order of
any California governmental authority is required for the consummation
by the California Guarantors of the
<PAGE>
26
transactions contemplated hereby under any present law or regulation of
any governmental agency or authority of the State of California
applicable to the California Guarantors that, in our experience, is
generally applicable to transactions in the nature of those
contemplated by this Agreement, the Indenture or the Registration
Rights Agreement, except such as may be required under Blue Sky laws,
as to which such counsel need express no opinion, and those which have
previously been obtained.
Such counsel shall also state that in rendering the opinion
required by Section 7(a) and (d) hereof, each of Dechert Price & Rhoads and
Cahill Gordon & Reindel may rely upon this opinions provided hereby.
(d) On the Closing Date, the Initial Purchasers shall have
received a letter from Irell & Manella allowing the Initial Purchasers to rely
upon their opinions delivered pursuant to the terms of the Merger Agreement and
in connection with the execution of the New Credit Facility, which opinions
shall be in form and substance satisfactory to counsel for the Initial
Purchasers.
(e) On the Closing Date, the Initial Purchasers shall have
received the opinion, in form and substance satisfactory to the Initial
Purchasers, dated as of the Closing Date and addressed to the Initial
Purchasers, of Cahill Gordon & Reindel, counsel for the Initial Purchasers, with
respect to certain legal matters relating to this Agreement and such other
related matters as the Initial Purchasers may reasonably require. In rendering
such opinion, Cahill Gordon & Reindel shall have received and may rely upon such
certificates and other documents and information as it may reasonably request to
pass upon such matters.
(f) The Initial Purchasers shall have received from each of
the Independent Accountants a comfort letter or letters dated the date hereof
and the Closing Date, in form and substance reasonably satisfactory to counsel
for the Initial Purchasers.
(g) The representations and warranties of the Issuer contained
in this Agreement shall be true and correct on and as of the Closing Date as if
made on and as of the Closing Date and the representations and warranties of the
Company and the Guarantors contained in this Agreement and made in the
Assumption Agreement shall be true and correct as of the Closing Date; the
statements of the Issuer's, the Company's and the
<PAGE>
27
Guarantors' officers made pursuant to any certificate delivered in accordance
with the provisions hereof shall be true and correct on and as of the date made
and on and as of the Closing Date; the Issuer, the Company and the Guarantors in
all material respects shall have performed all covenants and agreements and
satisfied all conditions on their part to be performed or satisfied hereunder at
or prior to the Closing Date; and, except as described in the Final Memorandum
(exclusive of any amendment or supplement thereto after the date hereof),
subsequent to the date of the most recent financial statements in such Final
Memorandum, there shall have been no event or development, and no information
shall have become known, that, individually or in the aggregate, has or would be
reasonably likely to have a Material Adverse Effect.
(h) The sale of the Securities hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(i) Subsequent to the date of the most recent financial
statements in the Final Memorandum (exclusive of any amendment or supplement
thereto after the date hereof), Penhall Group shall not have sustained any loss
or interference with respect to its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any strike, labor dispute, slow down or work stoppage or from any legal or
governmental proceeding, order or decree, which loss or interference,
individually or in the aggregate, has or would be reasonably likely to have a
Material Adverse Effect.
(j) The Initial Purchasers shall have received separate
certificates of each of the Issuer, the Company and each Guarantor, dated the
Closing Date, signed on behalf of the Issuer, the Company and each Guarantor by
its Chairman of the Board, President or any Vice President and the Chief
Financial Officer, to the effect that:
(i) The representations and warranties of the Issuer,
the Company or the Guarantors as the case may be, contained in this
Agreement are true and correct on and as of the Closing Date and, in
the case of the Issuer, on the date hereof, and each of the Issuer, the
Company and the Guarantors in all material respects has performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to the Closing Date;
<PAGE>
28
(ii) At the Closing Date, since the date hereof or,
except as described in the Final Memorandum, since the date of the most
recent financial statements in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), no event or
development has occurred, and no information has become known, that,
individually or in the aggregate, has or would be reasonably likely to
have a Material Adverse Effect; and
(iii) To the knowledge of the Issuer, the Company or the
Guarantor, as applicable, the sale of the Securities hereunder has not
been enjoined (temporarily or permanently).
(k) The New Credit Facility and each of the other documents
necessary to consummate the transactions contemplated by the Final Memorandum
under the caption "The Transactions" shall have been, or shall concurrently be,
executed and delivered by the parties thereto, shall be in full force and effect
and in form and substance consistent with the description thereof contained in
the Final Memorandum in all material respects.
(l) On the Closing Date, the Company shall have received the
proceeds from the Equity Contribution from BRS and the proceeds from the Equity
Rollover from the management stockholders and the Senior Exchangeable Preferred
Stock shall have been issued as described in the Final Memorandum.
(m) On or prior to the Closing Date, the Issuer, the Company
and the Guarantors, as the case may be, shall have filed Certificates of Merger,
in the states necessary to give effect to the Mergers contemplated by the Merger
Agreement and each of the transactions set forth under "The Transactions" in the
Final Memorandum, shall have been completed (other than those not contemplated,
by the Final Memorandum, to occur on or prior to the Closing Date), including,
but not limited to the Equity Rollover, the Equity Contribution.
(n) On the Closing Date, the Initial Purchasers shall have
received the Registration Rights Agreement executed by the Issuer and such
agreement shall be in full force and effect at all times from and after the
Closing Date.
(o) On the Closing Date the Company shall have assumed all of
the Issuer's obligations under this Agreement, the Notes, the Indenture and the
Registration Rights Agreement and the Guarantors will become parties to this
Agreement, the Registration
<PAGE>
29
Rights Agreement and the Indenture and such Guarantors will execute the
Guarantees.
(p) On or prior to the Closing Date, the Merger Agreement
shall have been amended to provide for the issuance of $10 million of Senior
Exchangeable Preferred Stock to the Foundation (as defined in the Final
Memorandum) in lieu of cash Merger consideration.
On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received such further documents,
opinions, certificates, letters and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Issuer, the Company and
the Subsidiaries as they shall have heretofore reasonably requested.
All such documents, opinions, certificates, letters, schedules
or instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchasers and counsel for the Initial Purchasers. The
Company shall furnish to the Initial Purchasers such conformed copies of such
documents, opinions, certificates, letters, schedules and instruments in such
quantities as the Initial Purchasers shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. (a) Each of
the Initial Purchasers represents and warrants (as to itself only) that it is a
Qualified Institutional Buyer ("QIB") and an "accredited investor" within the
meaning of Regulation D under the Act. Each of the Initial Purchasers
represents, warrants and agrees with the Company (as to itself only) that (i)
it, its affiliates and any person acting for its benefit has not and will not
solicit offers for, or offer or sell, the Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Act, including, but not limited to (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising. Each Initial Purchaser agrees, with respect to resales made in
reliance on Rule 144A of any of the Securities, to deliver either with the
confirmation of such resale or otherwise prior to settlement of such resale a
notice to the effect that the resale of such Securities has been made in
reliance upon the exemption from the registration
<PAGE>
30
requirements of the Securities Act provided by Rule 144A; and (ii) it, its
affiliates and any person acting for its benefit has and will solicit offers for
the Securities only from, and will offer and sell the Securities only to (A) in
the case of offers inside the United States, persons whom the Initial Purchasers
reasonably believe to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchasers that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and, in each case, in transactions under
Rule 144A and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers," which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)) in reliance
on Regulation S; provided, however, that, in the case of this clause (B), in
purchasing such Notes such persons are deemed to have represented and agreed as
provided under the caption "Transfer Restrictions" contained in the Final
Memorandum (or, if the Final Memorandum is not in existence, in the most recent
Memorandum).
(b) Each of the Initial Purchasers represents and warrants (as
to itself only) with respect to offers and sales outside the United States that
(i) it has and will comply with all applicable laws and regulations in each
jurisdiction in which it acquires, offers, sells or delivers Securities or has
in its possession or distributes any Memorandum or any such other material, in
all cases at its own expense; (ii) the Securities have not been and will not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except in accordance with Regulation S under the Act or
pursuant to an exemption from the registration requirements of the Act; (iii) it
has offered the Securities and will offer and sell the Notes (A) as part of its
distribution at any time and (B) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, only in accordance with Rule
903 of Regulation S and, accordingly, neither it, nor its affiliates nor any
persons acting on its behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the Securities, and
any such persons have complied and will comply with the offering restrictions
requirement of Regulation S; and (iv) it agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to each distributor,
dealer or person receiving a selling concession, fee or other remuneration that
purchases
<PAGE>
31
Securities from it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the
United States Securities Act of 1933 (the "Securities Act") and may not
be offered and sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of the distribution of the
Securities at any time or (ii) otherwise until 40 days after the later
of the commencement of the offering and the closing date of the
offering, except in either case in accordance with Regulation S (or
Rule 144A if available) under the Securities Act. Terms used above have
the meaning given to them in Regulation S."
(c) Each Initial Purchaser represents, warrants and agrees
that it and each of its affiliates has not entered and will not enter into any
contractual arrangement with respect to the distribution of Securities except
for any such arrangements with the other Initial Purchasers or affiliates of the
other Initial Purchaser or with the prior written consent of the Issuers, the
Company and the Guarantors.
(d) The Initial Purchasers agree that prior to or
simultaneously with the confirmation of sale by it to any purchaser of any of
the Securities purchased by such Initial Purchasers from the Issuer pursuant
hereto, it shall furnish to that purchaser a copy of the Final Memorandum.
(e) In addition to the foregoing, the Initial Purchasers
acknowledge and agree that the Issuer and the Company and for purposes of
delivering their opinions pursuant to Sections 7(a), (b) and (c), counsel for
the Issuer, the Company and the Guarantors may rely upon the accuracy and truth
of the representations, warranties and agreements of the Initial Purchasers and
its compliance with its agreements contained in this Section 8, and the Initial
Purchasers hereby consent to such reliance.
Terms used in this Section 8 and not defined in this Agreement
have the meanings given to them in Regulation S.
9. Indemnification and Contribution. (a) Each of the Issuer,
the Company and the Guarantors, jointly and severally, agrees to indemnify and
hold harmless the Initial Purchasers, and each person, if any, who controls any
Initial Purchaser within the meaning of Section 15 of the Act or Section
<PAGE>
32
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which any Initial Purchaser or such controlling person may become subject under
the Act, the Exchange Act or otherwise, insofar as any such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon:
(i) any untrue statement or alleged untrue statement
of any material fact contained in any Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by any of the Issuer, the
Company or the Guarantors or based upon written information furnished
by or on behalf of the Issuer, the Company or the Guarantors filed in
any jurisdiction in order to qualify the Securities under the
securities or "Blue Sky" laws thereof or filed with any securities
association or securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state, in any
Memorandum or any amendment or supplement thereto or any Application, a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading,
and will reimburse, as incurred, the Initial Purchasers and each such
controlling person for any legal or other expenses reasonably incurred by the
Initial Purchasers or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, the Issuer,
the Company and the Guarantors will not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Memorandum or any amendment or supplement thereto in reliance upon
and in conformity with written information concerning the Initial Purchasers
furnished to the Issuer by the Initial Purchasers specifically for use therein.
This indemnity agreement will be in addition to any liability that the Issuer,
the Company and the Guarantors may otherwise have to the indemnified parties;
and provided further, however, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in the Preliminary
Memorandum, the indemnity agreement contained in this subsection (a) shall not
inure to the benefit of any Initial Purchaser that sold the Securities concerned
to the person asserting any such losses, claims, damages or liabilities, to the
ex-
<PAGE>
33
tent that such sale was an initial resale by such Initial Purchaser and any
such loss, claim, damage or liability of such Initial Purchaser results from the
fact that there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Securities to such person, a copy of the Final
Memorandum if the Issuer or the Company had previously furnished copies thereof
to such Initial Purchaser and the Final Memorandum corrected such untrue
statement or omission or alleged untrue statement or omission. The Issuer, the
Company and the Guarantors shall not be liable under this Section 9 for any
settlement of any claim or action effected without its prior written consent,
which consent shall not be unreasonably withheld.
(b) Each of the Initial Purchasers agrees, severally and not
jointly, to indemnify and hold harmless the Issuer, the Company and the
Guarantors, their respective directors and officers and each person, if any, who
controls the Issuer, the Company or any Guarantor within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which the Issuer, the Company or any Guarantor or any
such director, officer or controlling person may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendment or supplement thereto or any Application, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in any Memorandum or any amendment or supplement thereto
or any Application, or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Initial
Purchaser, furnished to the Issuer by the Initial Purchasers specifically for
use therein; and subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses incurred by the
Issuer, the Company or any Guarantor or any such director, officer or
controlling person in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will be
in addition to any liability that the Initial Purchasers may otherwise have to
the indemnified parties. The Initial Purchasers shall not be liable under this
Section 9 for any settlement of any claim or action effected without their
con-
<PAGE>
34
sent, which consent shall not be unreasonably withheld. The Company shall not,
without the prior written consent of BT Alex. Brown Incorporated, which consent
shall not be unreasonably withheld, effect any settlement or compromise of any
pending or threatened proceeding in respect of which any Initial Purchaser is or
could have been a party, or indemnity could have been sought hereunder by any
Initial Purchaser, unless such settlement (A) includes an unconditional written
release of the Initial Purchasers, in form and substance reasonably satisfactory
to the Initial Purchasers, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of any Initial
Purchaser.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action for which such indemnified
party is entitled to indemnification under this Section 9, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof in writing; but the omission to so notify the indemnifying party (i)
will not relieve it from any liability under paragraph (a) or (b) above unless
and to the extent such failure results in the indemnifying party being
materially prejudiced and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the
<PAGE>
35
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel reasonably acceptable to
the indemnifying party to defend such action on behalf of such indemnified party
or parties. After notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 9 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Initial Purchasers in the case
of paragraph (a) of this Section 9 or the Company in the case of paragraph (b)
of this Section 9, representing the indemnified parties under such paragraph (a)
or paragraph (b), as the case may be, who are parties to such action or actions)
or (ii) the indemnifying party has authorized in writing the employment of
counsel for the indemnified party at the expense of the indemnifying party. The
indemnifying party will not be liable for the costs and expenses of any
settlement of any action effected by such indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 9 is unavailable to, or
insufficient to hold harmless, an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Notes or
<PAGE>
36
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Issuer and
the Company on the one hand and any Initial Purchaser on the other shall be
deemed to be in the same proportion as the total proceeds from the offering
(before deducting expenses) received by the Issuer and the Company bear to the
total discounts and commissions received by such Initial Purchaser. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuer or the Company on the one hand, or such Initial Purchaser
on the other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission or alleged
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Issuer, the Company, the Guarantors and the Initial
Purchasers agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Initial Purchaser
shall be obligated to make contributions hereunder that in the aggregate exceed
the total discounts, commissions and other compensation received by such Initial
Purchaser under this Agreement, less the aggregate amount of any damages that
such Initial Purchaser has otherwise been required to pay by reason of the
untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact, and no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchasers, and each director of the Issuer, the Company and the
Guarantors, each officer of the Issuer, the Company and the Guarantors and each
person, if any, who controls the Issuer, the Company and the Guarantors within
the meaning of Section 15 of the Act or Section 20 of the Ex-
<PAGE>
37
change Act, shall have the same rights to contribution as the Company and the
Guarantors.
10. Survival Clause. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Issuer, the Company and the Guarantors and their respective officers and the
Initial Purchasers set forth in this Agreement or made by or on behalf of them
pursuant to this Agreement shall remain in full force and effect, regardless of
(i) any investigation made by or on behalf of the Issuer, the Company, the
Guarantors, any of their respective officers or directors, the Initial
Purchasers or any controlling person referred to in Section 9 hereof and (ii)
delivery of and payment for the Notes. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6, 9 and 16 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
11. Termination. (a) This Agreement may be terminated in the
sole discretion of the Initial Purchasers by notice to the Issuer given prior to
the Closing Date in the event that the Issuer, the Company or any of the
Guarantors shall have failed, refused or been unable to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder at
or prior thereto (other than as a result of a default by the Initial Purchasers)
or, if at or prior to the Closing Date:
(i) any of the Company or the Subsidiaries shall have
sustained any loss or interference with respect to its businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any strike, labor dispute,
slow down or work stoppage or any legal or governmental proceeding,
which loss or interference, in the sole judgment of the Initial
Purchasers, has had or has a Material Adverse Effect, or there shall
have been, in the sole judgment of the Initial Purchasers, any event or
development that, individually or in the aggregate, has or could be
reasonably likely to have a Material Adverse Effect (including without
limitation a change in control of the Company or the Subsidiaries),
except in each case as described in the Final Memorandum (exclusive of
any amendment or supplement thereto);
(ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange or the NASDAQ National Market
shall have been suspended or minimum or
<PAGE>
38
maximum prices shall have been established on any such exchange or
market;
(iii) a banking moratorium shall have been declared by
New York or United States authorities;
(iv) there shall have been (A) a significant outbreak
or escalation of hostilities between the United States and any foreign
power, or (B) a significant outbreak or escalation of any other
insurrection or armed conflict involving the United States or any other
significant national or international calamity or emergency or (C) any
material change in the financial markets of the United States that, in
the case of (A), (B) or (C) above and in the sole judgment of the
Initial Purchasers, makes it impracticable or inadvisable to proceed
with the offering or the delivery of the Notes as contemplated by the
Final Memorandum; or
(v) any securities of the Issuer, the Company or the
Subsidiaries shall have been downgraded or placed on any "watch list"
for possible downgrading by any nationally recognized statistical
rating organization.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchasers. The
statements set forth (i) in the last paragraph on the front cover page, (ii) in
the third and fourth sentences of the fourth paragraph and in the sixth
paragraph under the heading "Private Placement" in the Final Memorandum, and
(iii) in the legend concerning over-allotments and stabilizing on the inside
cover page (to the extent such statements relate to the Initial Purchasers)
constitute the only information furnished by the Initial Purchasers to the
Issuer or the Company for the purposes of Sections 2(a) and 9 hereof.
13. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchasers, shall be mailed or delivered to BT Alex.
Brown Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New
York 10006, Attention: Corporate Finance Department; if sent to the Company,
shall be mailed or delivered to the Company at 1801 Penhall Way, P.O. Box 4609,
Anaheim, California 92803, Attention: Chief Financial Officer; with a copy to
Dechert Price & Rhoads,
<PAGE>
39
30 Rockefeller Plaza, New York, New York 10112, Attention: Bruce B. Wood, Esq.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; and one
business day after being timely delivered to a next-day air courier.
14. Binding Effect. The provisions of this Agreement will not
be binding upon the Company or any of the Guarantors prior to the consummation
of the Mergers.
15. Successors. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchasers, the Issuer, the Company, the
Guarantors and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained; this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Issuer, the Company and
the Guarantors contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchasers within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchasers contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Issuer, the Company and
the Guarantors, their officers and any person or persons who control the Issuer,
the Company and the Guarantors within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Notes from the Initial
Purchasers will be deemed a successor because of such purchase.
16. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
17. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
40
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Issuer and the Initial Purchasers.
Very truly yours,
PENHALL ACQUISITION CORP.
By: /s/ Paul D. Kaminski
------------------------
Name: Paul D. Kaminski
Title: Vice President
<PAGE>
41
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
BT ALEX. BROWN INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
By: BT ALEX. BROWN INCORPORATED
By: /s/ Keith Stimson
-----------------------------
Name: Keith Stimson
Title: Vice President
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Principal
Amount of
Initial Purchasers Notes
- ------------------ --------------
<S> <C>
BT Alex. Brown Incorporated................................... $70,000,000
Credit Suisse First Boston Corporation........................ $30,000,000
--------------
Total............................................... $100,000,000
------------
------------
</TABLE>
<PAGE>
SCHEDULE 2
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- ------------------
<S> <C>
Penhall International, Inc.1 California
Penhall Company California
</TABLE>
- --------------
1 Corporate name will be changed to Penhall Rental Corp.
<PAGE>
Exhibit A
Form of Opinion of DP&R
(i) The Indenture meets the requirements for qualification
under the TIA. When the Indenture shall have been duly authorized, executed and
delivered by the Issuer, it will constitute a valid and legally binding
obligation of the Issuer, and, subsequent to the consummation of the
Recapitalization Merger, when the Indenture shall have been duly authorized by
the Company and each Guarantor and the Supplemental Indenture shall have been
duly authorized, executed and delivered by the Company and each Guarantor, the
Indenture and the Supplemental Indenture will constitute a valid and legally
binding obligation of the Company and each Guarantor, in each case enforceable
against the Issuer, the Company and each Guarantor (to the extent a party
thereto) in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).
(ii) Subsequent to the consummation of the Recapitalization
Merger, when the Assumption Agreement shall have been duly authorized, executed
and delivered by the Company and each Guarantor, the Assumption Agreement will
constitute a valid and legally binding obligation of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(iii) The Securities conform in all material respects to the
description thereof contained in the Final Memorandum. The Notes are in the form
contemplated by the Indenture and the Supplemental Indenture. When the Notes
shall have been duly authorized, executed and delivered by the Issuer and paid
for by the Initial Purchasers in accordance with the terms of the Purchase
Agreement (assuming the due authorization, execution and delivery of the
Indenture by the Trustee in accordance with the Indenture and the due
authentication of the Notes by the Trustee in accordance with the Indenture),
the Notes will be entitled to the benefits of the Indenture and will be valid
and
<PAGE>
2
legally binding obligations of the Issuer, and, subsequent to the consummation
of the Recapitalization Merger, when the Company shall have duly authorized the
Indenture and duly authorized, executed and delivered the Notes and the
Supplemental Indenture (assuming the due authorization, execution and delivery
of the Indenture and the Supplemental Indenture by the Trustee in accordance
with the Indenture and the due authentication of the Notes by the Trustee in
accordance with the Indenture), the Notes will be entitled to the benefits of
the Indenture and will be valid and legally binding obligations of the Company,
in each case enforceable against the Issuer and the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(iv) The Guarantees are in the form contemplated by the
Indenture. Subsequent to the consummation of the Recapitalization Merger, when
each Guarantor shall have duly authorized the Indenture and duly authorized,
executed and delivered the Guarantees and the Supplemental Indenture and when
the Notes shall have been paid for by the Initial Purchasers in accordance with
the terms of the Purchase Agreement (assuming the due authorization, execution
and delivery of the Indenture and the Supplemental Indenture by the Trustee in
accordance with the Indenture and the Supplemental Indenture and the due
authentication of the Notes by the Trustee in accordance with the Indenture and
the Supplemental Indenture), the Guarantees will be entitled to the benefits of
the Indenture, and will be valid and legally binding obligations of each
Guarantor, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(v) When the Registration Rights Agreement shall have been
duly authorized, executed and delivered by the Issuer, it will constitute a
valid and binding obligation of the Issuer and, subsequent to the consummation
of the Recapitalization Merger, when the Registration Rights Agreement shall
have been duly authorized by the Company and each Guarantor and when the
Assumption Agreement shall have been duly authorized, executed and delivered by
the Company and each Guarantor, the Registration Rights Agreement will
constitute a valid and legally binding obligation of the Company and each
Guarantor, in each
<PAGE>
3
case enforceable against the Issuer, the Company and each Guarantor in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
(vi) The Registration Rights Agreement, the Merger Agreement
and the New Credit Facility conform in all material respects to the descriptions
thereof in the Final Memorandum.
(vii) To our knowledge, no authorization, approval, consent or
order of any governmental authority of the United States or the State of New
York is required for the execution, delivery and performance by the Issuer, the
Company and the Guarantors of their obligations under the Purchase Agreement,
the Indenture, the Supplemental Indenture, the Registration Rights Agreement,
the Assumption Agreement and the Securities (to the extent a party thereto)
(subject to the opinion set forth in paragraph (xi) as it relates to the Act and
the TIA), except (i) such authorizations, approvals, consents, orders, filings
or registrations as may be required under state securities or Blue Sky laws or
regulations, (ii) such authorizations, approvals, consents, orders, filings or
registrations as may be required under the conduct rules of the National
Association of Securities Dealers, Inc. in connection with the offer and sale of
the Securities, (iii) with respect to the Registration Rights Agreement and the
transactions contemplated thereunder, such filings or registrations as are
required under the Act, the Exchange Act or the TIA or the rules and regulations
of the Commission promulgated thereunder and (iv) such authorizations,
approvals, consents, orders, filings, or registrations as have been obtained and
are in full force and effect.
(viii) The execution, delivery and performance by each of the
Issuer, the Company and the Guarantors of its obligations under the Purchase
Agreement, the Indenture, the Supplemental Indenture, the Registration Rights
Agreement, the Assumption Agreement and the Securities (to the extent a party
thereto) will not (i) result in a breach or violation of any statute, rule or
regulation of the United States or the State of New York applicable to the
Issuer, the Company or the Guarantors or any order known to such counsel of any
governmental agency or body or any court of the United States or the State of
New York having jurisdiction over any of the Issuer, the Company or the
Guarantors or any of its properties (except that such counsel need not express
any opinion as to state securi-
<PAGE>
4
ties or Blue Sky laws, or fraudulent conveyance, fraudulent transfer or similar
laws), or (ii) result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement or instrument (A)
known to such counsel to which the Issuer is a party or (B) to which the Company
or any Guarantor is a party and which is listed on Schedule 2.19 to the Merger
Agreement, except in the cases of clauses (i) and (ii) to the extent any such
breach, violation or default, singly or in the aggregate with all other such
breaches, violations and defaults, would not reasonably be expected to result in
a Material Adverse Effect.
(ix) To our knowledge, except as disclosed in the Final
Memorandum, there are no pending or threatened actions, suits or proceedings
against the Issuer or any of its properties which (i) question the validity of
the Purchase Agreement, the Indenture, the Supplemental Indenture, the
Registration Rights Agreement, the Assumption Agreement or the Securities or
which are otherwise material in the context of the issuance and sale of the
Securities, or (ii) if determined adversely to the Issuer, would be reasonably
expected, individually or in the aggregate, to result in a Material Adverse
Effect.
(x) None of the Issuer, the Company or either Guarantor is,
and immediately after the offering and sale of the Securities and the
application of the proceeds thereof as described in the Final Memorandum under
the caption "Use of Proceeds" none of the Issuer, the Company or the Guarantors
will be, an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(xi) Assuming (i) the accuracy of, and compliance with, the
representations, warranties and agreements of the Issuer, the Company and the
Guarantors set forth in Sections 2(dd), 2(ee), 2(gg) and 5 of the Purchase
Agreement, (ii) the accuracy of, and compliance with, the representations,
warranties and agreements of the Initial Purchasers set forth in Section 8 of
the Purchase Agreement, (iii) compliance by the Initial Purchasers with the
offering and transfer procedures and restrictions described elsewhere in the
Final Memorandum and (iv) the accuracy of, and compliance with, the
representations, warranties and agreements made in accordance with the Purchase
Agreement, the Final Memorandum and the Indenture by purchasers to whom the
Initial Purchasers initially resell Securities and the receipt by such
purchasers of a copy of the Final Memorandum prior to such sale, it is not
necessary in connection with the offer and sale of the Securities or in
connection with the initial resale of the Securities in the manner contemplated
by
<PAGE>
5
the Purchase Agreement and the Final Memorandum to register the Securities
under the Act or to qualify the Indenture under the TIA (it being understood
that no opinion is expressed as to any subsequent resale of the Securities).
(xii) When the Exchange Notes and Private Exchange Notes shall
have been duly executed and delivered by the Company in accordance with the
terms of the Registration Rights Agreement and the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee and the
due authentication and delivery of the Exchange Notes and the Private Exchange
Notes by the Trustee in accordance with the Indenture), the Exchange Notes and
the Private Exchange Notes will be entitled to the benefits of the Indenture and
will be valid and legally binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
(xiii) Assuming that the proceeds of the offering of the
Securities will be applied as described in the Final Memorandum under the
caption "Use of Proceeds," neither the consummation of the transactions
contemplated by the Purchase Agreement nor the sale, issuance, execution or
delivery of the Securities will violate Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
(xiv) Each of the Issuer, the Company and the Guarantors is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction set forth opposite their respective names on
Schedule A hereto.
(xv) The opinion described above may state that it is limited
to the laws of the United States of America and the State of New York. In
rendering the opinions set forth above, Dechert Price & Rhoads may assume and/or
rely on the opinions provided pursuant to Sections 7(b) and (c) hereof.
(xvi) The Initial Purchasers shall also have received a
letter, dated the Closing Date, from Dechert Price & Rhoads, to the effect that
such counsel has no reason to believe that, as of the date of the Final
Memorandum or as of the Closing Date, the Final Memorandum, as amended or
supplemented (except for the financial statements and the notes related thereto
and other financial, statistical and accounting data included
<PAGE>
6
therein, as to which such counsel need not express any belief), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. In writing such letter with respect to the
matters covered by this paragraph, such counsel may state that their belief is
based upon their participation in the preparation of the Final Memorandum and
any amendments or supplements thereto and review and discussion of the contents
thereof, but are without independent check or verification except as specified.
Additionally, the Initial Purchasers shall have received a
letter, dated the Closing Date, from Dechert Price & Rhoads, to the effect that
the Initial Purchasers may rely on the opinions of such counsel rendered
pursuant to the Merger Agreement and the New Credit Facility.
<PAGE>
Exhibit 10.2
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, made this 4th day of August, 1998,
by and between Bruckmann, Rosser, Sherrill & Co., Inc., a Delaware corporation
("BRS") and Penhall International Corp., an Arizona corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the BRS to provide
business and organizational strategy, financial and investment management, and
merchant and investment banking services to the Company and its subsidiaries,
upon the terms and conditions hereinafter set forth, and BRS is willing to
undertake such obligations;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. Appointment. The Company hereby engages BRS, and BRS hereby agrees
under the terms and conditions set forth herein, to provide certain services to
the Company as described in Section 3 hereof.
2. Term. The term of the Agreement (the "Term") shall commence on the
date hereof and shall continue until the tenth anniversary of this Agreement.
3. Duties of BRS. BRS shall provide the Company and its subsidiaries
with business and organizational strategy, financial and investment management,
and merchant and investment banking services (collectively, the "Services"). The
Services will be provided at such times and places as may reasonably be
determined by BRS.
3.1 Exclusions from "Services". Notwithstanding anything in
the foregoing to the contrary, the following services are specifically excluded
from the definition of "Services":
(i) Independent Accounting Services. Accounting Services
rendered to the Company or BRS, with prior notice and consultation with the
Company's management, by an independent accounting firm or accountant (i.e., an
accountant who is not an employee of BRS);
(ii) Legal Services. Legal services rendered to the Company
or BRS, with prior notice and consultation with the Company's management, by an
independent law firm or attorney (i.e., an attorney who is not an employee of
BRS); and
(iii) Transaction Services. Transactional services in
connection with any acquisition, divestiture, financing or other transaction in
which the Company or its subsidiaries may be, or may consider becoming,
involved, it being understood that BRS shall have the right to
<PAGE>
be first approached and to have a thirty day discussion period concerning all
opportunities to perform, for an additional fee, any of such transaction-related
services.
4. Power of BRS. So that it may properly perform its duties hereunder,
BRS shall, subject to Section 7 hereof, have the authority and power to do all
things necessary and proper to carry out the duties set forth in Section 3.
5. Compensation. As consideration payable to BRS or any of its
affiliates for providing the Services to the Company, the Company shall make the
following payments to BRS.
(a) On the date hereof, a onetime fee to BRS in the amount of
$2,000,000 (the "Initial ------- Fee").
(b) On a semi-annual basis in advance, a management fee of
$300,000 per annum to BRS on each October 1 and April 1 commencing with
October 1, 1998 (the "Management Fee") (such first payment being a
prorated portion of the Management Fee for the period beginning on the
date hereof and ending on March 31, 1999). The Initial Fee and the
Management Fee are hereinafter collectively referred to as the "Fees".
(c) BRS may elect, by written notice to the Company, to defer
cash payment of all or any portion of the Management Fee due to BRS;
any Management Fee so deferred shall be accrued and shall be paid in
cash upon the written request of BRS.
(d) Actual and direct out-of pocket expenses (including fees
and disbursements of attorneys, accountants and other professionals and
consultants retained by BRS in connection with the Services provided
hereunder) incurred by BRS and its personnel in performing the
Services, which shall be reimbursed to BRS by the Company upon BRS's
rendering of a statement therefor together with such supporting data as
the Company reasonably shall require.
(e) Notwithstanding any other provision of this Section 5,
the Company shall not be required to pay any of the Management Fee, if
and to the extent such payment is expressly prohibited by the
provisions of the Credit Agreement, dated as of the date hereof
("Credit Agreement"), among the Company, Penhall Acquisition Corp.,
Bankers Trust Company, as Administrative Agent, Credit Suisse First
Boston, as Syndication Agent, and the lenders parties thereto, as may
be amended, modified or supplemented, from time to time, or any other
credit, financing or other agreements or instruments binding upon the
Company or their properties; provided, however, that if, as a result of
the operation of any such prohibitions, payments otherwise owed
hereunder are not made, such payments shall not be cancelled but rather
shall accrue, and shall be payable by the Company promptly when, and to
the extent that, the Company is no longer prohibited from making such
payments, together with accrued interest calculated at the rate of
interest then charged under the Credit Agreement from the date such
payment was due through the date of payment. Other than the Credit
Agreement, the Company will not enter into any such
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agreements or instruments without the prior written approval of BRS.
This Section 5(e) will not prohibit nor restrict, in any manner, the
Company's obligation to make the payment specified in Section 5(a), to
make reimbursements pursuant to Section 5(d), to provide
indemnification pursuant to Sections 6, 9 and 17, or to make any other
payments contemplated by this Agreement.
6. Indemnification. In the event that either BRS or any of its
affiliates, principals, partners, directors, stockholders, employees, agents and
representatives (collectively, the "Indemnified Parties") becomes involved in
any capacity in any action, proceeding or investigation in connection with any
matter referred to in or contemplated by this Agreement, or in connection with
its Services, the Company will indemnify and hold harmless the Indemnified
Parties from and against any actual or threatened claims, lawsuits, actions or
liabilities (including out-of-pocket expenses and the fees and expenses of
counsel and other litigation costs and the cost of any preparation or
investigation) of any kind or nature, arising as a result of or in connection
with this Agreement and its Services, activities and decisions hereunder, and
will periodically reimburse BRS for its expenses as described above, except that
the Company will not be obligated to so indemnify any Indemnified Party if, and
to the extent that, such claims, lawsuits, actions or liabilities against such
Indemnified Party directly result from the gross negligence or willful
misconduct of such Indemnified Party as admitted in any settlement by such
Indemnified Party or held in any final, non-appealable judicial or
administrative decision. In connection with such indemnification, the Company
will promptly remit or pay to BRS any amounts which BRS certifies to the Company
in writing are payable to BRS or other Indemnified Parties hereunder. The
reimbursement and indemnity obligations of the Company under this Section 6
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Indemnified Party, as the
case may be, of BRS and any such affiliate and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, BRS, and any such Indemnified Party. The foregoing provisions shall
survive the termination of this Agreement.
7. Independent Contractors. Nothing herein shall be construed to
create a joint venture or partnership between the parties hereto or an
employee/employer relationship. BRS shall be an independent contractor pursuant
to this Agreement. Neither party hereto shall have any express or implied right
or authority to assume or create any obligations on behalf of or in the name of
the other party or to bind the other party to any contract, agreement or
undertaking with any third party.
8. Notices. Any notice or other communications required or permitted
to be given hereunder shall be in writing and delivered by hand or mailed by
registered or certified mail, return receipt requested, or by telecopier to the
party to whom it is to be given at its address set forth herein, or to such
other address as the party shall have specified by notice similarly given.
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(a) If to the Company, to it at:
Penhall International Corp.
c/o Penhall Rental Corp.
1801 Penhall Way
Anaheim, California 92803
Attention: John Sawyer
(b) If to BRS, to it at:
Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
29th Floor
New York, New York 10022
Attention: Harold O. Rosser II
9. Liability. BRS is not and never shall be liable to any creditor of
the Company and the Company agrees to indemnify and hold each Indemnified Party
harmless from and against any and all such claims of alleged creditors of the
Company and against all costs, charges and expenses (including reasonable
attorneys fees and expenses) incurred or sustained by any Indemnified Party in
connection with any action, suit or proceeding to which it may be made a party
by any alleged creditor of the Company. Notwithstanding anything contained in
this Agreement to the contrary, the Company agrees and acknowledges that BRS and
its partners, principals, shareholders, directors, officers, employees and
affiliates intend to engage and participate in acquisitions and business
transactions outside of the scope of the relationship created by this Agreement
and they shall not be under any obligation whatsoever to make such acquisitions,
business transactions or other opportunities through the Company or offer such
acquisitions, business transactions or other opportunities to the Company.
10. Amendment. Any amendment to this Agreement requires the approval
of BRS.
11. Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties and their successors and assigns. However, neither this
Agreement nor any of the rights of the parties hereunder may be transferred or
assigned by either party hereto, except that (i) if the Company shall merge or
consolidate with or into, or sell or otherwise transfer substantially all its
assets to, another corporation which assumes the Company's obligations under
this Agreement, the Company may assign its rights hereunder to that corporation,
and (ii) BRS may assign its rights and obligations hereunder to any other person
or entity controlled, directly or indirectly, by Bruce C. Bruckmann, Harold O.
Rosser II, Stephen C. Sherrill and/or Stephen F. Edwards. Any attempted transfer
or assignment in violation of this Section 11 shall be void.
12. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto and supersedes all prior agreements and undertakings,
oral and written, among the parties hereto with respect to the subject matter
hereof. All of the rights and obligations of the
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Company hereunder shall be the joint and several rights and obligations and
liabilities of the Company.
13. Section Headings. The section headings contained herein are
included for convenience or references only and shall not constitute a part of
this Agreement for any other purpose.
14. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
15. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York applicable to contracts
made and to be performed entirely within such State, regardless of the law that
might be applied under principles of conflicts of law.
16. Severability. In the event that any provision of this Agreement or
the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless that provision held
invalid shall substantially impair the benefits of the remaining portions of
this Agreement.
17. Taxes. The amount of any payment paid by the Company under this
Agreement shall be increased by the amount, if any, of any taxes (other than
income taxes) or other governmental charges levied in respect of such payments,
so that BRS is made whole for such taxes or charges.
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IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the day and year first above written.
BRUCKMANN, ROSSER, SHERRILL & CO., INC.
By: /s/ Stephen F. Edwards
---------------------------------
Name: Stephen F. Edwards
Title: Managing Director
PENHALL INTERNATIONAL CORP.
By: /s/ John T. Sawyer
---------------------------------
Name: John T. Sawyer
Title: President
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and C. GEORGE BUSH, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Regional Manager, Los Angeles Basin.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
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2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
the
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date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean C. George Bush.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Regional Manager, Los Angeles Basin, for the Term. Employee agrees
that Employee will perform such duties as are customarily performed by a person
holding such positions in similar companies, and will report directly to the
President of Employer. Employee will, at all times, abide by all personnel
policies of Employer, as in effect from time to time, and will faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
perform all of the duties that may be required of and from Employee pursuant to
the terms of this Employment Agreement.
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5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in Anaheim, California, or at such other
locations as Employer designates from time to time. However, except for normal
business travel, Employee's principal place of business shall remain in Anaheim,
California, during the Term, and Employee will not be required to relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of One Hundred Sixty Thousand Dollars ($160,000.00) per
year, paid in accordance with Employer's regular payroll practices as same may
exist from time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
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6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
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(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
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(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during fiscal year ended June 30, 1998
(the "Bonus Payment") to be paid over twelve (12) months, in accordance with
Employer's payroll policies. The Bonus Payment shall be in lieu of the bonus
payments that Employee would have received during the remainder of the Term. In
addition, for a period of twelve (12) months, Employee shall be entitled to the
benefits provided in Sections 6.4(a) and 6.4(b). Such Base Salary/Bonus Payments
are in lieu of, and not in addition to, severance benefits under any other
Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant
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to Section 7.3 herein. However, Employer's obligation to make such payments
shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
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8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment
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Agreement. Except as provided herein, this Employment Agreement shall inure to
and be binding upon each of the Parties and their respective legal
representatives, heirs, successors, and assigns.
10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are
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located, all of whom shall be retired judges who are actively involved in
hearing private cases, who are on the "Independent" (or "Gold Card") list, and
who are residents of the area in which the Company's headquarters are located.
If the Parties are unable to agree upon an arbitrator from such list, they shall
each strike names alternatively from the list, with the first to strike being
determined by lot. After each Party has used three strikes, the remaining name
on the list shall be the arbitrator. Unless mutually agreed otherwise by the
Parties, any arbitration shall be conducted at a location within fifty (50)
miles from the location of the Company's headquarters. If the Parties cannot
agree upon a location for the arbitration, the arbitrator shall determine the
location within such fifty (50) mile radius. The fees and expenses of the
arbitrator shall initially be borne equally by the parties; provided, however,
that each Party shall initially be responsible for the fees and expenses of its
own representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs
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(including but not limited to witness fees), court costs, arbitrators' fees,
arbitration administrative fees, travel expenses, and other out-of-pocket
expenses or costs of such other proceedings, as may be fixed by any court of
competent jurisdiction, arbitrator or other judicial or quasi-judicial body
having jurisdiction thereof, whether or not such litigation or proceedings
proceed to a final judgment or award. For the purposes of this Section, any
Party receiving an arbitration award or a judgment for damages or other amounts
shall be deemed to be the prevailing Party, regardless of amount of the damage
awarded or whether the award or judgment was based on all or some of such
Party's claims or causes of action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may
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designate by written notice given in accordance with this section. Notice may
also be given upon receipt of electronic facsimile, provided that any facsimile
notice shall only be deemed received if (a) the transmission thereof is
confirmed, and (b) facsimile notice is followed by written notice, made either
by (i) personal delivery thereof, or (ii) via deposit in registered or certified
mail, postage prepaid, within three (3) business days following the facsimile
notice. Notices shall be addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to
Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: C. George Bush
1801 Penhall Way
Anaheim, CA 92803
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
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18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
Agreement is therefore deemed to have been jointly prepared by the Parties, and
any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
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breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
The Parties hereto have set their hands the day and year first above
written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
---------------------------------------
Its: President
"EMPLOYER"
/s/ C. George Bush
------------------------------------------
C. GEORGE BUSH
"EMPLOYEE"
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Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and BRUCE VARNEY, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Regional Manager, Southwest.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
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2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
the
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date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean Bruce Varney.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Regional Manager, Southwest, for the Term. Employee agrees that
Employee will perform such duties as are customarily performed by a person
holding such positions in similar companies, and will report directly to the
President of Employer. Employee will, at all times, abide by all personnel
policies of Employer, as in effect from time to time, and will faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
perform all of the duties that may be required of and from Employee pursuant to
the terms of this Employment Agreement.
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5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in San Diego, California, or at such
other locations as Employer designates from time to time. However, except for
normal business travel, Employee's principal place of business shall remain in
San Diego, California, during the Term, and Employee will not be required to
relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of One Hundred Thirty-Five Thousand Dollars ($135,000.00)
per year, paid in accordance with Employer's regular payroll practices as same
may exist from time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
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6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
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(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
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(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during the fiscal year ended June 30,
1998 (the "Bonus Payment") to be paid over twelve (12) months, in accordance
with Employer's payroll policies. The Bonus Payment shall be in lieu of the
bonus payments that Employee would have received during the remainder of the
Term. In addition, for a period of twelve (12) months, Employee shall be
entitled to the benefits provided in Sections 6.4(a) and 6.4(b). Such Base
Salary/Bonus Payments are in lieu of, and not in addition to, severance benefits
under any other Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant to Section 7.3 herein. However, Employer's obligation to make such
payments
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shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
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(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment Agreement.
Except as provided herein, this Employment Agreement shall inure to and be
binding upon each of the Parties and their respective legal representatives,
heirs, successors, and assigns.
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10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are located, all of whom shall be retired judges who are
actively involved in hearing private cases, who are on the "Independent" (or
"Gold Card") list, and who are residents of the area in which the Company's
headquarters are located. If the Parties are unable to agree upon an arbitrator
from such list, they shall each strike names alternatively from the list, with
the first to strike being determined by lot. After each Party has used three
strikes, the remaining name on the list shall be the arbitrator. Unless mutually
agreed otherwise by the Parties,
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any arbitration shall be conducted at a location within fifty (50) miles from
the location of the Company's headquarters. If the Parties cannot agree upon a
location for the arbitration, the arbitrator shall determine the location within
such fifty (50) mile radius. The fees and expenses of the arbitrator shall
initially be borne equally by the parties; provided, however, that each Party
shall initially be responsible for the fees and expenses of its own
representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs (including but not limited to witness fees),
court costs, arbitrators' fees, arbitration administrative fees, travel
expenses, and other out-of-pocket expenses or costs of such other proceedings,
as may be fixed by any court of competent jurisdiction, arbitrator or other
judicial or quasi-judicial body having jurisdiction thereof,
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whether or not such litigation or proceedings proceed to a final judgment or
award. For the purposes of this Section, any Party receiving an arbitration
award or a judgment for damages or other amounts shall be deemed to be the
prevailing Party, regardless of amount of the damage awarded or whether the
award or judgment was based on all or some of such Party's claims or causes of
action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may designate by written notice given in accordance with this
section. Notice may also be given upon receipt of electronic facsimile, provided
that any facsimile notice shall only be deemed received if (a) the transmission
thereof is confirmed, and (b) facsimile notice is followed by written notice,
made either by (i) personal delivery
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thereof, or (ii) via deposit in registered or certified mail, postage prepaid,
within three (3) business days following the facsimile notice. Notices shall be
addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to
Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: Bruce Varney
5775 Eastgate Drive
San Diego, CA 92121
Telephone No.: (619) 550-1111
Facsimile No.: (619) 55-1120
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
Agreement is therefore deemed to have been jointly prepared by the Parties, and
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any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
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The Parties hereto have set their hands the day and year first above
written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
---------------------------------------
Its: President
"EMPLOYER"
/s/ Bruce Varney
------------------------------------------
BRUCE VARNEY
"EMPLOYEE"
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Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and SCOTT E. CAMPBELL, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Manager, National Contracting.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
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2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
the
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date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean Scott E. Campbell.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Manager, National Contracting, for the Term. Employee agrees that
Employee will perform such duties as are customarily performed by a person
holding such positions in similar companies, and will report directly to the
President of Employer. Employee will, at all times, abide by all personnel
policies of Employer, as in effect from time to time, and will faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
perform all of the duties that may be required of and from Employee pursuant to
the terms of this Employment Agreement.
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5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in Anaheim, California, or at such other
locations as Employer designates from time to time. However, except for normal
business travel, Employee's principal place of business shall remain in Anaheim,
California, during the Term, and Employee will not be required to relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of One Hundred Thousand Dollars ($100,000.00) per year,
paid in accordance with Employer's regular payroll practices as same may exist
from time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
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6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
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(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
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(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during the fiscal year ended June 30,
1998 (the "Bonus Payment") to be paid over twelve (12) months, in accordance
with Employer's payroll policies. The Bonus Payment shall be in lieu of the
bonus payments that Employee would have received during the remainder of the
Term. In addition, for a period of twelve (12) months, Employee shall be
entitled to the benefits provided in Sections 6.4(a) and 6.4(b). Such Base
Salary/Bonus Payments are in lieu of, and not in addition to, severance benefits
under any other Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant to Section 7.3 herein. However, Employer's obligation to make such
payments
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shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
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(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment Agreement.
Except as provided herein, this Employment Agreement shall inure to and be
binding upon each of the Parties and their respective legal representatives,
heirs, successors, and assigns.
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10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are located, all of whom shall be retired judges who are
actively involved in hearing private cases, who are on the "Independent" (or
"Gold Card") list, and who are residents of the area in which the Company's
headquarters are located. If the Parties are unable to agree upon an arbitrator
from such list, they shall each strike names alternatively from the list, with
the first to strike being determined by lot. After each Party has used three
strikes, the remaining name on the list shall be the arbitrator. Unless mutually
agreed otherwise by the Parties,
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any arbitration shall be conducted at a location within fifty (50) miles from
the location of the Company's headquarters. If the Parties cannot agree upon a
location for the arbitration, the arbitrator shall determine the location within
such fifty (50) mile radius. The fees and expenses of the arbitrator shall
initially be borne equally by the parties; provided, however, that each Party
shall initially be responsible for the fees and expenses of its own
representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs (including but not limited to witness fees),
court costs, arbitrators' fees, arbitration administrative fees, travel
expenses, and other out-of-pocket expenses or costs of such other proceedings,
as may be fixed by any court of competent jurisdiction, arbitrator or other
judicial or quasi-judicial body having jurisdiction thereof,
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whether or not such litigation or proceedings proceed to a final judgment or
award. For the purposes of this Section, any Party receiving an arbitration
award or a judgment for damages or other amounts shall be deemed to be the
prevailing Party, regardless of amount of the damage awarded or whether the
award or judgment was based on all or some of such Party's claims or causes of
action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may designate by written notice given in accordance with this
section. Notice may also be given upon receipt of electronic facsimile, provided
that any facsimile notice shall only be deemed received if (a) the transmission
thereof is confirmed, and (b) facsimile notice is followed by written notice,
made either by (i) personal delivery
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thereof, or (ii) via deposit in registered or certified mail, postage prepaid,
within three (3) business days following the facsimile notice. Notices shall be
addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to
Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: Scott E. Campbell
1801 Penhall Way
Anaheim, CA 92803
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
Agreement is therefore deemed to have been jointly prepared by the Parties, and
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any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
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The Parties hereto have set their hands the day and year first above
written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
---------------------------------------
Its: President
"EMPLOYER"
/s/ Scott E. Campbell
------------------------------------------
SCOTT E. CAMPBELL
"EMPLOYEE"
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Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and JACK S. HOBBS, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Manager, Southwest Contracts.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
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2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
the
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date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean Jack S. Hobbs.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Manager, Southwest Contracts, for the Term. Employee agrees that
Employee will perform such duties as are customarily performed by a person
holding such positions in similar companies, and will report directly to the
President of Employer. Employee will, at all times, abide by all personnel
policies of Employer, as in effect from time to time, and will faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
perform all of the duties that may be required of and from Employee pursuant to
the terms of this Employment Agreement.
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5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in San Diego, California, or at such
other locations as Employer designates from time to time. However, except for
normal business travel, Employee's principal place of business shall remain in
San Diego, California, during the Term, and Employee will not be required to
relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of Ninety-Five Thousand Dollars ($95,000.00) per year,
paid in accordance with Employer's regular payroll practices as same may exist
from time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
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6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
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(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
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(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during the fiscal year ended June 30,
1998 (the "Bonus Payment") to be paid over twelve (12) months, in accordance
with Employer's payroll policies. The Bonus Payment shall be in lieu of the
bonus payments that Employee would have received during the remainder of the
Term. In addition, for a period of twelve (12) months, Employee shall be
entitled to the benefits provided in Sections 6.4(a) and 6.4(b). Such Base
Salary/Bonus Payments are in lieu of, and not in addition to, severance benefits
under any other Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant to Section 7.3 herein. However, Employer's obligation to make such
payments
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shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
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(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment Agreement.
Except as provided herein, this Employment Agreement shall inure to and be
binding upon each of the Parties and their respective legal representatives,
heirs, successors, and assigns.
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10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are located, all of whom shall be retired judges who are
actively involved in hearing private cases, who are on the "Independent" (or
"Gold Card") list, and who are residents of the area in which the Company's
headquarters are located. If the Parties are unable to agree upon an arbitrator
from such list, they shall each strike names alternatively from the list, with
the first to strike being determined by lot. After each Party has used three
strikes, the remaining name on the list shall be the arbitrator. Unless mutually
agreed otherwise by the Parties,
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any arbitration shall be conducted at a location within fifty (50) miles from
the location of the Company's headquarters. If the Parties cannot agree upon a
location for the arbitration, the arbitrator shall determine the location within
such fifty (50) mile radius. The fees and expenses of the arbitrator shall
initially be borne equally by the parties; provided, however, that each Party
shall initially be responsible for the fees and expenses of its own
representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs (including but not limited to witness fees),
court costs, arbitrators' fees, arbitration administrative fees, travel
expenses, and other out-of-pocket expenses or costs of such other proceedings,
as may be fixed by any court of competent jurisdiction, arbitrator or other
judicial or quasi-judicial body having jurisdiction thereof,
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whether or not such litigation or proceedings proceed to a final judgment or
award. For the purposes of this Section, any Party receiving an arbitration
award or a judgment for damages or other amounts shall be deemed to be the
prevailing Party, regardless of amount of the damage awarded or whether the
award or judgment was based on all or some of such Party's claims or causes of
action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may designate by written notice given in accordance with this
section. Notice may also be given upon receipt of electronic facsimile, provided
that any facsimile notice shall only be deemed received if (a) the transmission
thereof is confirmed, and (b) facsimile notice is followed by written notice,
made either by (i) personal delivery
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thereof, or (ii) via deposit in registered or certified mail, postage prepaid,
within three (3) business days following the facsimile notice. Notices shall be
addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to
Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: Jack S. Hobbs
5775 Eastgate Drive
San Diego, CA 92121
Telephone No.: (619) 550-1111
Facsimile No.: (619) 550-1120
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
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Agreement is therefore deemed to have been jointly prepared by the Parties, and
any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
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The Parties hereto have set their hands the day and year first above
written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
---------------------------------------
Its: President
"EMPLOYER"
/s/ Jack S. Hobbs
------------------------------------------
JACK S. HOBBS
"EMPLOYEE"
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Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and VINCENT M. GUTIERREZ, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Manager, Los Angeles Basin Sales.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
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2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
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the date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean Vincent M. Gutierrez.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Manager, Los Angeles Basin Sales, for the Term. Employee agrees that
Employee will perform such duties as are customarily performed by a person
holding such positions in similar companies, and will report directly to the
President of Employer. Employee will, at all times, abide by all personnel
policies of Employer, as in effect from time to time, and will faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
perform all of the duties that may be required of and from Employee pursuant to
the terms of this Employment Agreement.
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5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in Anaheim, California, or at such other
locations as Employer designates from time to time. However, except for normal
business travel, Employee's principal place of business shall remain in Anaheim,
California, during the Term, and Employee will not be required to relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of Eighty-Six Thousand Dollars ($86,000.00) per year, paid
in accordance with Employer's regular payroll practices as same may exist from
time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
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6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
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(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
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(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during the fiscal year ended June 30,
1998 (the "Bonus Payment") to be paid over twelve (12) months, in accordance
with Employer's payroll policies. The Bonus Payment shall be in lieu of the
bonus payments that Employee would have received during the remainder of the
Term. In addition, for a period of twelve (12) months, Employee shall be
entitled to the benefits provided in Sections 6.4(a) and 6.4(b). Such Base
Salary/Bonus Payments are in lieu of, and not in addition to, severance benefits
under any other Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant to Section 7.3 herein. However, Employer's obligation to make such
payments
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shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
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(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment Agreement.
Except as provided herein, this Employment Agreement shall inure to and be
binding upon each of the Parties and their respective legal representatives,
heirs, successors, and assigns.
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10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are located, all of whom shall be retired judges who are
actively involved in hearing private cases, who are on the "Independent" (or
"Gold Card") list, and who are residents of the area in which the Company's
headquarters are located. If the Parties are unable to agree upon an arbitrator
from such list, they shall each strike names alternatively from the list, with
the first to strike being determined by lot. After each Party has used three
strikes, the remaining name on the list shall be the arbitrator. Unless mutually
agreed otherwise by the Parties,
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any arbitration shall be conducted at a location within fifty (50) miles from
the location of the Company's headquarters. If the Parties cannot agree upon a
location for the arbitration, the arbitrator shall determine the location within
such fifty (50) mile radius. The fees and expenses of the arbitrator shall
initially be borne equally by the parties; provided, however, that each Party
shall initially be responsible for the fees and expenses of its own
representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs (including but not limited to witness fees),
court costs, arbitrators' fees, arbitration administrative fees, travel
expenses, and other out-of-pocket expenses or costs of such other proceedings,
as may be fixed by any court of competent jurisdiction, arbitrator or other
judicial or quasi-judicial body having jurisdiction thereof,
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whether or not such litigation or proceedings proceed to a final judgment or
award. For the purposes of this Section, any Party receiving an arbitration
award or a judgment for damages or other amounts shall be deemed to be the
prevailing Party, regardless of amount of the damage awarded or whether the
award or judgment was based on all or some of such Party's claims or causes of
action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may designate by written notice given in accordance with this
section. Notice may also be given upon receipt of electronic facsimile, provided
that any facsimile notice shall only be deemed received if (a) the transmission
thereof is confirmed, and (b) facsimile notice is followed by written notice,
made either by (i) personal delivery
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thereof, or (ii) via deposit in registered or certified mail, postage prepaid,
within three (3) business days following the facsimile notice. Notices shall be
addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: Vincent M. Gutierrez
1801 Penhall Way
Anaheim, CA 92803
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
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Agreement is therefore deemed to have been jointly prepared by the Parties, and
any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
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<PAGE>
The Parties hereto have set their hands the day and year first above written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
------------------------------
Its: President
"EMPLOYER"
/s/ Vincent M. Gutierrez
---------------------------------
VINCENT M. GUTIERREZ
"EMPLOYEE"
16
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement"), dated as of August
4, 1998, is by and between PENHALL INTERNATIONAL CORP., an Arizona corporation
("Employer"), and LEIF MC AFEE, an individual ("Employee").
1.0 RECITALS.
1.1 Employer is engaged in the business of providing
construction and demolition services.
1.2 Employee is experienced and qualified to serve Employer as
its Manager, San Leandro.
1.3 Employer and Employee desire to enter into this Employment
Agreement upon the terms and conditions set forth herein.
IN CONSIDERATION FOR the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which is hereby admitted and acknowledged, the Parties agree as
follows.
2.0 DEFINITIONS.
2.1 "Anniversary Date" shall mean each yearly anniversary of
the Effective Date during the Term.
2.2 "Base Salary" shall mean that component of Employee's
compensation provided for pursuant to Section 6.1 of this Employment Agreement.
2.3 "Bonus Payment" shall have the meaning described in
Section 7.3 herein.
2.4 "Business of Employer" shall mean the business of
construction and demolition services.
1
<PAGE>
2.5 "Confidential Information" shall mean the Employer's trade
secrets and other proprietary or confidential business information. Such trade
secrets include, but are not limited to, the Employer's operating systems and
procedures, marketing strategy, budgets, business plans, forecasts, financial
information, knowledge concerning Employer's customers and their specialized
requirements (including any lists and databases pertaining thereto), any
technical, financial, or commercial data or other information, whether or not
patentable (including without limitation product formulas, research and
development reports, ideas, concepts, know-how, software, formulae, lay-outs,
improvements, design drawings, plans, processes or models), and computer source
codes, programs, and data bases not otherwise available to the public.
Confidential Information shall also mean all notes, memoranda, files, records,
writings and other documents which Employee shall prepare, use, or come into
contact with during Employee's employment with Employer which relate to any of
the foregoing, or are useful in any manner to the Business of Employer.
2.6 "Disabled" or "Disability" shall mean any one of the
following:
(a) A determination by two (2) competent Employer medical
doctors (one of who shall be the personal physician of the Employee involved, if
such Employee has a personal physician, and the other shall be a competent
medical doctor of Employer) that such Employee has become:
(i) mentally or physically incompetent;
(ii) incapable of managing such Employee's or his own
affairs; or
(iii) totally disabled.
(b) Employee or the Employer has received notification from
the insurance company with whom, for purposes of this Employment Agreement, the
insurance policy or policies insuring the life of the Employee is held, that
further premium payments are waived pursuant to disability waiver of premium
provisions of any such policy; or
(c) Employee is receiving full disability insurance and in the
case of (a) or (b) above, such condition continues for a period of one year from
the
2
<PAGE>
date initially so determined, or the aggregate of two years during any
continuous five year period. In either case, the Disability shall be deemed to
have "occurred" on the date the determination of Disability is first made.
(d) Employee has been unable to perform substantially all of
his duties hereunder for an aggregate of one hundred eighty (180) days during a
period of three hundred sixty (360) consecutive calendar days, as the result of
any illness, injury, accident, or medical condition of either a physical or
psychological nature.
(e) If there is a disagreement between Employee's personal
physician and Employer's physician, then those two physicians shall appoint a
third physician and the Employee and Employer shall be bound the decision of the
third physician.
2.7 "Discharge for Cause" shall mean termination of employment
for material misrepresentation, embezzlement, or dishonesty of Employee with
respect to the Business of Employer; intoxication or illegal drug use which
materially interferes with Employee's job performance; excessive absenteeism
which, in Employer's reasonable determination, materially and adversely
interferes with Employee's ability to perform Employee's duties; gross
insubordination; conviction of a felony adversely affecting Employee's ability
to carry on Employee's normal duties; breach of Employee's covenant to provide
Employee's exclusive services to Employer; or Employee's other material breach
of this Employment Agreement.
2.8 "Effective Date" shall mean August 4, 1998.
2.9 "Employee" shall mean Leif McAfee.
2.10 "Employer" shall mean Penhall International Corp., an
Arizona corporation, or any successor corporation or entity.
2.11 "Employment Agreement" shall mean this Employment
Agreement between Employer and Employee.
2.12 "Expiration Date" shall mean the earlier of (a) July 31,
2001, or (b) the date on which this Employment Agreement is terminated pursuant
to Section 7.1 herein.
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<PAGE>
2.13 "Fiscal Year" shall mean the twelve-month period starting
July 1 and ending June 30.
2.14 "Party" shall mean Employer or Employee individually.
"Parties" shall mean the foregoing collectively.
2.15 "Shares" shall mean all shares of capital stock of
Employer now or hereafter owned or held by Employee.
2.16 "Stock Option Plan" shall mean that certain 1998 Stock
Option Plan adopted as of August 4, 1998, entered into between Employer and
Employee.
2.17 "Term" shall mean the period during which Employee is to
be employed by Employer as provided in Section 4.0 hereof.
3.0 EMPLOYMENT. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer, upon the terms and conditions contained
in this Employment Agreement.
4.0 TERM. The term of this Employment Agreement shall be for a
period of three (3) years, commencing on August 4, 1998, and ending on July 31,
2001, unless Employee's employment is sooner terminated pursuant to the
provisions of this Employment Agreement. The Term shall thereafter automatically
be extended and such extensions shall be for consecutive twelve (12) month
periods unless terminated as hereinafter provided.
5.0 CAPACITIES AND DUTIES.
5.1 Title. Employee is hereby employed by Employer as
Employer's Manager, San Leandro, for the Term. Employee agrees that Employee
will perform such duties as are customarily performed by a person holding such
positions in similar companies, and will report directly to the President of
Employer. Employee will, at all times, abide by all personnel policies of
Employer, as in effect from time to time, and will faithfully, industriously,
and to the best of Employee's ability, experience, and talents, perform all of
the duties that may be required of and from Employee pursuant to the terms of
this Employment Agreement.
4
<PAGE>
5.2 Place of Service. Employee shall render these services at
Employer's principal place of business in San Leandro, California, or at such
other locations as Employer designates from time to time. However, except for
normal business travel, Employee's principal place of business shall remain in
San Leandro, California, during the Term, and Employee will not be required to
relocate.
5.3 Exclusive Services. Employee agrees to devote Employee's
best efforts and exclusive time to rendering services to Employer. Except as
provided herein, Employee is specifically restricted from being employed by any
other employer while under Employer's employ pursuant to this Employment
Agreement unless Employee has obtained Employer's written consent to do so. If
during the Term, Employee engages in other material work activities in breach of
this Section 5.3 for compensation or other consideration, or receives
compensation for activities associated with Employee's employment hereunder from
sources other than Employer, it shall be grounds for Discharge for Cause.
Nothing in this Section shall prohibit Employee from engaging in activities that
do not reasonably interfere with his duties for Employer, such as volunteering
for charities, church or other similar organizations.
6.0 BASE COMPENSATION AND NORMAL BENEFITS.
6.1 Base Salary. During the Term hereof, Employee shall
receive a Base Salary of Eighty-Six Thousand Dollars ($86,000.00) per year, paid
in accordance with Employer's regular payroll practices as same may exist from
time to time.
6.2 Bonus. Pursuant to Employer's compensation policy,
Employee is a member of Employer's executive group and shall be a participant in
Employer's executive bonus pool. Employee understands that distributions from
such executive bonus pool are discretionary and are made in accordance with
Employer's bonus policies as in existence from time to time. Notwithstanding any
change in Employer's bonus practices and policies (whether occurring as a result
of Employer's acquisition or otherwise), Employee shall be entitled to
participate in any bonus programs in existence from time to time based upon the
same criteria applicable to other members of Employer's executive group.
5
<PAGE>
6.3 Expenses.
(a) Standards. Employee is authorized to incur reasonable
business expenses for promoting the Business of Employer, including expenses for
travel, entertainment and similar items. The amount, nature and extent of all
such expenses shall always be subject to the control, supervision and direction
of the President. Employee is expected to spend a reasonable amount of time
promoting the Business of Employer.
(b) Reimbursement. Employee's duties are not confined to
in-office meetings or activities, or meetings or activities occurring only
during office hours. Rather, Employee shall participate in business discussions
as necessities arise. In this regard, Employee is expected, as part of his
duties, to expend funds in reasonable amounts in connection with such business
meetings and provide facilities for the furtherance of such business activities,
including business entertainment and business meetings. In addition, Employee
shall be required to obtain an automobile for business use in connection with
the services to be rendered by Employee under this Employment Agreement. Such
costs shall be reimbursed by Employer, but shall always be subject to the
control, supervision and direction of the Board of Directors.
6.4 Benefits. During the Term hereof, Employer shall also
provide Employee in accordance with Employer's policy the following benefits:
(a) Group medical and dental insurance for Employee.
(b) Group life and disability insurance for Employee.
(c) Retirement benefits, including 401(k) plan on the same
basis as Employer provides to its other executive employees from time to time.
(d) Holidays on the same basis as Employer provides to its
other executive employees from time to time.
(e) Paid vacation and sick time on the same basis as Employer
provides to its other executive employees from time to time.
6
<PAGE>
(f) Use of a company automobile, reasonably satisfactory to
Employee, or if Employee uses his own automobile, then Employee shall be
reimbursed for all such automobile expenses.
(g) Employer Stock Option Plan.
6.5 Withholding. Employee authorizes Employer to make any and
all applicable withholdings or deductions for federal and state taxes and other
items Employer may be required to withhold or deduct, as such items may exist
from time to time.
6.6 Review. Employee's compensation and benefits will be
subject to annual review and adjustment effective on every Anniversary Date
Employee's and in no event shall Employee's Base Salary be decreased during the
Term.
7.0 TERMINATION.
7.1 Termination of Agreement. This Employment Agreement may be
terminated prior to July 31, 2001, as follows:
(a) Death. Immediately upon the death of Employee.
(b) Notice. By (i) resignation by Employee or (ii) discharge,
other than Discharge for Cause, by Employer.
(c) Discharge for Cause. Upon thirty (30) days written notice
by Employer to Employee outlining the reason for any Discharge for Cause;
provided, however, Employee shall have thirty (30) days following the receipt of
such notice to cure such reasons for Discharge for Cause. If Employee does not
cure such reasons for Discharge for Cause within thirty (30) days, Employee
shall be terminated following the thirty (30) day written notice period;
provided, however, if Employee commences to effect a cure within the foregoing
thirty (30) day period, Employee shall be permitted such additional time as may
be reasonable (based on the nature of the breach, the possibility for cure, and
the effect of delay on Employer) to cure so long as Employee diligently
continues to seek to effect a cure.
7
<PAGE>
(d) Breach. Upon thirty (30) days written notice by the
non-breaching Party to the breaching Party of a breach of this Employment
Agreement. The non-breaching Party shall have thirty (30) days following the
receipt of the notice to cure the breach or otherwise make suitable arrangements
or accommodations to which the non-breaching Party agrees. If the non-breaching
Party does not cure such breach or otherwise make such accommodations within
thirty (30) days, this Employment Agreement shall be terminated within thirty
(30) days thereafter.
(e) Disability. Immediately upon Employer giving written
notice to Employee that Employee has become Disabled,
(f) Reduction in Position, Title or Duties. Upon thirty (30)
days written notice by Employee if Employee's position, title, or duties are
reduced.
7.2 Effect of Termination. Except as expressly provided
herein, upon the Expiration Date, Employer shall not have any obligation to
provide Employee's Base Salary, expenses, reimbursements, or employee benefits,
other than Base Salary accrued up to and including the Expiration Date and other
employee benefits required to be provided by applicable law. Such benefits shall
be paid to Employee within fifteen (15) days after termination.
7.3 Termination Other than for Cause, Resignation, Disability,
Breach or Death. In the event of termination of this Employment Agreement due to
any reason other than Discharge for Cause, breach by Employee, resignation or
Disability or death of Employee, Employee shall be entitled to severance pay
equal to one (1) year's Base Salary plus an amount equal to the bonus paid to
Employee pursuant to Section 6.2 hereof during the fiscal year ended June 30,
1998 (the "Bonus Payment") to be paid over twelve (12) months, in accordance
with Employer's payroll policies. The Bonus Payment shall be in lieu of the
bonus payments that Employee would have received during the remainder of the
Term. In addition, for a period of twelve (12) months, Employee shall be
entitled to the benefits provided in Sections 6.4(a) and 6.4(b). Such Base
Salary/Bonus Payments are in lieu of, and not in addition to, severance benefits
under any other Employer plan.
7.4 No Duty to Mitigate. Employee shall have no duty to
mitigate damages in the event that Employee is terminated and receives payments
pursuant to Section 7.3 herein. However, Employer's obligation to make such
payments
8
<PAGE>
shall be reduced on a dollar for dollar basis, to the extent that Employee has
secured employment or becomes engaged with another business and earns a salary.
8.0 PROTECTION AGAINST DISCLOSURE OF CONFIDENTIAL INFORMATION.
8.1 Access to Confidential Information. Employee recognizes
and acknowledges that Employee will have access to certain Confidential
Information of the Employer and that such information constitutes Employer's
valuable, special and unique property.
8.2 Acknowledgment. Employer and Employee acknowledge that the
Confidential Information is sophisticated, is not generally known to the public
or to others in Employer's industry, and has entailed the expenditure of
substantial cost and effort on Employer's behalf over a long period of time.
Therefore, Employer and Employee agree that the definition of Confidential
Information applies to this Employment Agreement, without regard to whether any
or all of the matters would be deemed confidential, material, or important.
Employer and Employee stipulate that the matters are confidential, material and
important and gravely affect the effective and successful conduct of the
Business of Employer.
8.3 Property of Employer. All Confidential Information, and
all records, forms, supplies or reproduced copies provided by Employer to
Employee, or disclosed by Employer to Employee, or obtained by Employee during
the performance of Employee's services under this Employment Agreement, shall
remain Employer's property and shall be accounted for and returned by Employee
upon Employer's demand. Such items shall include, but not be limited to, items
such as documents; interoffice memos; records; any correspondence (regardless of
the author) notebooks; client lists; or any similar items provided by Employer.
It is expressly understood that the Employee's license to the possession of any
Confidential Information, forms or supplies, or any copies thereof, are to
fulfill Employee's obligations to Employer under this Employment Agreement, and
Employee has no other right or proprietary interest in those items.
8.4 Protection of Confidential Information.
(a) Employee agrees to hold the Confidential Information in
strictest confidence for Employer's sole benefit.
9
<PAGE>
(b) Employee specifically agrees that Employee will not, at
any time, in any fashion, form or manner, either directly or indirectly,
divulge, publish, disclose or communicate to any person, firm or corporation any
of the Confidential Information, or use the same for Employee's own benefit or
to Employer's detriment.
(c) This restriction does not apply to information customarily
divulged in the ordinary course of Employer's business, or information that is
already in the public domain.
8.5 Equitable Relief. Employer and Employee agree that any
breach of this section is material, and that due to the irreparable nature of
the harm Employer may suffer, Employer shall be entitled to injunctive and
equitable relief in addition to any other legal remedies Employer may have.
8.6 Ownership and Assignment of Inventions. Employee agrees
that, as to any techniques, processes, innovations, or inventions ("Inventions")
made by Employee, solely or jointly with others, during the term hereof or prior
to the Expiration Date which are made in whole or in part with Employer's
equipment, supplies, facilities, trade secrets, or time, or which relate at the
time of conception or reduction to practice to the business of Employer or the
Employer's actual or demonstrably anticipated research or development of
Employer or which relate to any work performed by the Employee for Employer,
such Inventions shall belong to Employer and Employee hereby assigns all right,
title, and interest to such Inventions to Employer.
9.0 ASSIGNMENT, SUCCESSORS & ASSIGNS. Employee shall not have
any right to assign, delegate or otherwise transfer this Employment Agreement,
or any of Employee's rights, duties or any other interests herein to any party,
and any such purported assignment shall be null and void. Employer may, with
notice to Employee assign, delegate and transfer its rights and obligations
hereunder to any successor corporation or entity which continues the Business of
Employer and has the capacity to perform pursuant to the provisions of this
Employment Agreement and as otherwise provided in this Employment Agreement.
Except as provided herein, this Employment Agreement shall inure to and be
binding upon each of the Parties and their respective legal representatives,
heirs, successors, and assigns.
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<PAGE>
10.0 ENTIRE AGREEMENT.
10.1 Sole Agreement. This Employment Agreement (including any
attachments and exhibits hereto) contains the Parties' sole and entire agreement
regarding the subject matter hereof, and supersedes any and all other agreements
between them, except with respect to any continuing obligations of Employee
under confidentiality, non-disclosure or invention assignment agreements
executed by Employee for Employer's benefit.
10.2 No Other Representations. The Parties acknowledge and
agree that no Party has made any representations (a) concerning the subject
matter hereof, or (b) inducing the other Party to execute and deliver this
Employment Agreement, except those representations specifically referenced
herein. The Parties have relied on their own judgment in entering into this
Employment Agreement.
10.3 No Reliance. The Parties further acknowledge that any
statements or representations that may have been made by either of them to the
other are void and of no effect. No Party has relied on any such statements or
representations in dealing with the other(s).
11.0 ARBITRATION. Arbitration in accordance with the then most
applicable rules of the American Arbitration Association shall be the exclusive
remedy for resolving any dispute or controversy between the Parties to this
Agreement, including, but not limited to, any dispute regarding the application,
interpretation or validity of this Agreement. The arbitrator shall be empowered
to grant only such relief as would be available in a court of law. In the event
of any conflict between this Agreement and the rules of the American Arbitration
Association, the provisions of this Agreement shall be determinative. If the
Parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of seven arbitrators designated by the office of the
American Arbitration Association having responsibility for the city in which the
Company's headquarters are located, all of whom shall be retired judges who are
actively involved in hearing private cases, who are on the "Independent" (or
"Gold Card") list, and who are residents of the area in which the Company's
headquarters are located. If the Parties are unable to agree upon an arbitrator
from such list, they shall each strike names alternatively from the list, with
the first to strike being determined by lot. After each Party has used three
strikes, the remaining name on the list shall be the arbitrator. Unless mutually
agreed otherwise by the Parties,
11
<PAGE>
any arbitration shall be conducted at a location within fifty (50) miles from
the location of the Company's headquarters. If the Parties cannot agree upon a
location for the arbitration, the arbitrator shall determine the location within
such fifty (50) mile radius. The fees and expenses of the arbitrator shall
initially be borne equally by the parties; provided, however, that each Party
shall initially be responsible for the fees and expenses of its own
representatives and witnesses. The prevailing Party in the arbitration
proceeding, as determined by the arbitrator, and in any enforcement or other
court proceedings, shall be entitled to the extent provided by law to
reimbursement from the other party for all of the prevailing Party's costs
(including but not limited to the arbitrator's compensation), expenses and
reasonable attorney's fees. Judgment may be entered on the award of the
arbitrator in any court having jurisdiction.
12.0 NO MODIFICATIONS OR WAIVERS.
12.1 Must Be Written. Waivers or modifications of this
Employment Agreement, or of any covenant, condition, or limitation contained
herein, are valid only if in writing. Such writing must be duly executed by the
Parties.
12.2 No Use As Evidence: One or more waivers or modifications
of any covenant, term or condition in this Employment Agreement by any Party
shall not be construed by any other Party as a waiver or modification applicable
to any subsequent breach of the same covenant, term or condition. Evidence of
any such waiver or modification may not be offered or received in evidence in
any proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Employment Agreement, or a Party's rights or obligations under
it. This limitation does not apply if the waiver or modification is in writing
and duly executed as provided above.
13.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other
proceedings are instituted by any Party to enforce any of the terms or
conditions of this Employment Agreement against any other Party hereto, the
prevailing Party in such litigation, arbitration or proceedings shall be
entitled, as an additional item of damages, to such reasonable attorneys' and
other professional fees and costs (including but not limited to witness fees),
court costs, arbitrators' fees, arbitration administrative fees, travel
expenses, and other out-of-pocket expenses or costs of such other proceedings,
as may be fixed by any court of competent jurisdiction, arbitrator or other
judicial or quasi-judicial body having jurisdiction thereof,
12
<PAGE>
whether or not such litigation or proceedings proceed to a final judgment or
award. For the purposes of this Section, any Party receiving an arbitration
award or a judgment for damages or other amounts shall be deemed to be the
prevailing Party, regardless of amount of the damage awarded or whether the
award or judgment was based on all or some of such Party's claims or causes of
action.
14.0 GOVERNING LAW/VENUE. This Employment Agreement shall be
governed pursuant to the laws of the State of California. For purposes of this
Employment Agreement, sole venue shall be the County of Orange, and State of
California.
15.0 SEVERABILITY. If any part, clause, or condition of this
Employment Agreement is held to be partially or wholly invalid, unenforceable,
or inoperative for any reason whatsoever, such shall not affect any other
provision or portion hereof, which shall continue to be effective as though such
invalid, inoperative, or unenforceable part, clause or condition had not been
made.
16.0 INTERPRETATION.
16.1 Section Headings. The section and subsection headings of
this Employment Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
16.2 Capitalized Terms. Except as otherwise expressly provided
herein, all capitalized terms defined in this Employment Agreement shall have
the meaning ascribed to them herein.
16.3 Gender and Number. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
17.0 NOTICE. For purposes hereof, delivery of written notice
shall be complete upon personal delivery, or upon mailing if mailed with proper
postage paid by United States registered or certified mail, addressed to the
Party at the address set forth below, or to such other mailing address as the
Parties hereto may designate by written notice given in accordance with this
section. Notice may also be given upon receipt of electronic facsimile, provided
that any facsimile notice shall only be deemed received if (a) the transmission
thereof is confirmed, and (b) facsimile notice is followed by written notice,
made either by (i) personal delivery
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<PAGE>
thereof, or (ii) via deposit in registered or certified mail, postage prepaid,
within three (3) business days following the facsimile notice. Notices shall be
addressed to the Parties as follows:
Employer: PENHALL
INTERNATIONAL CORP.
1801 Penhall Way
Anaheim, CA 92803
Attn: John T. Sawyer
Telephone: (714) 772-6450
Facsimile: (714) 778-8437
With required copy to
Employer's Attorney:
Telephone No.: ( )
Facsimile No.: ( )
Employee: Leif McAfee
13750 Catalina Street
San Leandro, CA 94577
Telephone No.: (510) 357-8810
Facsimile No.: (510) 357-8817
With required copy to: THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612
Attn: Steven P. Howard, Esq.
Telephone No.: (949) 474-7368
Facsimile No.: (949) 474-7732
Any Party may change the address to which to send notices by
notifying the other Party of such change of address in writing in accordance
with this section.
18.0 JOINT PREPARATION. All Parties to this Employment
Agreement have negotiated it at length, and have had the opportunity to consult
with and be represented by their own competent counsel. This Employment
Agreement is therefore deemed to have been jointly prepared by the Parties, and
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<PAGE>
any uncertainty or ambiguity existing in it shall not be interpreted against any
Party under the presumptions of California Civil Code Section 1654, but rather
shall be interpreted according to the rules generally governing the
interpretation of contracts.
19.0 THIRD PARTY BENEFICIARIES. Except as provided herein, no
term or provision of this Employment Agreement is intended to be, or shall be,
for the benefit of any person, firm, organization or corporation not a Party
hereto, and no such other person, firm, organization or corporation shall have
any right or cause of action hereunder.
20.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to
perform any and all acts to execute and deliver any and all documents necessary
or convenient to carry out the terms of this Employment Agreement.
21.0 COUNTERPARTS. This Employment Agreement may be executed
in one or more counterparts, each of which when executed and delivered shall be
an original, and all of which when executed shall constitute one and the same
instrument.
22.0 LIMITATION ON DAMAGES. Employee hereby acknowledges and
agrees that: (i) Employer, acting through its Board of Directors, shall have the
right and power to remove Employee from office and terminate his employment at
any time and for any reason whatsoever without incurring liability to Employee
other than payment of the Base Salary, Bonus Payment, benefits, and other
compensation that may be required under this Employment Agreement, and (ii)
provided that Employer has not breached this Employment Agreement or violated
applicable laws, that the Employer shall have no liability whatsoever in
connection with any claims by Employee that such termination has damaged
Employee's career or prospects for securing other employment or that such
termination has impaired the value of Employee's investment in Employer. The
maximum liability of the Employer on account of this Agreement (or any breach of
this Employment Agreement) under no circumstances shall exceed the amount of
Base Salary, Bonus Payment, benefits and other compensation required to be paid
hereunder. However, the Parties agree that this Section 22.0 applies only to a
breach of the Employment Agreement by Employer and not to any other cause of
action Employee may have, including claims in tort.
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<PAGE>
The Parties hereto have set their hands the day and year first above
written.
PENHALL
INTERNATIONAL CORP.,
an Arizona corporation
By: /s/ John T. Sawyer
------------------------------------
Its: President
"EMPLOYER"
/s/ Leif McAfee
---------------------------------------
LEIF MC AFEE
"EMPLOYEE"
16
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EXHIBIT 12
PENHALL INTERNATIONAL INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes.............. $ 6,647,000 $ 8,315,000 $ 8,623,000 $ 9,864,000 $ 5,232,000
Fixed charges--interest expense........... $ 399,000 $ 623,000 $ 919,000 $ 947,000 $ 1,204,000
------------ ------------ ------------ ------------- ------------
$ 7,046,000 $ 8,938,000 $ 9,542,000 $ 10,811,000 $ 6,436,000
------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------- ------------
Ratio of Earnings to Fixed Charges........ 17.7 to 1 14.3 to 1 10.4 to 1 11.4 to 1 5.3 to 1
</TABLE>
<PAGE>
Exhibit 21
PENHALL INTERNATIONAL CORP.
Subsidiaries of the Company
State or Other
Jurisdiction of
Name Incorporation
- ---- ---------------
Penhall Rental Corp. California
Penhall Company California
<PAGE>
EXHIBIT 23.2
The Board of Directors
Penhall International Inc., and Subsidiaries:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Orange County, California
September 29, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in the Prospectus, which is
a part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
Moss Adams LLP
/s/ Moss Adams LLP
Costa Mesa, California
September 29, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the inclusion of our
audit report dated January 29, 1998 on the Highway Services, Inc. financial
statements as of December 31, 1997 and for the year then ended (and all
references to our firm) included in the Prospectus, which is a part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ John A. Knutson & Co., PLLP
Certified Public Accountant
Minneapolis, Minnesota
September 29, 1998
<PAGE>
FORM T-1
----------------------------------------------
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
Penhall International Corp.
(Exact name of obligor as specified in its charter)
Arizona 86-0634394
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1801 Penhall Way
P. O. Box 4609 92803
Anaheim, CA (Zip Code)
(Address of principal executive offices)
<PAGE>
------------------
Penhall Rental Corp.
(Exact name of registrant as specified in its charter)
California 33-0286366
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1801 Penhall Way
P. O. Box 4609 92803
Anaheim, CA (Zip Code)
(Address of principal executive offices)
------------------
Penhall Company
(Exact name of registrant as specified in its charter)
California 33-0349226
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1801 Penhall Way
P. O. Box 4609 92803
Anaheim, CA (Zip Code)
(Address of principal executive offices)
------------------
12% Senior Notes due 2006
(Title of the indenture securities)
----------------------------------------------
----------------------------------------------
<PAGE>
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b)Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Penhall International Corp., Penhall Rental Corp., and Penhall Company
currently are not in default under any of its outstanding securities for
which United States Trust Company of New York is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form
T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
<TABLE>
<S> <C>
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
</TABLE>
<PAGE>
16. List of Exhibits
----------------
(cont'd)
<TABLE>
<S> <C>
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
</TABLE>
NOTE
- ----
As of September 23, 1998 the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 23rd day
of September, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Christine C. Collins
-----------------------------
Christine C. Collins
Assistant Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
-----------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
------------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
------------
Total Assets $2,919,930
------------
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
------------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
------------
Total Liabilities $2,745,347
------------
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
------------
Total Stockholder's Equity 174,583
------------
Total Liabilities and
Stockholder's Equity $2,919,930
------------
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001070772
<NAME> PENHALL INTERNATIONAL CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 234
<SECURITIES> 0
<RECEIVABLES> 23,454
<ALLOWANCES> (995)
<INVENTORY> 1,458
<CURRENT-ASSETS> 33,541
<PP&E> 80,187
<DEPRECIATION> (35,180)
<TOTAL-ASSETS> 88,323
<CURRENT-LIABILITIES> 19,986
<BONDS> 18,564
0
0
<COMMON> 14,540
<OTHER-SE> 29,606
<TOTAL-LIABILITY-AND-EQUITY> 88,323
<SALES> 0
<TOTAL-REVENUES> 101,170
<CGS> 0
<TOTAL-COSTS> 72,395
<OTHER-EXPENSES> 23,543
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 1,036
<INCOME-PRETAX> 5,232
<INCOME-TAX> 2,531
<INCOME-CONTINUING> 2,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,701
<EPS-PRIMARY> 6.68
<EPS-DILUTED> 6.55
</TABLE>
