<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
Date of Report: December 7, 1999
CECO ENVIRONMENTAL CORP.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
New York 0-7099 13-2566064
- ----------------------------- ---------- -------------------
(State or other jurisdiction Commission (IRS Employer
of incorporation) File No.) Identification No.)
505 University Avenue, Suite 1400
Toronto, Canada M5G 1X3
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code: (416) 593-6543
<PAGE>
Item 2. Acquisition or Disposition of Assets
Stock Purchase Agreement
- ------------------------
On December 7, 1999, CECO Environmental Corp. purchased all the issued
stock of The Kirk & Blum Manufacturing Company and kbd/Technic, Inc., two
companies with related ownership located in Cincinnati, Ohio (collectively, the
"Companies"). The stock of the Companies were purchased from the Blum family and
various trusts for their benefit. The Blum family members are the descendents of
one of the founders of The Kirk & Blum Manufacturing Company. No member of the
Blum family was affiliated with CECO Environmental Corp. prior to the
acquisition of the Companies by CECO Environmental Corp.
The consideration for each of the acquisitions was determined through
arms-length negotiations between CECO Environmental Corp. and the former owners
of the Companies. The purchase price was approximately $25 million dollars plus
the assumption of $5 million of existing indebtedness of the Companies.
Employment Agreements, Bonuses and Stock Purchase Warrants
- ----------------------------------------------------------
In connection with such acquisition, CECO Group, Inc. entered into a
five year employment agreement with Richard J. Blum. Lawrence J. Blum and David
D. Blum entered into five year employment agreements with The Kirk and Blum
Manufacturing Company. These employment agreements provide for annual salaries
of $206,000, $100,000 and $154,000, respectively, for the three Blums. These
agreements granted Richard, Lawrence and David Blum warrants to purchase
448,000, 217,000 and 335,000 shares of common stock of CECO Environmental Corp.,
respectively, at $2.9375, the closing price of CECO Environmental Corp.'s common
stock on December 7, 1999. These warrants become exercisable at the rate of 25%
per year over the four years following December 7, 1999.
The warrants have a term of ten years.
In addition, these employment agreements provide that each of the Blums
will be paid a bonus with respect to each of the fiscal years ended as December
31, of 2000, 2001, 2002, 2003 and 2004 equal to, in the aggregate, (i) 25% of
the net income before interest and taxes in excess of $4,000,000 of CECO
Environmental Corp. as reported on its audited financial statements filed with
the Securities and Exchange Commission with respect to such year, less (ii) the
contribution made on behalf of such employees to any profit sharing or 401(k)
plan by CECO Environmental Corp., CECO Group, Inc., The Kirk & Blum
Manufacturing Company or any affiliate (other than contributions made by the
employees) with respect to such fiscal year. Of such aggregate bonus, Richard J.
Blum will receive 44.8%, Lawrence J. Blum will receive 21.7% and David D. Blum
will receive 33.5%.
No such bonus will be paid if CECO Environmental Corp. or CECO Group,
Inc. is in default under any financing agreement with any bank or other
financial institution or any other material agreement to which CECO
2
<PAGE>
Environmental Corp. or CECO Group, Inc. is a party, or the payment of such bonus
would cause CECO Environmental Corp. or CECO Group, Inc. to be in default under
any such agreement. If no bonuses are paid as a result of the operation of the
foregoing sentence, the unpaid bonuses will accrue interest at the rate of 8%
per annum. Any accrued and unpaid bonuses and interest will be paid as soon as
CECO Environmental Corp. or CECO Filters, Inc. ceases to be in default under
such agreements and such payment would not cause a default under any such
agreement. The payment of these bonuses is also subject to a subordination
agreement between the employees and the banks providing financing for the
acquisition of the Companies.
Bank Financing
- --------------
The financing for the transaction was provided by a bank loan facility
in the amount of $25 million in term loans and a $10 million revolving credit
facility. The $14.5 term loan has a maturity of November 30, 2004; the $8.5
million term loan has a maturity of May 31, 2006; and the $2 million term loan
has a maturity of 90 days of December 7, 1999. Interim payments of principal are
required with respect to the $14.5 million and the $8.5 million term loans. CECO
Environmental Corp. intends to borrow against the cash value of life insurance
owned by The Kirk & Blum Manufacturing Company in order to repay the $2 million
term loan due 90 days after December 7, 1999. The bank loan facility was
provided by PNC Bank, National Association, The Fifth Third Bank and Bank One,
N.A.
In addition, as a condition to obtaining the bank financing, CECO
Environmental Corp. placed $5 million of subordinated debt. The proceeds of the
bank loans and the additional $5 million of subordinated debt were used to pay
the purchase prices for the Companies, to pay expenses incurred in connection
with the acquisitions, to refinance existing indebtedness and for working
capital purposes. In connection with these loans, the banks providing the loan
facility received a lien on substantially all the assets of CECO Environmental
Corp. and its subsidiaries.
Subordinated Debt
- -----------------
The subordinated debt was provided to CECO Environmental Corp. in the
amount of $4,000,000 by Green Diamond Oil Corp., $500,000 by ICS Trustee
Services, Inc. and $500,000 by Harvey Sandler. ICS Trustee Services, Inc. and
Harvey Sandler are not affiliated with the Company. Green Diamond Oil Corp. is
owned 50% by Phillip DeZwirek, the Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer of CECO Environmental Corp. and a
major stockholder and 50% by Jason DeZwirek, Phillip DeZwirek's son and a
director and secretary of CECO Environmental Corp. and a major stockholder of
CECO Environmental Corp. The promissory notes which were issued to evidence the
subordinated debt provide that they accrue interest at the rate of 12% per
annum, payable semi-annually subject to the subordination agreement with the
banks providing the financing referred to above.
3
<PAGE>
In consideration for the subordinated lenders making CECO Environmental
Corp. the subordinated loans, CECO Environmental Corp. issued to the
subordinated lenders warrants to purchase up to 1,000,000 shares of CECO
Environmental Corporation common stock for $2.25 per share, the closing price of
CECO Environmental Corp. common stock on the day that the subordinated lenders
entered into an agreement with CECO Environmental Corp. to provide the
subordinated loans. The warrants are exercisable from June 6, 2000 until 5:30
p.m. New York time on December 7, 2009. In connection with such warrants, the
subordinated lenders were granted certain registration rights with respect to
their warrants and shares of common stock of CECO Environmental Corp. into which
the warrants are convertible.
The KBD/Technic, Inc. Voting Trust
- ----------------------------------
One of the Companies being acquired, kbd/Technic, Inc., may engage in
engineering services in the State of Ohio and in other states. In order to be
corporation licensed to perform engineering services in the state of Ohio, Ohio
law requires that a majority of the stock of kbd/Technic, Inc. be owned by a
licensed engineer. CECO Group, Inc. has therefore arranged that the stock of
kbd/Technic, Inc. be owned by a voting trust of which Richard J. Blum, the
president of CECO Group, Inc., is the trustee. CECO Group, Inc. remains the
beneficial owner of 100% of the stock of kbd/Technic, Inc.
The Business of The Kirk & Blum Manufacturing Company and kbd/Technic, Inc.
- ---------------------------------------------------------------------------
The newly acquired Kirk & Blum Manufacturing Company ("K&B"), with
headquarters in Cincinnati, Ohio, is a leading provider of turnkey engineering,
design, manufacturing and installation services in the air pollution control
industry. K&B's business is focused on designing, building, and installing clean
air systems inside manufacturing plants, as well as systems that purify
emissions from manufacturing facilities. K&B serves its customers from offices
and plants in Cincinnati, OH, Indianapolis, IN, Louisville and Lexington, KY,
Columbia, TN, and Greensboro, NC. In October 1998, Engineering News Record
ranked K&B as the largest specialty sheet metal contractor in the country. With
a diversified base of more than 1,500 active customers, K&B provides services to
a number of industries including aerospace, ceramics, metalworking, printing,
paper, food, foundries, metal plating, woodworking, chemicals, tobacco, glass,
automotive, and pharmaceuticals. No customer accounted for more than 8% of total
1998 revenue, while the top 50 customers accounted for approximately 54% of
K&B's revenues.
K&B has four lines of business, all evolving from the original air
pollution systems business. The largest division, located in six strategic
locations and accounting for 76% of net sales in 1998, is the Air Pollution
Control Systems Division. This division fabricates and installs industrial
ventilation, dust, fume, and mist control systems, as well as automotive spray
booth systems, industrial and process piping, and other industrial sheet metal
work. Well known customers include General Motors, Procter & Gamble, Ingersoll
Milling Machine, Toyota, Saturn, Matsushita, and Alcoa.
4
<PAGE>
The Custom Metal Fabrication Division accounted for 11% of net sales in
1998. This division fabricates parts, subassemblies, and customized products for
air pollution and non-air pollution applications from sheet, plate, and
structurals. The Air Pollution Control Systems Division purchases products and
services from this division and accounted for 12% of its total sales in 1998.
This relationship gives K&B the ability to meet project schedules and cost
targets in air pollution control projects while generating additional
fabrication revenue in support of non-air pollution control industries in the
tri-state region surrounding Cincinnati. External customers include Siemens
Energy & Automation, Duriron and Eastman Chemical. At the end of 1998 in an
effort to reduce overhead, the Custom Metal Fabrication Division was merged into
the Cincinnati Air Pollution Control Systems Division operation.
The Component Parts Division accounted for 11% of net sales in 1998.
This division provides standard and custom components for contractors and
companies that design and/or install their own air systems. Products include
angle rings, elbows, cut-offs, and other components used in ventilation systems.
Major distributors of this division's products include N.B. Handy, Three States
Supply, Albina Pipe Bending, and Indiana Supply.
Kbd/Technic, Inc., a sister company of K&B, is a specialty engineering
firm concentrating in industrial ventilation. Services offered include air
system testing and balancing, source emission testing, industrial ventilation
engineering, turnkey project engineering (civil/structural, electrical), sound
and vibration system engineering, and other special projects. In addition to
generating service revenue, kbd/Technic, Inc. often serves as a referral source
for other K&B divisions. Customers include General Motors, Ford, Baldwin Graphic
Products, Emtec, and Heidelberg & Harris.
K&B has approximately 550 full-time employees, including approximately
425 shop and field personnel represented by unions. The level of field personnel
fluctuates with the level of work. Union contracts with shop and field personnel
expire on various dates at various locations.
Change in Corporate Structure
- -----------------------------
As part of the acquisition of The Kirk & Blum Manufacturing Company,
CECO Environmental Corp. created CECO Group, Inc. as a wholly-owned subsidiary
for the purpose of holding all the stock of its operating companies. Immediately
following the acquisition of The Kirk & Blum Manufacturing Company, CECO Group,
Inc. beneficially owned The Kirk & Blum Manufacturing Company, kbd/Technic, Inc.
(through the voting trust referred to above) and the approximately 94% of CECO
Filters, Inc. formerly held by CECO Environmental Corp. The other operating
companies controlled by CECO Environmental Corp. are wholly-owned subsidiaries
of CECO Filters, Inc.
5
<PAGE>
On December 10, 1999, pursuant to his employment contract with CECO
Group, Inc., Richard J. Blum, the president of The Kirk & Blum Manufacturing
Company, was appointed President and Chief Executive Officer of CECO Group, Inc.
CECO Environmental Corp. has no plans to change the business of these
two companies and will integrate these companies with the existing businesses of
CECO Environmental Corp.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits:
(a) Financial Statements of Business Acquired.
The financial statements of The Kirk & Blum Manufacturing Company for
the nine-month period ended September 30, 1999 will be filed by amendment to the
Form 8-K on or before February 18, 2000.
No financial statements are included for kbd/Technic, Inc., the second
company acquired, because kbd/Technic, Inc. constitutes a financially
insignificant portion of the businesses acquired.
The financial statements of The Kirk & Blum Manufacturing Company for
the fiscal years ended December 31, 1996, 1997 and 1998 and other data are
presented on the following pages:
6
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
RIPPE & KINGSTON CO PSC
Certified Public Accountants
& Consultants Rookwood Building o 1077 Celestial Street
Cincinnati, Ohio 45202-1696
(513) 241-1375
Fax: (513) 241-7843
The Shareholders
The Kirk & Blum Manufacturing Company
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of The Kirk & Blum
Manufacturing Company as of December 31, 1996, and the related statements of
income, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of The Kirk & Blum
Manufacturing Company as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Rippe & Kingston Co.PSC
April 16, 1997, except for Note 14, as to
Which the date is December 2, 1999.
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 441,578
Available-for-sale securities 2,290,448
Current portion of debt securities to be held-to-maturity 56,399
Accounts receivable:
Trade 14,483,774
Employee advances and other 58,770
Related party 103,339
-------------
14,645,883
Less allowance for doubtful accounts ( 87,000)
-------------
14,558,883
Inventories:
Raw materials and supplies 810,657
Work in process and finished products 490,671
-------------
1,301,328
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,131,953
Prepaid expenses and deposits 65,072
-------------
Total current assets 21,845,661
PROPERTY, PLANT AND EQUIPMENT 2,962,390
INVESTMENTS AND OTHER ASSETS:
Capital stock of The Factory Power Company, at cost 24,300
Intangible pension asset 188,333
Debt securities to be held-to-maturity, net of
current portion 696,464
Cash surrender value of life insurance, net of policy
loans of $338,509 at December 31, 1996 2,484,956
------------
Total investments and other assets 3,394,054
------------
$28,202,104
============
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,563,547
Accrued liabilities:
Salaries and wages 1,790,202
Taxes 195,017
Workers compensation 85,500
Profit sharing contribution 540,906
Other 225,051
------------
2,836,676
Billings in excess of costs and estimated earnings on
uncompleted contracts 933,408
Current portion of long-term debt 10,000
Current portion of capital lease obligations 127,448
Current portion of post retirement health care liability 40,000
Note payable - related party 320,000
------------
Total current liabilities 7,831,079
LONG-TERM DEBT, less current portion 723,670
CAPITAL LEASE OBLIGATIONS, less current portion 389,854
WORKERS COMPENSATION LIABILITY, net of current portion 354,763
POST RETIREMENT HEALTH CARE LIABILITY, net of current portion 646,349
PENSION LIABILITY 91,659
SHAREHOLDERS' EQUITY:
Class A common stock, no par value, authorized 250,000 shares,
Issued 104,420 shares 64,420
Excess of additional pension liability over unrecognized
prior service cost ( 142,533)
Retained earnings 18,242,843
-------------
Total shareholders' equity 18,164,730
-------------
$28,202,104
=============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF INCOME
For The Year Ended December 31, 1996
NET SALES $66,575,044
COST OF SALES:
Materials purchased (less discounts and scrap sales) 24,246,975
Direct labor 14,996,013
Direct costs 8,366,860
Manufacturing expenses 5,281,449
Change in ending inventories and percentage of completion costs 631,707
-----------
53,523,004
-----------
Gross profit 13,052,040
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling 3,510,625
General and administrative 4,785,614
-----------
8,296,239
-----------
Income from operations 4,755,801
OTHER INCOME (EXPENSE):
Interest income 146,812
Interest expense ( 112,634)
Rental income 18,000
Pension ( 123,200)
Other 1,600
------------
( 69,422)
------------
Income before taxes 4,686,379
PROVISION FOR INCOME TAXES 101,635
------------
Net income $ 4,584,744
============
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Common Stock - Class A (Note 8) Class B (Note 8) Excess of Additional
-------------------------------- ------------------- Pension Liability Over
Held in Out- Out- Unrecognized Prior
Treasury Standing Amount Standing Amount Service Cost
-------- -------- ------ -------- ------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995, as previously
reported 42,750 64,420 $64,420 $ -
Prior period adjustment - minimum pension
liability adjustment (Note 14) - - - ( 342,359)
Prior period adjustment - retiree health care - - - -
Prior period adjustment - self insured
workers compensation - - - -
------ ------ ------ ---------
BALANCE, December 31, 1995, Restated 42,750 64,420 64,420 ( 342,359)
Retirement of common stock
held in treasury ( 2,750) - - -
Minimum pension liability adjustment - - - 199,826
Net income - - - -
Earnings distributions - - - -
------ ------ ------- ------- -------- ---------
BALANCE, December 31, 1996 40,000 64,420 $64,420 - $ - ($142,533)
====== ====== ======= ====== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Earnings Equity
---------- ---------------
<S> <C> <C>
BALANCE, December 31, 1995, as previously
reported $16,550,313 $16,614,733
Prior period adjustment - minimum pension
liability adjustment (Note 14) - ( 342,359)
Prior period adjustment - retiree health care ( 667,452) ( 667,452)
Prior period adjustment - self insured
workers compensation ( 337,262) ( 337,262)
------------ ------------
BALANCE, December 31, 1995, Restated 15,545,599 15,267,660
Retirement of common stock
held in treasury - -
Minimum pension liability adjustment - 199,826
Net income 4,584,744 4,584,744
Earnings distributions ( 1,887,500) ( 1,887,500)
------------ ------------
BALANCE, December 31, 1996 $18,242,843 $18,164,730
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,584,744
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of equipment 14,471
Depreciation and amortization 786,640
Amortization of bond discount ( 50,056)
Change in assets and liabilities:
Increase in accounts receivable ( 2,930,744)
Decrease in inventories 249,505
Decrease in prepaid expenses and deposits 8,798
Increase in cash surrender value of life insurance ( 148,310)
Increase in accounts payable 340,271
Increase in accrued liabilities 278,117
Net decrease in billings in excess of costs and estimated earnings
and costs and estimated earnings in excess of billings on
uncompleted contracts ( 548,486)
Post retiree health care liability 18,897
-----------
Net cash provided by operating activities 2,603,847
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 22,876
Capital expenditures ( 703,028)
Collections on note receivable 126,400
Proceeds from maturities of debt securities 55,000
Purchases of available-for-sale securities ( 5,040,448)
Proceeds from sale of available-for-sale securities 2,750,000
-----------
Net cash used in investing activities ( 2,789,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - related party 320,000
Principal payments on long-term debt ( 10,000)
Principal payments on capital lease obligation ( 117,532)
Distributions paid to shareholders ( 2,700,000)
-----------
Net cash used in financing activities ( 2,507,532)
-----------
Net decrease in cash and cash equivalents ( 2,692,885)
CASH AND CASH EQUIVALENTS:
Beginning of year 3,134,463
-----------
End of year $ 441,578
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $111,307
========
Income taxes $ 76,854
========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company manufactures and fabricates custom
sheet metal products which include dust and fume control systems, automotive
paint booths, tanks and sheet metal component parts. Sales are made on an
unsecured basis to customers located throughout the United States.
Revenue Recognition - For financial reporting purposes, the Company
records revenue on all significant contracts using the percentage-of-completion
method of accounting. The percentage-of-completion is determined by experienced
company personnel on a contract-by-contract basis based on labor and/or material
costs incurred relative to total estimated contract costs. The specific method
chosen is the most applicable based on the nature of each contract. The contract
price is recognized as revenue based upon the percentage of completion. If the
con-tract extends beyond one year and revisions are necessary in cost and profit
estimates during the course of the work, they are reflected in the accounting
period in which the facts giving rise to the revision become known. General and
administrative expenses are charged to expense when incurred.
The Company uses the completed-contract method of accounting for all
contracts where nominal costs have been incurred prior to year-end or the total
contract value is relatively insignificant.
Cash and Cash Equivalents - For purposes of the statement of cash
flows, cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventories - The labor content of work-in-process and finished
products and all inventories of steel of the Company are valued at the lower of
cost or market using the last-in, first-out (LIFO) method. All other inventories
of the Company are accounted for at the lower of average cost or market. If the
first-in, first-out (FIFO) method of inventory valuation had been used by the
Company for all classes of inventory, the carrying value of inventories would
have been approximately $1,817,000 higher than that reported at December 31,
1996.
Depreciation - Depreciation and amortization are computed generally on
accelerated methods over the estimated useful lives of the related assets.
Credit Risk - As of December 31, 1996, the Company's cash on deposit
with its bank exceeded the federally insured amount.
Income Taxes - The Company's shareholders have elected to be treated as
an S-Corporation for income tax reporting purposes and, thereby, have the
Company's taxable income pass
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
through to its shareholders to be taxed on their individual returns. Certain
state and local taxing authorities do not recognize S-Corporation status as
allowed under the Internal Revenue Code. In these situations, the Company has
provided for income taxes at appropriate rates on applicable taxable income.
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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS
At year end, the Company has several uncompleted construction projects
at stages of completion ranging from 5% to 99%. Costs and estimated earnings on
these contracts consist of the following at December 31:
Costs incurred on uncompleted contracts $7,079,266
Estimated earnings on uncompleted contracts 1,133,506
----------
8,212,772
Less billings to date ( 6,014,227)
----------
$2,198,545
==========
The above amounts are reflected in the financial statements as follows:
<TABLE>
<CAPTION>
<S> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts $3,131,953
Billings in excess of costs and estimated earnings on uncompleted
contracts ( 933,408)
----------
$2,198,545
==========
</TABLE>
3. INVESTMENTS
Available-For-Sale Securities - Available-for-sale securities consist
of investments in a mutual fund at December 31, 1996. The carrying value of the
shares approximate the fair market value at December 31, 1996. The mutual fund
paid $38,732 in dividends during 1996.
Debt Securities to be Held-to-Maturity - Debt securities to be
held-to-maturity at December 31 consist of the following:
Zero coupon municipal bonds, carried at amortized cost
maturing through March, 1998. $745,363
Notes receivable 7,500
--------
$752,863
========
8
<PAGE>
The face amount and fair value of the municipal bonds were $800,000 and
$729,487 at December 31, 1996, respectively.
4. REVOLVING LINE OF CREDIT
The Company has available through July 11, 1997, a $6,000,000
line-of-credit which bears interest at the bank's prime rate (8.25% at December
31, 1996). The Company has the option at any time to adjust the interest rate to
the London Inter-Bank offered rate (LIBOR) plus 200 basis points. The
line-of-credit is unsecured and, at December 31, 1996, had no outstanding
borrowings.
5. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to the beneficiaries of an estate of a former shareholder in
annual installments of $10,000 plus interest at 6% with payment of the
remaining principal and interest due in 1998, secured by 40,000 shares of
treasury common stock. $733,670
Less current portion ( 10,000)
--------
$723,670
========
</TABLE>
Future maturities of long-term debt are as follows:
Year Ending
December 31,
1997 $ 10,000
1998 723,670
--------
$733,670
========
6. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease obligations expiring
through 2001. The assets are being amortized over the related lease terms. The
cost included in machinery and
9
<PAGE>
6. CAPITAL LEASE OBLIGATIONS (Continued)
equipment and accumulated amortization is $890,982 and $585,059 at December 31,
1996, respectively.
Future minimum lease payments under the capital lease agreements as of
December 31, 1996 for each of the next five years and in the aggregate are:
Year Ending
December 31,
1997 $156,552
1998 156,552
1999 156,552
2000 87,845
2001 23,961
--------
581,462
Less amount representing interest ( 64,160)
--------
517,302
Less current portion ( 127,448)
--------
$389,854
========
7. RELATED PARTY TRANSACTIONS
Accounts Receivable - The Company has a non-interest bearing receivable
due from an entity which is related through common ownership. The receivable
results from expenses paid by the Company on behalf of the related entity,
including 401(k) contributions, utility expenses and insurance expenses. The
Company also leases space on a month-to-month basis to the related entity for
$1,500 per month. Rental income for this related entity was $18,000 for the year
ended December 31, 1996.
Note Payable - The Company has an unsecured $320,000 demand note
payable to The Factory Power Company, an entity in which the Company has stock
ownership. Interest is due monthly at the London Inter-Bank offered rate (LIBOR)
(5.5% at December 31, 1996) plus .75%.
8. COMMON STOCK AND SUBSEQUENT EVENT
Under agreements with certain employee/shareholders, the Company is
required to redeem their holdings of common stock in the event of the employee's
death, desire to sell, termination of employment, or retirement. Shares
purchased by the employee/shareholders prior to December 14, 1969 (1,750 shares)
are redeemable at 75% of the book value per share of the Company for the fiscal
year end preceding the date of the transaction.
10
<PAGE>
8. COMMON STOCK AND SUBSEQUENT EVENT (Continued)
Under agreements with certain other shareholders, the Company has the
right of first refusal regarding the sale or other transfer of the Company's
common stock.
On March 19, 1997, the Company amended its Articles of Incorporation
and authorized 300,000 shares of no par value common stock, of which 75,000
shares are Class A voting and 225,000 shares of Class B non-voting common stock.
Each shareholder has the same rights and privileges except that the Class B
non-voting shareholders cannot vote. The Company issued 188,010 shares of Class
B non-voting common stock.
9. LEASE COMMITMENTS
The Company is committed under noncancelable operating lease agreements
to lease certain plant facilities, computer equipment and other equipment
through January, 1998.
Future minimum annual operating lease payments are approximately as
follows:
Year Ending
December 31,
1997 $ 96,000
1998 4,000
--------
$100,000
========
Total rental expense was approximately $1,107,000 for 1996.
10. PENSION AND PROFIT SHARING PLANS
The Company sponsors a noncontributory defined benefit pension plan for
certain union employees. The plan is funded in accordance with the funding
requirements of the Employee Retirement Income Security Act of 1974.
Net periodic pension cost for the fiscal period ended December 31, 1996
is as follows:
Service cost $155,400
Interest cost 183,700
Return on plan assets ( 168,300)
Net amortization and deferral ( 47,600)
--------
Net periodic pension cost $123,200
========
11
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
The following reconciles the funded status of the defined benefit plan
with amounts recognized in the accompanying balance sheet at December 31:
Actuarial present value of benefit obligations:
Vested benefits $2,641,360
Nonvested benefits 44,712
----------
Accumulated benefit obligation 2,686,072
Effect of anticipated future events 393,515
----------
Projected benefit obligation 3,079,587
Plan assets at fair value ( 2,594,413)
----------
Unfunded excess of projected benefit
obligation over plan assets $ 485,174
==========
The unfunded excess consists of the following:
Unamortized prior service costs $188,333
Unrecognized net asset at transition ( 158,800)
Unrecognized net loss 694,848
Prepaid pension asset ( 239,207)
--------
$485,174
========
Unamortized prior service cost $188,333
Unrecognized net asset at transition ( 158,800)
Unrecognized net loss 694,848
Prepaid pension asset ( 239,207)
--------
$485,174
========
The Company has recognized the excess of the accumulated benefit
obligation in excess of the plan assets, the minimum liability, of $91,659, in
the balance sheet at December 31, 1996.
The weighted average discount rate used in determining the net periodic
pension income and the projected benefit obligation was 7% for the year ended
December 31, 1996. The expected rate of return on plan assets utilized was 8.5%
for the year ended December 31, 1996. Benefits under the plan are not based on
wages and, therefore, future wage adjustments have no effect on the projected
benefit obligation.
The Company also sponsors a post retirement health care plan for office
employees. Effective January 1, 1990, the plan was amended and retirees after
that date are not eligible to receive benefits under the plan. The plan allows
retirees who have attained the age of 65 to elect the type of coverage desired.
The following amounts relate to the Company's defined benefit post retirement
health care plan at December 31, 1996.
12
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
Benefit obligation $686,349
Fair value of plan assets -
--------
Funded status ($686,349)
========
Accrued benefit cost recognized in the statement of
financial position $686,349
Weighted average assumption - discount rate 7%
Benefits under the plan are not based on wages and, therefore, future
wage adjustments have no effect on the projected benefit obligation. For
measurement purposes, a 7% annual rate of increase in the cost of health care
benefits was assumed for 1996. The rate was assumed to increase through 2004 at
4% to 6%.
Benefit cost $113,150
Company distributions 121,225
Benefits paid 121,225
In addition to the above, the Company contributes to several
multi-employer defined benefit plans. These plans cover substantially all of its
contracted union employees not covered in the aforementioned plan. If the
Company were to withdraw from its participation in these multi-employer plans at
that time, the Company will be required to contribute its share of the Plan's
unfunded benefit obligation. Management has no intention of withdrawing from any
plan and, therefore, no liability has been provided for in the accompanying
financial statements.
The Company also sponsors a profit sharing and 401(k) savings
retirement plan for non-union employees. The plan covers substantially all
employees who have completed one year of service, completed 1,000 hours of
service and who have attained 21 years of age. The plan allows the Company to
make discretionary contributions and provides for employee salary reductions of
up to 15%. The Company provides matching contributions of 25% of the first 5% of
employee contributions. Matching contributions during 1996 were $57,185.
Discretionary contributions for the year ended December 31, 1996 were $542,815.
Amounts charged to pension expense under the above plans totaled
approximately $1,224,000 for the year ended December 31, 1996.
11. SELF-INSURANCE COVERAGES
The Company is self-insured for workers compensation coverage in the
state of Ohio, in accordance with the requirements of the state. In Ohio, the
Company will pay all eligible workers
13
<PAGE>
11. SELF-INSURANCE COVERAGES (Continued)
compensation claims up to $350,000 per individual and the statutory limit in the
aggregate for the state. All eligible claims in excess of these amounts are
covered under a policy with an insurance company. The balance sheet includes a
liability of $440,263 at December 31, 1996 for claims incurred.
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 consist of the
following:
Land $ 247,773
Buildings and improvements 4,749,771
Machinery and equipment 8,204,993
Automotive 733,332
Office furniture and fixtures 1,223,776
-----------
15,159,645
Less accumulated depreciation and amortization ( 12,197,255)
-----------
Net property, plant and equipment $ 2,962,390
===========
13. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 includes unbilled amounts of
$2,477,066. Unbilled amounts at year end represent work performed during the
year which are not billed until January of the following year.
14. PRIOR PERIOD ADJUSTMENT
Shareholders' equity at December 31, 1995 has been adjusted to correct
an error for not previously recording a minimum pension liability relating to a
defined benefit plan for union employees. The accumulated benefit obligation
exceeded the plan assets at December 31, 1995. The error had no effect on net
income for 1996.
The accompanying 1996 financial statements have been restated to
correct for errors associated with the underrecording of liabilities related to
self insured workers compensation for the State of Ohio and benefits due under a
retiree health care plan. The net effect was to decrease net income for 1996 by
$121,898. Retained earnings at the beginning of 1996 has been decreased by
$1,004,714 for the effects of not recording the liabilities at December 31,
1995.
14
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
RIPPE & KINGSTON CO PSC
Certified Public Accountants
& Consultants Rookwood Building o 1077 Celestial Street
Cincinnati, Ohio 45202-1696
(513) 241-1375
Fax: (513) 241-7843
The Shareholders
The Kirk & Blum Manufacturing Company
Independent Auditors' Report
We have audited the accompanying balance sheet of The Kirk & Blum
Manufacturing Company as of December 31, 1998 and 1997, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of The Kirk & Blum
Manufacturing Company as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Rippe & Kingston Co.PSC
March 11, 1999
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
BALANCE SHEET
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,359,776 $ 1,129,544
Available-for-sale securities - 1,025,808
Securities to be held-to-maturity - 745,740
Accounts receivable:
Trade 14,681,985 14,328,645
Employee advances and other 46,880 83,453
Related party 44,118 44,232
------------ ------------
14,772,983 14,456,330
Less allowance for doubtful accounts (125,000) (87,000)
------------ ------------
14,647,983 14,369,330
Inventories:
Raw materials and supplies 626,920 752,693
Work in process and finished products 460,505 399,781
------------ ------------
1,087,425 1,152,474
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,029,373 2,207,121
Prepaid expenses and deposits 211,305 191,303
------------ ------------
Total current assets 19,335,862 20,821,320
PROPERTY, PLANT AND EQUIPMENT 2,762,749 2,782,558
INVESTMENTS AND OTHER ASSETS:
Capital stock of The Factory Power Company, at cost 24,300 24,300
Intangible pension asset 186,467 173,934
Cash surrender value of life insurance, net of policy loans
of $117,731 at December 31, 1998 and 1997 2,741,442 2,578,544
------------ ------------
Total investments and other assets 2,952,209 2,776,778
------------ ------------
$25,050,820 $26,380,656
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,817,657 $ 2,218,846
Accrued liabilities:
Salaries and wages 1,842,472 1,652,361
Taxes 165,857 164,026
Workers compensation 98,000 109,000
Profit sharing contribution 432,557 390,538
Other 784,463 402,718
------------ ------------
3,323,349 2,718,643
Billings in excess of costs and estimated earnings on
uncompleted contracts 364,446 1,536,410
Current portion of long-term debt - 723,670
Current portion of capital lease obligations 144,470 135,691
Current portion of post retirement healthcare liability 40,000 40,000
------------ ------------
Total current liabilities 6,689,922 7,373,260
LINE OF CREDIT 4,000,000 -
CAPITAL LEASE OBLIGATIONS, less current portion 107,521 254,164
WORKERS COMPENSATION LIABILITY less current portion 147,529 245,708
POST RETIREMENT HEALTHCARE LIABILITY, less current portion 627,699 656,244
PENSION LIABILITY - 161,710
SHAREHOLDERS' EQUITY:
Class A common stock, no par value, 105,000 shares,
authorized, 102,670 issued 62,670 62,670
Class B nonvoting common stock, no par value, 225,000
shares authorized, 188,010 shares issued and outstanding 188,010 188,010
Accumulated other comprehensive income - (214,226)
Retained earnings 13,227,469 17,653,116
------------ ------------
Total shareholders' equity 13,478,149 17,689,570
------------ ------------
$25,050,820 $26,380,656
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF INCOME
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $69,443,929 $63,420,741
COST OF SALES:
Materials purchased (less discounts and scrap sales) 23,474,968 23,236,675
Direct labor 18,261,258 15,222,995
Direct costs 9,647,061 8,149,281
Manufacturing expenses 5,143,569 5,025,975
Change in ending inventories and percentage of
completion costs 265,462 316,941
----------- -----------
56,792,318 51,951,867
----------- -----------
Gross profit 12,651,611 11,468,874
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling 3,719,505 3,410,621
General and administrative 5,134,988 4,953,749
----------- -----------
8,854,493 8,364,370
----------- -----------
Income from operations 3,797,118 3,104,504
OTHER INCOME (EXPENSE):
Interest income 90,096 193,414
Interest expense (263,584) (90,345)
Rental income 21,600 21,700
Other 26,694 185,808
----------- -----------
(125,194) 310,577
----------- -----------
Income before taxes 3,671,924 3,415,081
PROVISION FOR INCOME TAXES 62,571 60,110
----------- -----------
Net income $ 3,609,353 $ 3,354,971
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Accumulated Other
Common Stock - Class A Class B Comprehensive
------------------------------- ------------------- Income - Minimum
Held in Out- Out- Pension Liability
Treasury Standing Amount Standing Amount Adjustment
--------- --------- -------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996, as
previously reported 40,000 64,420 $64,420 ($142,533)
Prior period adjustment - retiree health care - - - -
Prior period adjustment - self insured
workers compensation - - - -
------ ------ ------ --------
BALANCE, December 31, 1996, as restated 40,000 64,420 64,420 (142,533)
Comprehensive income:
Net income (Note 14) - - - -
Other comprehensive income:
Minimum pension liability adjustment - - - (71,693)
Comprehensive income
Purchase and retirement of common stock - (1,750) (1,750) -
Issuance of common stock - - - 188,010 $188,010 -
Distributions - - - - - -
------ ------ ------ ------- -------- ---------
BALANCE, December 31, 1997 40,000 62,670 62,670 188,010 188,010 (214,226)
Comprehensive income:
Net income - - - - - -
Other comprehensive income:
Minimum pension liability adjustment - - - - - 214,226
Comprehensive income
Distributions - - - - - -
------ ------ ------ ------- -------- ---------
BALANCE, December 31, 1998 40,000 62,670 $62,670 188,010 $188,010 $ -
====== ====== ======= ======= ======== =========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Earnings Equity
----------- -------------
<S> <C> <C>
BALANCE, December 31, 1996, as
previously reported $19,369,455 $19,291,342
Prior period adjustment - retiree health care (686,349) (686,349)
Prior period adjustment - self insured
workers compensation (440,263) (440,263)
----------- -----------
BALANCE, December 31, 1996, as restated 18,242,843 18,164,730
Comprehensive income:
Net income (Note 14) 3,354,971 3,354,971
Other comprehensive income:
Minimum pension liability adjustment - (71,693)
----------
Comprehensive income 3,283,278
Purchase and retirement of common stock (116,360) (118,110)
Issuance of common stock (188,010) -
Distributions (3,640,328) (3,640,328)
---------- ----------
BALANCE, December 31, 1997 17,653,116 17,689,570
Comprehensive income:
Net income 3,609,353 3,609,353
Other comprehensive income:
Minimum pension liability adjustment - 214,226
------------
Comprehensive income 3,823,579
Distributions (8,035,000) (8,035,000)
----------- -----------
BALANCE, December 31, 1998 $13,227,469 $13,478,149
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,609,353 $3,354,971
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain (loss) on sale of equipment (17,763) (4,004)
Depreciation and amortization 740,303 751,574
Allowance for doubtful accounts 38,000 -
Amortization of bond discount (4,260) (50,377)
Changes in assets - (increase) decrease:
Accounts receivable (316,653) 195,153
Inventories 65,049 148,854
Prepaid expenses and deposits 19,981 (113,474)
Cash surrender value of life insurance (162,898) (93,588)
Changes in liabilities - increase (decrease):
Accounts payable 598,811 (1,344,701)
Accrued liabilities 506,527 (227,088)
Billings in excess of costs and estimated earnings and
costs and estimated earnings in excess of billings (994,216) 1,527,834
Post retirement healthcare liability (28,545) 9,895
---------- ----------
Net cash provided by operating activities 4,053,689 4,155,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 17,763 13,165
Capital expenditures (720,494) (580,903)
Collections on note receivable - 1,900
Proceeds from redemption of securities held to maturity 750,000 50,000
Purchases of available-for-sale securities - (1,335,360)
Proceeds from sale of available-for-sale securities 1,025,808 2,600,000
---------- ----------
Net cash provided by investing activities 1,073,077 748,802
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 4,000,000 -
Principal payments on long-term debt (723,670) (330,000)
Principal payments on capital lease obligation (137,864) (127,447)
Distributions paid to shareholders (8,035,000) (3,640,328)
Payments to purchase common stock - (118,110)
---------- ----------
Net cash used in financing activities (4,896,534) (4,215,885)
---------- ----------
Net increase in cash and cash equivalents 230,232 687,966
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS (CONTINUED)
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Beginning of year 1,129,544 441,578
----------- -----------
End of year $1,359,776 $1,129,544
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 91,795 $ 99,600
=========== ===========
Income taxes $ 56,573 $ 109,564
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company manufactures and fabricates custom sheet
metal products which include dust and fume control systems, automotive paint
booths, tanks and sheet metal component parts. Sales are made on an unsecured
basis to customers located throughout the United States.
Revenue Recognition - For financial reporting purposes, the Company records
revenue on all significant contracts using the percentage-of-completion method
of accounting. The percentage-of-completion is determined by experienced
company personnel on a contract-by-contract basis based in part on costs
incurred, efforts expended and results achieved. The specific method chosen is
the most applicable based on the nature of each contract. Because of inherent
uncertainties in estimating, it is at least reasonably possible that the
estimates used will change within the near term. The contract price is
recognized as revenue based upon the percentage of completion. Changes in job
performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. General
and administrative expenses are charged to expense when 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.
The Company uses the completed-contract method of accounting for all
contracts where nominal costs have been incurred prior to year-end or the total
contract value is relatively insignificant.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventories - The labor content of work-in-process and finished products
and all inventories of steel of the Company are valued at the lower of cost or
market using the last-in, first-out (LIFO) method. All other inventories of the
Company are accounted for at the lower of average cost or market. If the
first-in, first-out (FIFO) method of inventory valuation had been used by the
Company for all classes of inventory, the carrying value of inventories would
have been
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approximately $2,026,000 and $1,978,000 higher than that reported at December
31, 1998 and 1997, respectively.
Depreciation - Depreciation and amortization are computed generally on
accelerated methods over the estimated useful lives of the related assets.
Credit Risk - As of December 31, 1998 and 1997, the Company's cash on
deposit with its bank exceeded the federally insured amount.
Income Taxes - The Company's shareholders have elected to be treated as an
S-Corporation for income tax reporting purposes and, thereby, have the
Company's taxable income pass through to its shareholders to be taxed on their
individual returns. Certain state and local taxing authorities do not recognize
S-Corporation status as allowed under the Internal Revenue Code. In these
situations, the Company has provided for income taxes at appropriate rates on
applicable taxable income.
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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Advertising - The Company expenses all advertising costs as incurred.
Advertising expense was approximately $150,000 and $100,000 for 1998 and 1997,
respectively.
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS
At year end, the Company has several uncompleted construction projects at
stages of completion ranging from 5% to 99%. Costs and estimated earnings on
these contracts consist of the following at December 31:
1998 1997
---------- ----------
Costs incurred on uncompleted contracts $6,645,680 $6,492,702
Estimated earnings on uncompleted contracts 1,214,520 871,535
---------- ----------
7,860,200 7,364,237
Less billings to date (6,195,273) (6,693,526)
---------- ----------
$1,664,927 $ 670,711
========== ==========
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS (Continued)
The above amounts are reflected in the financial statements as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts $2,029,373 $2,207,121
Billings in excess of costs and estimated earnings
on uncompleted contracts (364,446) (1,536,410)
---------- ----------
$1,664,927 $ 670,711
========== ==========
</TABLE>
<PAGE>
3. INVESTMENTS
Available-For-Sale Securities - Available-for-sale securities consist of
investments in a mutual fund at December 31, 1997. The carrying value of the
shares approximate the fair market value at December 31, 1997. The account was
closed during 1998. The mutual fund paid $18,847 and $85,360 in dividends during
1998 and 1997, respectively.
Debt Securities to be Held-to-Maturity - Debt securities to be
held-to-maturity at December 31 consist of the following:
1998 1997
Zero coupon municipal bonds, carried at
amortized cost maturing through March, 1998. $ - $745,740
The face amount and fair value of the municipal bonds were $750,000 and
$745,193 at December 31, 1997.
4. REVOLVING LINE OF CREDIT
The Company has available through April 30, 2001, a $12,000,000
line-of-credit ($6,000,000 at December 31, 1997) which bears interest at either
the bank's prime rate minus 125 basis points or the London Inter-Bank offered
rate (LIBOR) plus 100 basis points. The Company may elect the LIBOR rate on all
or any portion of the outstanding line of credit balance, in minimum amounts of
$250,000. If elected, the Company must select a LIBOR interest period between 30
and 360 days. Interest is due at the end of the selected period at the
applicable LIBOR rate. The Company has elected the LIBOR rate and a 30 day
interest period at December 31, 1998. The 30 day LIBOR rate at December 31, 1998
was 5.06%. The line-of-credit is unsecured. The Company is required to meet
certain financial covenants regarding minimum net worth and debt to equity under
this agreement.
8
<PAGE>
5. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable to the beneficiaries of an estate of a former
shareholder in annual installments of $10,000 plus interest at 6%
with payment of the remaining principal and interest due in 1998,
secured by 40,000 shares of treasury common stock. $ - $723,670
Less current portion - (723,670)
------- --------
$ - $ -
======= ========
</TABLE>
6. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease obligations expiring
through 2001. The assets are being amortized over the related lease terms. The
cost included in machinery and equipment and accumulated amortization is
$890,982 and $751,962 at December 31, 1998, respectively and $890,982 and
$672,464 at December 31, 1997, respectively.
Future minimum lease payments under the capital lease agreements as of
December 31, 1998 for each of the next five years and in the aggregate are:
Year Ending
December 31,
------------
1999 $156,552
2000 87,845
2001 21,788
---------
266,185
Less amount representing interest (14,194)
---------
251,991
Less current portion (144,470)
---------
$107,521
=========
7. RELATED PARTY TRANSACTIONS
Accounts Receivable - The Company has a non-interest bearing receivable due
from an entity which is related through common ownership. The receivable results
from expenses paid by the Company on behalf of the related entity, including
401(k) contributions, utility expenses and insurance expenses. The Company also
leases space on a month-to-month basis to the related entity for approximately
$1,800 per month. Rental income from this related entity was $21,600 and $21,700
for the years ended December 31, 1998 and 1997, respectively.
9
<PAGE>
8. COMMON STOCK
Under agreements with certain employee/shareholders, the Company is
required to redeem their holdings of common stock in the event of the employee's
death, desire to sell, termination of employment, or retirement. Shares
purchased by the employee/shareholders prior to December 14, 1969 (1,750
shares) are redeemable at 75% of the book value per share of the Company for
the fiscal year end preceding the date of the transaction.
Under agreements with certain other shareholders, the Company has the right
of first refusal regarding the sale or other transfer of the Company's common
stock.
On March 19, 1997, the Company amended its Articles of Incorporation and
authorized 300,000 shares of no par value common stock, of which 75,000 shares
are Class A voting and 225,000 shares of Class B non-voting common stock. Each
shareholder has the same rights and privileges except that the Class B
non-voting shareholders cannot vote. The Company issued 188,010 shares of Class
B non-voting common stock.
On March, 16, 1998, the Company amended the Articles of Incorporation and
increased the number of authorized Class A voting common stock to 105,000
shares.
9. LEASE COMMITMENTS
The Company is committed under noncancelable operating lease agreements to
lease certain plant facilities and office equipment through June, 2001.
Future minimum annual operating lease payments are approximately as
follows:
Year Ending
December 31,
------------
1999 $142,000
2000 96,000
2001 10,000
--------
$248,000
========
Total rental expense was approximately $1,238,000 and $1,144,000 for 1998
and 1997, respectively.
10. PENSION AND PROFIT SHARING PLANS
The Company sponsors a noncontributory defined benefit pension plan for
certain union employees. The plan is funded in accordance with the funding
requirements of the Employee
10
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
Retirement Income Security Act of 1974.
The Company also sponsors a postretirement health care plan for office
employees. Effective January 1, 1990, the Plan was amended and retirees after
that date are not eligible to receive benefits under the plan. The Plan allows
retirees who have attained the age of 65 to elect the type of coverage desired.
The following amounts relate to the Company's defined benefit pension and
postretirement health care plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligation at December 31 $3,255,529 $3,297,069 $667,699 $696,244
Fair value of plan assets at
December 31 2,959,800 2,756,614 - -
----------- ----------- ---------- ---------
Funded status ($ 295,729) ($ 540,455) ($667,699) ($696,244)
=========== =========== ========= =========
Unamortized prior service costs $ 186,467 $ 173,934
Unrecognized net asset at transition (78,200) (118,500)
Unrecognized net loss 423,252 711,471
Prepaid pension asset (235,790) (226,450)
----------- -----------
($ 295,729) ($ 540,455)
=========== ===========
</TABLE>
The Company has recognized the excess of the accumulated benefit obligation
in excess of the plan assets, the minimum liability, of $161,710 in the balance
sheet at December 31, 1997.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accrued benefit cost recognized
in the statement of financial
position $667,699 $696,244
Weighted average assumptions
as of December 31:
Discount rate 7% 7% 7% 7%
Expected return on plan assets 8.5% 8.5% - -
Rate of compensation increase - - - -
</TABLE>
Benefits under the plans are not based on wages and, therefore, future wage
adjustments have no effect on the projected benefit obligations. For measurement
purposes, a 7% annual
11
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
rate of increase in the cost of health care benefits was assumed for 1999. The
rate was assumed to increase through 2004 at 4% to 6%.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit cost $ 91,300 $105,800 $118,602 $117,498
Company contributions 100,000 93,966 99,996 88,723
Benefits paid 163,494 143,721 99,996 88,723
</TABLE>
In connection with collective bargaining agreements, the Company
participates with other companies in defined benefit pension plans. These plans
cover substantially all of its contracted union employees not covered in the
aforementioned plan. If the Company were to withdraw from its participation in
these multi-employer plans at that time, the Company will be required to
contribute its share of the Plan's unfunded benefit obligation. Management has
no intention of withdrawing from any Plan and, therefore, no liability has been
provided for in the accompany-ing financial statements.
The Company also sponsors a profit sharing and 401(k) savings retirement
plan for non-union employees. The plan covers substantially all employees who
have completed one year of service, completed 1,000 hours of service and who
have attained 21 years of age. The plan allows the Company to make discretionary
contributions and provides for employee salary reductions of up to 15%. The
Company provides matching contributions of 25% of the first 5% of employee
contributions. Matching contributions during 1998 and 1997 were $56,178 and
$59,462, respectively. Discretionary contributions for the years ended December
31, 1998 and 1997 were $434,806 and $390,538, respectively.
Amounts charged to pension expense under the above plans totaled
approximately $2,038,177 and $1,495,700 for the years ended December 31, 1998
and 1997, respectively.
11. SELF-INSURANCE COVERAGES
The Company is self-insured for workers compensation coverage in the state
of Ohio, in accordance with the requirements of the state. In Ohio, the Company
will pay all eligible workers compensation claims up to $225,000 per individual
and the statutory limit in the aggregate for the state. All eligible claims in
excess of these amounts are covered under a policy with an insurance company.
The balance sheet includes a liability of $245,529 and $354,708 at December 31,
1998 and 1997, respectively, for claims incurred.
12
<PAGE>
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $ 247,772 $ 247,773
Buildings and improvements 4,841,033 4,841,033
Machinery and equipment 8,850,776 8,449,371
Automotive 918,377 786,345
Office furniture and fixtures 1,216,227 1,249,832
------------ ------------
16,074,185 15,574,354
Less accumulated depreciation and amortization (13,311,436) (12,791,796)
------------ ------------
Net property, plant and equipment $ 2,762,749 $ 2,782,558
============ ============
</TABLE>
13. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 includes unbilled amounts
of $1,785,411 and $2,314,550, respectively. Unbilled amounts at year end
represent work performed during the year which are not billed until January of
the following year.
14. PRIOR PERIOD ADJUSTMENT
The accompanying financial statements for 1997 have been restated to
correct for errors associated with the underrecording of liabilities related to
self insured workers compensation for the State of Ohio, additional insurance
premiums and benefits due under a retiree health care plan. The net effect of
the restatements was to decrease net income for 1997 by $72,709. Retained
earnings at the beginning of 1997 has been decreased by $1,126,612 for the
effects not recording the liabilities at December 31, 1996.
13
<PAGE>
(b) Pro Forma Financial Information.
The pro forma financial information required by section (b) of Item 7 of Form
8-K will be filed by amendment to this Form 8-K on or before February 18, 2000.
(c) Exhibits.
The following Exhibits are attached to this Form 8-K numbered as set forth
below.
10.1 Stock Purchase Agreement, dated as of December 7, 1999, among CECO
Environmental Corp., CECO Filters, Inc and the Stockholders of The Kirk &
Blum Manufacturing Company and kbd/Technic, Inc. and Richard J. Blum,
Lawrence J. Blum and David D. Blum.
10.2 Employment Agreement, dated as of December 7, 1999, between Richard J.
Blum and CECO Group, Inc.
10.3 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Richard J. Blum
10.4 Employment Agreement, dated as of December 7, 1999, between Lawrence J.
Blum and The Kirk & Blum Manufacturing Company.
10.5 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Lawrence J. Blum
10.6 Employment Agreement, dated as of December 7, 1999, between David D. Blum
and The Kirk & Blum Manufacturing Company.
10.7 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to David D. Blum
10.8 Credit Agreement, dated as of December 7, 1999, among PNC Bank, National
Association, The Fifth Third Bank, and Bank One, N.A. and PNC Bank,
National Association as agent, and CECO Group, Inc., CECO Filters, Inc.,
Air Purator Corporation, New Busch Co., Inc., The Kirk & Blum
Manufacturing Company and kbd\Technic, Inc.
10.9 Promissory Note in the amount of $4,000,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Green Diamond Oil Corp.
10.10 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Harvey Sandler
10.11 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to ICS Trustee Services, Ltd.
10.12 Warrant Agreement, dated as of December 7, 1999, among CECO Environmental
Corp. and Green Diamond Oil Corp., Harvey Sandler and ICS Trustee
Services, Ltd.
10.13 KDB\Technic, Inc. Voting Trust Agreement, dated as of December 7, 1999,
Richard J. Blum, trustee
10.14 Consulting Agreement, dated as of June 1, 1999, between CECO Environmental
Corp. and CECO Filters, Inc.
23.1 Consent of Independent Public Accountants, dated as of December 14, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CECO Environmental Corp.
CECO ENVIRONMENTAL CORP.
Dated: December 16, 1999 /s/ Phillip DeZwirek
----------------------------------
Phillip DeZwirek
Chief Executive Officer and
Chief Financial Officer
<PAGE>
EXHIBITS INDEX
10.1 Stock Purchase Agreement, dated as of December 7, 1999, among CECO
Environmental Corp., CECO Filters, Inc and the Stockholders of The Kirk &
Blum Manufacturing Company and kbd/Technic, Inc. and Richard J. Blum,
Lawrence J. Blum and David D. Blum.
10.2 Employment Agreement, dated as of December 7, 1999, between Richard J.
Blum and CECO Group, Inc.
10.3 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Richard J. Blum
10.4 Employment Agreement, dated as of December 7, 1999, between Lawrence J.
Blum and The Kirk & Blum Manufacturing Company.
10.5 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Lawrence J. Blum
10.6 Employment Agreement, dated as of December 7, 1999, between David D. Blum
and The Kirk & Blum Manufacturing Company.
10.7 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to David D. Blum
10.8 Credit Agreement, dated as of December 7, 1999, among PNC Bank, National
Association, The Fifth Third Bank, and Bank One, N.A. and PNC Bank,
National Association as agent, and CECO Group, Inc., CECO Filters, Inc.,
Air Purator Corporation, New Busch Co., Inc., The Kirk & Blum
Manufacturing Company and kbd\Technic, Inc.
10.9 Promissory Note in the amount of $4,000,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Green Diamond Oil Corp.
10.10 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Harvey Sandler
10.11 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to ICS Trustee Services, Ltd.
10.12 Warrant Agreement, dated as of December 7, 1999, among CECO Environmental
Corp. and Green Diamond Oil Corp., Harvey Sandler and ICS Trustee
Services, Ltd.
10.13 KDB\Technic, Inc. Voting Trust Agreement, dated as of December 7, 1999,
Richard J. Blum, trustee
10.14 Consulting Agreement, dated as of June 1, 1999, between CECO Environmental
Corp. and CECO Filters, Inc.
23.1 Consent of Independent Public Accountants, dated as of December 14, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
Dated as of December 7, 1999
by and among
CECO ENVIRONMENTAL CORP.,
a New York corporation,
CECO GROUP, INC.,
a Delaware corporation,
and
THE STOCKHOLDERS
OF
THE KIRK & BLUM MANUFACTURING COMPANY
AND
kdb/TECHNIC, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS 1
SECTION 2. TRANSFER OF SHARES AND PAYMENT OF PURCHASE PRICE 6
2.1 Transfer of Shares 6
2.2 Amount of Purchase Price 6
2.3 Payment of Purchase Price 6
2.4 Purchase Price Adjustment 7
2.5 Closing 8
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 8
3.1 Organization and Authorization 8
3.2 Articles of Incorporation; By-Laws; Minute Books 9
3.3 Consents - Conflicts 9
3.4 Authorized Capitalization 9
3.5 Subsidiaries; Investments; Affiliate Notes & Transactions 10
3.6 Financial Statements 10
3.7 Records and Books of Account 11
3.8 Liabilities 11
3.9 Title to Assets. Liens and Encumbrances 11
3.10 Tangible Assets 12
3.11 Facilities 12
3.12 Leased Assets 13
3.13 Trademarks, Service Marks, Trade Names, Patents and Copyrights 13
3.14 Contracts; Customers 15
3.15 Labor Relations; Employees 16
3.16 Legal Proceedings 17
3.17 Orders, Decrees, Etc 17
3.18 Compliance With Law; Permits and Licenses 17
3.19 Changes Since December 31, 1998 19
3.20 No Material Adverse Change 20
3.21 Capital Projects and Expenditures 20
3.22 Employee Benefits 20
3.23 Governmental Approvals 22
3.24 Tax Matters 23
3.25 Insurance Coverage 24
3.26 Accounts Receivable 24
3.27 Product Quality; Warranty Claims 24
3.28 Product Liability 24
3.29 Inventory 25
3.30 Certain Payments 25
3.31 Relationships With Related Persons 25
3.32 Brokers or Finders 25
3.33 Bank Accounts 25
3.34 Powers of Attorney 26
3.35 Year 2000 Compliance 26
3.36 Bank Representations 27
3.37 Representations and Warranties 27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4. REPRESENTATIONS WARRANTIES OF BUYER. 27
4.1 Organization and Good Standing 27
4.2 Buyer Authority; No Conflict 27
4.3 CEC Authority; No Conflict 28
4.4 Warrant Shares 29
4.5 Commission Reports 29
4.6 Investment Intent 29
4.7 Certain Actions 29
4.8 Governmental Approvals 29
SECTION 5. CONDITIONS OF BUYER'S OBLIGATIONS TO CLOSE 30
5.1 Agreements and Conditions 30
5.2 Representations and Warranties 30
5.3 No Legal Proceeding 30
5.4 Deliveries 30
5.5 Consents 30
5.6 Financing 30
SECTION 6. CONDITIONS OF STOCKHOLDERS' OBLIGATION TO CLOSE 31
6.1 Agreements and Conditions 31
6.2 Representations and Warranties 31
6.3 Deliveries 31
6.4 No Legal Proceeding 31
SECTION 7. DELIVERIES OF STOCKHOLDERS ON THE CLOSING DATE 31
7.1 Stock Certificates 31
7.2 Appointment 31
7.3 Consents 31
7.4 Possession of Assets 31
7.5 Legal Opinion 32
7.6 Noncompetition Agreement 32
7.7 Employment Agreement 32
7.8 Escrow Agreement 32
7.9 Buyer-Sell Agreement 32
7.10 Form 3 32
7.11 Closing Certificate 32
7.12 Articles of Incorporation 32
7.13 Good Standing Certificate 32
7.14 Secretary Certificate of KBM 32
7.15 Secretary Certificate of KTI 33
7.16 Release of Lien 33
7.17 Payoff Letter 33
7.18 New Trust 33
7.19 Mutual Releases 33
7.20 Financial Statements 33
7.21 Additional Deliveries 33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 8. DELIVERIES OF BUYER ON THE CLOSING DATE. 33
8.1 Purchase Price 33
8.2 Noncompetition Agreement 33
8.3 Employment Agreements 33
8.4 Escrow Agreement 33
8.5 Noncompetition Agreement Payments 34
8.6 Good Standing Certificates 34
8.7 Buyer's Closing Certificate 34
8.8 Legal Opinion 34
SECTION 9. ADDITIONAL COVENANTS 34
9.1 Access and Investigation 34
9.2 Operation of the Businesses of the Companies 34
9.3 Negative Covenant 35
9.4 Required Approvals 35
9.5 Notification 35
9.6 Payment of Indebtedness By Related Persons 35
9.7 No Negotiation 35
9.8 Stockholders Best Efforts 35
9.9 Buyer's Best Efforts 36
9.10 Post-Closing Cooperation of Buyer and Stockholders 36
9.11 Further Assurances of the Stockholders and Buyer 36
9.12 No Disparagement 36
9.13 Tax Matters 36
9.14 Company Covenants 37
9.15 Taxes and Short Period Return 37
SECTION 10. INDEMNIFICATION 37
10.1 Indemnification by the Stockholders 37
10.2 Indemnification by Buyer 38
10.3 Indemnity Limitations on the Buyer 38
10.4 Indemnity Limitations on the Stockholders 39
10.5 Insurance Coverage 39
10.6 Sole Remedy 39
10.7 Procedures for Third Party Indemnification 39
10.8 Information 40
10.9 Same Counsel 40
10.10 Rights of Set Off 40
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 11. SURVIVAL OF REPRESENTATIONS; EFFECT OF CERTIFICATES 41
SECTION 12. BROKERAGE; INDEMNITY 42
SECTION 13. NOTICES 42
SECTION 14. TERMINATION 43
14.1 Conditions for Transfer 43
14.2 Liability Upon Termination 43
SECTION 15. MISCELLANEOUS 44
15.1 Entire Agreement 44
15.2 Taxes 44
15.3 Governing Law 44
15.4 Representation by Counsel 44
15.5 Benefit of Parties; Assignment 44
15.6 Pronouns 44
15.7 Headings 45
15.8 Expenses 45
15.9 Counterparts 45
15.10 Stockholders' Agent 45
15.11 Attorney's Fees 46
15.12 Incorporation by Reference 46
15.13 Waiver 46
15.14 Disclosure Letter 46
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Legal Opinion of Counsel to the Stockholders
Exhibit C - Form of Noncompetition Agreement
Exhibit D - Forms of Employment Agreements
D-1 - Richard J. Blum
D-2 - Lawrence J. Blum
D-3 - David D. Blum
Exhibit E - Form of Mutual Release
Exhibit F - Legal Opinion of Counsel to CECO Environmental Corp. and CECO
Group, Inc.
v
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of December 7, 1999
(this "Agreement"), is by and among CECO Environmental Corp., a New York
corporation ("CEC"), CECO Group, Inc., a Delaware corporation ("Buyer"), and the
persons whose names are listed on the signature page of this Agreement
(collectively, the "Stockholders"). (The term "Stockholders" shall refer to
Richard J. Blum, Lawrence J. Blum and David D. Blum, both individually
(notwithstanding that they do not individually own shares), and in their
capacity as trustees of various trusts that hold shares in the Companies, as
defined below, along with the other stockholders of the Companies.)
RECITALS:
A. The Stockholders own, of record and beneficially, all of
the issued and outstanding capital stock of The Kirk & Blum Manufacturing
Company, an Ohio corporation ("KBM"), which is engaged in the air pollution
control business.
B. Certain of the Stockholders, The David D. Blum Irrevocable
Stock Trust, u/a/d July 21, 1998, Richard J. Blum, trustee; The Lawrence J. Blum
Irrevocable Stock Trust, u/a/d July 21, 1998, Richard J. Blum, trustee; and
Richard J. Blum (collectively, the "kbd Stockholders"), own of record, all of
the issued and outstanding capital stock of kbd/Technic, Inc., an Indiana
corporation ("KTI" and collectively with KBM, the "Companies" and each a
"Company") engaged in the pollution control consulting business.
C. Buyer desires to purchase from the Stockholders, and the
Stockholders desire to sell to Buyer, on the terms and conditions set forth
herein, all of the issued and outstanding capital stock of each of the
Companies.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing, and the mutual
agreements, representations, warranties and covenants contained herein, and for
other good and valuable consideration set forth herein, the parties hereto agree
as follows:
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Accounts Receivable" means invoiced accounts of the Companies.
"Actions" mean any claims, actions, suits, proceedings and
investigations, whether at law or in equity, before any court, arbitrator,
arbitration panel or Governmental Authority.
<PAGE>
"Affiliate" of a party means any Person that, directly or indirectly,
controls, is controlled by, or is under common control with, such party.
"Balance Sheets" has the meaning specified in Section 3.6 below.
"Balance Sheet Date" means September 30, 1999.
"Business" means, with respect to a Company, the business of such
Company as presently conducted.
"Closing" means the closing of the transactions contemplated hereby.
"Closing Date" means December__, 1999, or such other date as the
parties may agree upon in writing.
"Closing Financial Statements" has the meaning specified in Section
2.4(c)
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"Contracts" mean all contracts, agreements, indentures, licenses,
leases, commitments, plans, arrangements, sales orders and purchase orders of
every kind, whether written or oral and whether express or implied, that are
legally binding.
"Copyrights" has the meaning specified in Section 3.13.
"Damages" mean losses, liabilities, obligations, penalties, costs,
damages, claims and expenses (including reasonable costs of (i) investigation
and (ii) attorneys' fees and disbursements).
"Disclosure Letter" means the disclosure letter delivered by the
Stockholders to Buyer concurrently with the execution and delivery of this
Agreement.
"Employment Agreements" have the meaning specified in Section 7.7.
"Environmental Law" has the meaning specified in Section 3.18(e).
"Equipment" means all of the furniture, fixtures, furnishings,
machinery, automobiles, trucks, spare parts, tools, supplies, equipment and
other tangible personal property owned by a Company and used in connection with
its business.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means a Company and each corporation, partnership or
other trade or business, whether or not incorporated, which is or has been
treated as a single employer or controlled group member with a Company pursuant
to Code Section 414 or ERISA Section 4001.
2
<PAGE>
"Escrow Agreement" has the meaning specified in Section 2.3 hereof.
"Escrow Account" means the account established pursuant to the Escrow
Agreement.
"Facilities" shall mean the real property, leaseholds and other real
property interests owned, leased or operated by a Company and related facilities
which are owned or leased by a Company.
"Financial Statements" means those financial statements of the
Companies referred to in Section 3.6.
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheets and the
other financial statements referred to in Section 3.6 were prepared.
"Governmental Authority" means any agency, instrumentality, department,
commission, court, tribunal or board of any government, whether foreign or
domestic and whether national, Federal, state, provincial or local.
"Indebtedness" of a Person shall mean such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade, (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances or other instruments, (v)
capitalized lease obligations and (vi) obligations for which such Person is
obligated pursuant to a guaranty.
"Intellectual Property Assets" has the meaning specified in Section
3.13.
"Inventory" means all of a Company's inventory held for resale and all
of such Company's new, repair or replacement parts, supplies and packaging items
and similar items with respect to its Business, in each case wherever the same
may be located.
"Laws" mean laws, rules, regulations, codes, orders, ordinances,
judgments, injunctions, decrees and policies.
"Legal Requirement" has the meaning set forth in Section 3.18(a).
"Liabilities" mean debts (including interest thereon and any prepayment
penalties applicable thereto), liabilities, claims, obligations, duties and
responsibilities of any kind and description, whether absolute or contingent,
monetary or non-monetary, direct or indirect, known or unknown, matured or
unmatured, or of any other nature.
"Lien" means any security interest, lien, mortgage, claim, charge,
pledge, restriction, equitable interest or encumbrance of any nature, or any
community property interest, condition, equitable interest, option, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
3
<PAGE>
"Marks" has the meaning specified in Section 3.13.
"Material" with respect to a Company means an event, change or effect
substantially related to the condition (financial or otherwise), operations or
prospects of the Business of such Company as currently conducted.
"Material Adverse Effect" means an event, change or effect that
substantially and adversely affects the condition (financial or otherwise),
operations or prospects of the Business of either Company, as currently
conducted.
"Multi-Employer Plans" means every "multiemployer plan" as defined in
Section 3(37) of ERISA to which a Company contributes or has contributed.
"Noncompetition Agreement" shall have the meaning specified in Section
7.6.
"Patents" has the meaning specified in Section 3.13.
"Permits and Licenses" mean those municipal, state and federal
consents, orders, filings, franchises, permits, licenses, agreements, waivers
and authorizations used in the Business of either Company.
"Person" means any natural person, corporation, trust, business trust,
joint venture, association, company, firm, partnership, limited liability
company or other entity or Governmental Authority.
"Plan" has the meaning specified in Section 3.22.
"Proportionate Share" with respect to a Company means, for each
Stockholder, that Stockholder's percentage interest in the capital stock of such
Company, determined by dividing the number of Shares of capital stock of such
Company (whether voting or non-voting common) held by that Stockholder by the
number of Shares of such Company (both voting and non-voting common) that are
outstanding.
"Related Person" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
4
<PAGE>
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, if any, (iii)
any other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who resides
with such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least 5%
of the outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Returns" mean all returns, declarations, reports, forms, estimates,
information returns and statements required to be filed with or supplied to any
Governmental Authority in connection with any Taxes.
"Shares" mean all of the issued and outstanding shares of common stock
of the Companies.
"Stock Warrants" means the stock warrants for 1,000,000 shares of CEC
common stock in the aggregate being granted to Richard J. Blum, Lawrence J. Blum
and David D. Blum in connection with their entering into Employment Agreements
with Buyer.
"Taxes" mean all taxes, charges, fees, levies, customs, duties or other
assessments, including, without limitation, income, gross receipts, excise, real
and personal property, sales, transfer, license, payroll and franchise taxes
imposed by any Governmental Authority and shall include any interest, penalties
or additions to tax attributable to any of the foregoing.
"Trade Secrets" has the meaning specified in Section 3.13.
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As used in this Agreement, the terms "to the knowledge," "known to,"
and other phrases of like substance are to be construed (i) to include the
knowledge of Richard J. Blum, Lawrence J. Blum, David D. Blum and Lawrence
Kallmeyer acting for all of the Stockholders, and (ii) to represent that these
individuals, on behalf of all the Stockholders, have caused such inquiry and
investigation to be made into the matters represented as is appropriate in their
roles as officers and directors of the Companies and Stockholders selling two
corporations and attempting in good faith to accurately make representations and
warranties, including, without limitation of the foregoing, that such
individuals have asked members of senior management of the Companies about the
representations and warranties of the Stockholders in Section 3 of this
Agreement related to such members of senior management's area of responsibility;
provided that the Stockholders shall be deemed to have knowledge of any fact
that any of the named individuals should have known if they had caused such
inquiry and investigation to have been made as provided above. As used in this
Agreement, the term "actual knowledge" means actual knowledge of the person
making the representation without having conducted any inquiry.
SECTION 2. TRANSFER OF SHARES AND PAYMENT OF PURCHASE PRICE.
2.1 Transfer of Shares. Based upon and subject to the terms,
agreements, warranties, representations and conditions of this Agreement, the
Stockholders hereby agree to sell, convey, transfer, assign and deliver to Buyer
on the Closing Date, and Buyer hereby agrees to buy and accept on the Closing
Date, all of the Shares held by the Stockholders. Subject to the provisions of
Section 14, failure to consummate the purchase and sale provided for in this
Agreement on the Closing Date as provided herein will not result in the
termination of this Agreement and will not relieve any party of any obligation
under this Agreement.
2.2 Amount of Purchase Price. The total consideration (the "Purchase
Price") to be paid by Buyer for the Shares shall be the aggregate of:
$24,997,000;
minus the difference of (i) $12,325,721 minus (ii) the aggregate stockholders
equity of the Companies as of the Closing Date (which difference will not result
in an increase in the Purchase Price if the aggregate stockholders' equity as of
such date is greater than $12,325,721);
minus the amount by which the aggregate Indebtedness of the Companies exceeds
$5,000,000 as of the Closing Date;
plus any amount payable to the Stockholders pursuant to Section 9.13(a) hereof.
2.3 Payment of Purchase Price. On the Closing Date, Buyer shall as an
estimate of the Purchase Price, (a) pay to each Stockholder of KBM by means of a
wire transfer to the account number and depository previously designated by such
Stockholder (or otherwise as directed by each Stockholder) his Proportionate
Share of $23,074,960, (b) pay to each kbd Stockholder by means of a wire
transfer to the account number and depository previously designated by such
Stockholder (or otherwise as directed by each Stockholder) one third of
$672,040, and (c) deposit $1,250,000 in an Escrow Account established pursuant
to the Escrow Agreement in the form of Exhibit A hereto.
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2.4 Purchase Price Adjustment.
(a) Adjustment Amount. The Stockholders and the Buyer recognize that
the $24,997,000 paid at the Closing is only an approximation of the Purchase
Price and the Purchase Price can only be accurately calculated after the
Closing. The Adjustment Amount will be equal to $24,997,000 minus the Purchase
Price calculated pursuant to Section 2.2 in accordance with the Closing
Financial Statements, as defined below.
(b) Closing Financial Statements. Stockholders will prepare and will
cause Rippe & Kingston Co. PSC, the Companies' certified public accountants, to
audit the financial statements ("Closing Financial Statements") of the Companies
as of the Closing Date and for the period from January 1, 1999 through the
Closing Date, including a computation of aggregate stockholders' equity of the
Companies as of the Closing Date. In calculating the aggregate stockholders'
equity of the Companies as of the Closing Date, any prepayment penalty required
to pay any debt of the Companies in connection with the acquisition of the
Companies and an appropriate accrual for unpaid bonuses and commissions which
relate to the 1999 fiscal year pro rated for the period from January 1, 1999 to
the Closing Date shall reduce the aggregate stockholders' equity of the
Companies. Stockholders will deliver the Closing Financial Statements to Buyer
within sixty days after the Closing Date. If within thirty days following
delivery of the Closing Financial Statements, Buyer has not given the
Stockholders notice of its objection to the Closing Financial Statements (such
notice must contain a statement of the basis of Buyer's objection), then the
combined stockholders' equity reflected in the Closing Financial Statements will
be used in computing the Adjustment Amount. If Buyer gives such notice of
objection, then the issues in dispute will be submitted to the Cincinnati, Ohio
office of Deloitte and Touche, certified public accountants (the "Accountants"),
for resolution. If issues in dispute are submitted to the Accountants for
resolution, (i) each party will furnish to the Accountants such workpapers and
other documents and information relating to the disputed issues as the
Accountants may request and are available to that party (or its independent
public accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the Accountants,
as set forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties; and (iii) Buyer and Stockholders will
each bear 50% of the fees of the Accountants for such determination.
(c) Payment of Adjustment Amount. On the tenth business day following
the final determination of the Adjustment Amount, an amount equal to the
Adjustment Amount shall be paid to the Buyer from the Escrow Account with the
earnings thereon. The Stockholders shall pay to the Buyer any portion of the
Adjustment Amount not released to the Buyer from the Escrow Account and the
Stockholders shall be jointly and severally liable therefore. All payments of
the Adjustment Amount not paid out of the Escrow Account will be made together
with interest at 8% compounded annually beginning on the Closing Date and ending
on the date of payment. Payments must be made in immediately available funds.
Payments to Stockholders will be made in the manner and will be allocated in
such proportions that the Stockholders' Agent may specify. Payments to the Buyer
shall be made by wire transfer to such bank account as the Buyer will specify.
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(d) If the amount of any Adjustment Amount is not promptly paid from
the Escrow Account or exceeds the amount of the initial deposit in the Escrow
Account, Buyer shall have the right to collect promptly from the Stockholders,
in cash, the amount of such Adjustment Amount or the portion thereof that has
not been paid from the Escrow Account.
2.5 Closing. The Closing provided for in this Agreement will take place
at the offices of Ballard Spahr Andrews & Ingersoll LLP, 1735 Market Street,
Philadelphia, Pennsylvania 19103-7599, at 9:00 a.m. (local time) on December __,
1999, or at such other time and place as the parties may agree. The closing
shall be effective as of the close of business on the Closing Date. Subject to
the provisions of Section 14, failure to consummate the purchase and sale
provided for in this Agreement on the date and time and at the place determined
pursuant to this Section 2.5 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
The obligation of the parties to have the Closing shall be subject to the
conditions set forth in Sections 5 and 6 and the deliveries required by Section
7 and 8 of this Agreement. All deliveries at the Closing will be deemed to be
made and effected simultaneously and all such deliveries will be deemed to be in
escrow until all such deliveries have been made and effected.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
The Stockholders hereby jointly and severally warrant and represent to
and agree with Buyer as of the date hereof and as of the Closing Date as
follows:
3.1 Organization and Authorization.
(a) Each Company is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation, and has all requisite corporate power and authority to
own, lease and operate its properties and assets and to conduct its
Business as now being conducted, and to perform its obligations under
all contracts to which it is a party. Each Company owns, leases and
operates properties, and conducts business only in the states set forth
on Part 3.1 of the Disclosure Letter. Each Company is qualified or
licensed to do business in the states set forth in Part 3.1 of the
Disclosure Letter and the failure to be qualified in any other state
will not have a Material Adverse Affect on such Company.
(b) This Agreement, the Escrow Agreement, the Noncompetition
Agreements, the Employment Agreements and the other agreements and
documents required to be delivered by the Stockholders in accordance
with the provisions hereof, have been duly executed and delivered by or
on behalf of the Stockholders and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto)
constitute valid and binding obligations of the Stockholders,
enforceable against them in accordance with their respective terms. Any
Stockholders that are trustees of trusts have the power and authority
to duly execute and deliver this Agreement, the Escrow Agreement and
the other agreements to be delivered by such trusts pursuant to this
Agreement. Copies of portions of the trust agreements of such trusts
setting forth the powers of the trustees have been delivered to Buyer.
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3.2 Articles of Incorporation; Code of Regulations; Minute Books. The
Stockholders have delivered to Buyer true and complete copies of the articles of
incorporation and Code of Regulations of the Companies, as amended to and
including the Closing Date. The minute books, stock books and stock transfer
records of the Companies, true and complete copies of which have been delivered
to Buyer, contain true and complete minutes and records of all issuances and
transfers of Shares of the Companies and of all minutes and records of all
meetings, consents, proceedings and other actions of the Stockholders, board of
directors and committees of the board of directors of the Companies since their
respective dates of incorporation. The execution and delivery of the Agreement
by the Stockholders and their consummation or performance of the transactions
contemplated hereby will not violate the articles of incorporation or Code of
Regulations of the Companies or any resolution adopted by the board of directors
or stockholders of any of the Companies.
3.3 Consents - Conflicts. Except as provided on Part 3.3 of the
Disclosure Letter, no consent of any lender, trustee, trust beneficiary, trust
grantor or other Person is required for the Stockholders to enter into and
deliver this Agreement or to consummate the transactions contemplated hereby,
nor does any Contract, mortgage or other instrument to which any of the
Companies or any of the Stockholders is a party or by which any of the Companies
or any of the Stockholders is bound or affecting any of its or his properties
restrict the execution and delivery of this Agreement or the consummation or
performance of the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation or performance of the transactions
contemplated hereby does not contravene, conflict with or result in a violation
or breach of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material Contract to which either
Company is a party.
3.4 Authorized Capitalization. The authorized capital stock of KBM
consists solely of 105,000 shares of Class A voting common stock, with no par
value, of which 62,670 shares are issued and outstanding, and 225,000 shares of
Class B nonvoting common stock, with no par value, of which 188,010 shares are
issued and outstanding. The authorized capital stock of KTI consists solely of
1,000 shares of common stock, with no par value, of which 930 shares are issued
and outstanding. All Shares are validly issued and outstanding, fully paid and
nonassessable, and are owned beneficially and of record by the Stockholders as
set forth on the signature page of this Agreement. The social security number or
federal employer identification number of each Stockholder has been previously
delivered to the Buyer. The Shares are not subject to any Lien or to any
restriction on their transfer other than the stock restriction agreement set
forth on Part 3.4 of the Disclosure Letter and, as of the Closing Date, will be
free and clear of all Liens. There are no outstanding Contracts, warrants,
options or rights (preemptive or otherwise) or other securities, plans or
agreements that give the holder or any other Person the right to purchase or
otherwise acquire (whether from a Company, the Stockholders, or any Affiliate of
a Company or the Stockholders) any Shares or any securities convertible into, or
exchangeable or exercisable for, Shares or under which any such warrant, option,
right or security may be issued in the future. There are no contracts relating
to the issuance, sale or transfer of any Shares of any of the Companies. None of
the Shares was issued in violation of the Securities Act of 1993, as amended, or
any applicable state securities law.
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3.5 Subsidiaries; Investments; Affiliate Notes and Transactions. The
Companies do not have any directly or indirectly owned subsidiaries and, except
as set forth on Part 3.5 of the Disclosure Letter, has made no advances to or
investments in, and does not own any securities of or other interests in any
Person. Part 3.5 of the Disclosure Letter contains a list of all notes held by
the Companies issued by any Stockholder or any Affiliate of any Stockholder.
Except as set forth in Part 3.5 of the Disclosure Letter, none of the
Stockholders and no Affiliates of the Stockholders has, or during the last three
(3) years has had, any business relations with either of the Companies or any
direct or indirect interest in any competitor, customer, supplier or other
person, firm or corporation which has had any business relationship or material
transaction with the Companies during the past three (3) years, except for (i)
ownership of up to one percent of the equity securities of any publicly-held
company; (ii) reasonable compensation as an employee of a Company; and (iii)
reimbursement of reasonable business expenses.
3.6 Financial Statements. The Stockholders have delivered to Buyer (a)
unaudited financial statements of each of the Companies for the partial fiscal
year period ending on July 31, 1999 and for the partial fiscal year period
ending on the Balance Sheet Date including a balance sheet of each of the
Companies as of the Balance Sheet Date (the "Balance Sheets") and (b) audited
financial statements of each of the Companies as of and for the fiscal years
ended December 31, 1996, 1997 and 1998. The financial statements referred to in
the preceding sentence and the accompanying notes thereto are referred to
collectively as the "Financial Statements." Except as set forth on Part 3.6 of
the Disclosure Letter, such Financial Statements and the notes thereto fairly
present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Companies as at the respective dates
of and for the periods referred to in such Financial Statements, all in
accordance with GAAP, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Balance Sheets), and the Financial Statements referred to in this Section
3.6 reflect the consistent application of such accounting principles throughout
the periods involved. The Financial Statements in each case have been prepared
on an accrual basis of accounting consistently applied throughout the periods
covered thereby. Since December 31. 1998, each Company has conducted its
Business in a consistent manner without change of policy or procedure including,
without limitation, its practices in connection with the treatment of revenue
recognition, capitalization policies, reserves and expenses. No financial
statements of any Person other than each of the applicable Companies are
required by GAAP to be included in the consolidated financial statements of each
of the Companies.
3.7 Records and Books of Account. The books of account, minute books,
stock record books and other records of the Companies, all of which have been
made available to Buyer, are complete and correct in all material respects and
have been maintained in accordance with sound business practices. At the
Closing, all of those books and records will be in the possession of the
Companies.
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3.8 Liabilities. On December 31, 1998 and the Balance Sheet Date, there
were no Liabilities of the Companies that would have been required under GAAP to
be included on the balance sheets of the Companies as of such dates which were
not so included in the Financial Statements other than those Liabilities
(including, without limitation, product liabilities and Taxes) disclosed or
reserved for on such Financial Statements or those described in Part 3.8 of the
Disclosure Letter. There are no other Liabilities of the Companies (whether
known or unknown, and whether absolute, accrued, contingent or otherwise) except
(i) those incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice and not in violation of or in conflict
with any of the terms, agreements, warranties, representations and conditions of
the Stockholders contained in this Agreement, (ii) those set forth on Part 3.8
of the Disclosure Letter or (iii) those that would not, individually or in the
aggregate, have a Material Adverse Effect on either of the Companies.
3.9 Title to Assets; Liens and Encumbrances. Each Company is the owner
of, and has good and marketable title to, or a valid leasehold interest in, or
has the legally enforceable right to use in its Business, all of the assets,
properties and rights currently used in the operation of the Business of such
Company, free and clear of all Liens except for the Liens, if any, set forth on
the Balance Sheets or on Part 3.9 of the Disclosure Letter. The assets,
properties and rights referred to in the preceding sentence include, without
limitation, all assets, properties, rights and Business of each Company and are
shown or reflected on the Balance Sheet of such Company or were acquired by such
Company since the Balance Sheet Date. Each Company owns or has the legally
enforceable right to use in its Business all of the assets used by it in the
operation and conduct of its Business, or required by it for the normal conduct
of its Business. All material properties and assets reflected in the Balance
Sheets are free and clear of all Liens and are not, in the case of real
property, subject to any rights of way, building use restrictions, exceptions,
variances, reservations, or limitations of any nature except, with respect to
all such properties and assets, (a) mortgages or security interests shown on the
Balance Sheets as securing specified liabilities or obligations, with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Balance
Sheets (such mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that, with
notice or lapse of time or both, would constitute a default) exists, (c) liens
for current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of any Company; (ii) zoning laws and other
land use restrictions that do not impair the present or anticipated use of the
property subject thereto; (iii) normal easements and restrictions that do not
interfere with the current and intended future use of the real estate of any of
the Companies; and (iv) matters disclosed on any title reports, title
commitments or surveys attached to the Disclosure Letter. All buildings, plants,
and structures owned by the Companies lie wholly within the boundaries of the
real property owned by the Companies and do not encroach upon the property of,
or otherwise conflict with the property rights of, any other Person.
3.10 Tangible Assets. The buildings, plants, structures and equipment
of the Companies are structurally sound, are in operating condition and repair
and are adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The building, plants, structures and equipment of the Companies
are sufficient for the continued conduct of the Companies' businesses after the
Closing in substantially the same manner as conducted prior to the Closing.
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3.11 Facilities.
(a) Each parcel of real property owned or leased by any of the
Companies, including the address thereof, is listed on Part 3.11 of the
Disclosure Letter, and copies of all deeds, purchase documents, mortgages, other
encumbrances and title insurance policies or lawyer's title opinions relating to
such parcels have been provided to Buyer as well as a current title search with
respect to each of the Facilities. Except as set forth in Part 3.11 of the
Disclosure Letter, each Company, or to the Stockholders' knowledge, its lessor,
has good and marketable title to the real property, and such real property is
subject only to normal easements and restrictions that do not interfere with
such Company's current use and intended future use of the real estate.
(b) Except for the leases of the Facilities described on Part
3.11 of the Disclosure Letter, none of the Companies leases any real property.
Each Company enjoys peaceful and undisturbed possession of its Facilities.
(c) The Facilities and the improvements thereon, including
without limitation all Equipment (including all fixtures) and other tangible
assets owned, leased or used by the Companies at their Facilities are insured to
the extent and manner customary in the industry, are sufficient for the
operation of the Business as presently conducted and are in conformity, in all
Material respects, with all applicable laws, ordinances, orders, regulations and
other requirements currently in effect. None of the improvements is subject to
any commitment or other arrangement for their sale or use by any Affiliate of a
Company or third parties.
3.12 Leased Assets. Each lease of tangible assets or real estate to
which either Company is a party is in full force and effect without any default
or breach thereof by an applicable Company or any other party thereto. Except as
set forth on Part 3.12 of the Disclosure Letter, no consent of any lessor or any
other party is required under any such lease by reason of or in connection with
the sale of Shares to Buyer as provided for in this Agreement and to keep such
lease in full force and effect after the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
3.13 Trademarks, Service Marks. Trade Names, Patents and Copyrights.
(a) Intellectual Property Assets. The term "Intellectual Property
Assets" includes:
(i) the names Kirk & Blum Manufacturing and kbd/Technic, all
fictional business names, trading names, registered and unregistered
trademarks, service marks, and applications listed on Part 3.13(e) of
the Disclosure Letter (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
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(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights");
(iv) all domain names, e-mail addresses, web sites, internet
service agreements and other internet related assets, rights and
contracts, whether owned or licensed listed on Part 3.13(h) of the
Disclosure Letter (collectively, "Internet Related Rights");
(v) all know-how, trade secrets, confidential information,
customer lists, software created and owned by either Company, technical
information, data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); and
(vi) all other software, owned, used, or licensed by any
Company as licensee or licensor.
(b) Agreements. Part 3.13(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any royalties paid
or received by the Companies, of all Contracts relating to all material
Intellectual Property Assets to which any Company is a party or by which any
Company is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs with a
value of less than $1000 per user under which a Company is the licensee
("Commercial Software"). There are no outstanding and, to the Stockholders'
knowledge, no threatened disputes or disagreements with respect to any such
agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary
for the operation of the Companies' businesses as they are currently
conducted. One or more of the Companies is the owner of all right,
title and interest in and to each of the Intellectual Property Assets
(other than Commercial Software), free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims,
and has the right to use without payment to a third party all of the
Intellectual Property Assets.
(ii) No employee of any Company has entered into any Contract
that restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer,
assign, or disclose information concerning his work to anyone other
than one or more of the Companies.
(iii) Each Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of the trade secrets
developed or acquired by such Company. To the knowledge of the
Companies, none of the Trade Secrets, know-how or other confidential or
proprietary information owned by the Companies has been transferred to
any person or disclosed to any person unless such disclosure was made
pursuant to an appropriate confidentiality agreement or a proper
corporate purpose.
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(d) Patents
Except as set forth on Part 3.13(d) of the Disclosure Letter,
none of the Companies owns any Patents that have not expired or
licenses any Patents. None of the products manufactured and sold, nor
any process or know-how used, by any Company infringes or is alleged to
infringe any patent or other proprietary right of any other Person.
(e) Trademarks
(i) Part 3.13(e) of the Disclosure Letter contains a complete
and accurate list and summary description of all Marks. One or more of
the Companies is the owner of all right, title, and interest in and to
each of the Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims except as
disclosed on Part 3.9 of the Disclosure Letter.
(ii) No Mark used by the Companies has been registered with
the United States Patent and Trademark Office or any state authority.
No Mark is infringed or, to the Stockholders knowledge, has been
challenged or threatened in any way. None of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark
or service mark of any third party.
(f) Copyrights
(i) Neither of the Companies has registered any Copyrights.
One or more of the Companies is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse
claims.
(ii) No Copyright is infringed or, to the Stockholders'
Knowledge, has been challenged or threatened in any way. None of the
subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based
on the work of a third party.
(g) Trade Secrets
(i) The Companies have taken all reasonable precautions to
protect the secrecy, confidentiality and value of their Trade Secrets.
(ii) One or more of the Companies has good title and an
absolute (but not necessarily exclusive) right to use the Trade
Secrets. The Trade Secrets are not part of the public knowledge or
literature, and, to Stockholders' knowledge, have not been used,
divulged or appropriated either for the benefit of any Person (other
than one or more of the Companies) or to the detriment of the
Companies. No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
(h) Internet Related Rights. Part 3.13(h) of the Disclosure Letter sets
forth each Internet Related Right. All domain name registrations are
valid and in full force, are held of record by one of the Companies and
are not the subject of any cancellation or othe proceeding or Action
challenging their validity.
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3.14 Contracts; Customers. Part 3.14(a) of the Disclosure Letter sets
forth a list of all of the following Contracts to which either Company is a
party or by which it or any of its assets are bound (collectively, the "Material
Contracts"): (i) Contracts with any director, officer or manager of either
Company that will not terminate on or prior to the Closing Date without further
obligation or liability on the part of any party thereto; (ii) Contracts for the
sale of any assets (other than in the ordinary course of business or as set
forth on another schedule), or for the grant to any Person of any preferential
rights to purchase any of its assets or requiring any Person to purchase or sell
all or a fixed portion of its requirements or output to or from another Person;
(iii) Contracts containing covenants of a Company or any employee of a Company
not to compete in any line of business or with any Person in any geographical
area or covenants of any other Person not to compete with a Company in any line
of business or in any geographical area; (iv) Contracts relating to the
acquisition by a Company of any operating business or the capital stock of any
other Person; (v) Contracts relating to the borrowing of money or the issuance
of guarantees; (vi) Contracts under which a Company acts as a distributor,
dealer, franchisor, licensor, licensee, agent, sales representative, or
authorized service Person other than Commercial Software licenses; (vii) each
contract between each Company and any of its Affiliates or Related Parties;
(viii) each Contract between KBD and a customer with a sales price of $1,000,000
or more and each Contract between KTI and a customer with a sales price of
$100,000 or more and, with respect to each Contract, has not been substantially
performed; (ix) all contracts (other than purchase orders) with respect to the
purchase by KBM of iron, steel or products made from iron and steel and with an
aggregate purchase price in excess of $100,000; (x) each lease, rental or
occupancy agreement, license, installment and conditional sale agreement, and
other Contract affecting the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real property; (xi) each licensing agreement
or other contract with respect to Patents, Marks, Copyrights, or other
Intellectual Property Assets, including agreements with current or former
employees, consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets not set forth on Part
3.13 of the Disclosure Letter; (xii) each collective bargaining agreement and
other contract to or with any labor union or other employee representative of a
group of employees; (xiii) each joint venture, partnership, and other contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
any Company with any other Person; (xiv) each Contract providing for payments to
or by any Person based on sales, purchases, or profits, other than direct
payments for goods; (xv) each power of attorney that is currently effective and
outstanding; (xvi) each contract with a Company for capital expenditures in
excess of $100,000; and (xvii) all other Contracts not made in the ordinary
course of business. Except as set forth on Part 3.14(b) of the Disclosure
Letter, no Contract to which a Company is a party or to which it is subject or
by which it is bound conflicts with, would be terminated by, would allow for the
acceleration or termination of, would be in default as a result of, would result
in a Lien on any of such Company's assets as a result of, would be breached as a
result of, would be materially modified or changed by, or requires the consent
of any other Person by reason of, the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, other than such
Contracts the loss of which, individually or in the aggregate, would not have a
Material Adverse Effect on either Company, or the loss of which would involve a
loss of less than $15,000 ("Immaterial Contracts"). To the best of the
Stockholders' knowledge, each of the Contracts to which a Company is a party or
to which it is subject or by which it is bound (including, without limitation,
those set forth on Part 3.14(a) of the Disclosure Letter) is a valid and
existing Contract of all of the parties thereto in full force and effect without
modification, other than Immaterial Contracts. Each Company has performed all
obligations required to be performed by it and is not in default under any
Contract, instrument or other document to which it is a party or to which it is
subject or by which it is bound, and no event has occurred thereunder which,
with or without the lapse of time or the giving of notice, or both, would
constitute a default by it thereunder, other than Immaterial Contracts.
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3.15 Labor Relations; Employees. Except as set forth on Part 3.15 of
the Disclosure Letter, there are no labor strikes, disputes, slow downs, work
stoppages or other labor troubles or grievances pending or, to the Stockholders'
knowledge, threatened against either Company. No unfair labor practice complaint
before the National Labor Relations Board, no charges pending before the Equal
Employment Opportunity Commission and no complaint, charge or grievance of any
nature before any similar or comparable Governmental Authority, in any case
relating to either Company or the conduct of its Business, is pending or, to the
knowledge of the Stockholders, threatened. Neither Company has received notice,
nor has any knowledge, of the intent of any Governmental Authority responsible
for the enforcement of labor or employment laws to conduct any investigation of
or relating to either Company or the conduct of its Business. Except as set
forth in Part 3.15 of the Disclosure Letter, neither Company is a party to any
collective bargaining agreement relating to any of its employees and has not
recognized, is not required to recognize and during the past five (5) years has
not received a demand for recognition by any collective bargaining
representative or experienced any strikes, work stoppages or slowdowns. Except
as set forth on Part 3.15 of the Disclosure Letter, to the knowledge of the
Stockholders, no officer or key employee of any Company has any plan to
terminate his or her employment with either Company. Part 3.15 of the Disclosure
Letter is a true and correct list of all grievances that employees of the
Companies or any union have filed with either Company's unions or any labor
dispute resolution agency since December 31, 1997, whether or not such grievance
has been resolved. No employee or director of any Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that will have a
Material Adverse Effect on (i) the performance of his duties as an employee or
director of the Companies or (ii) the ability of any Company to conduct its
business, including any Proprietary Rights Agreement with Stockholders or the
Companies by any such employee or director. Neither Janet Chap, Marilyn Donovan,
Mary Beth Hines, William J. Hines, John C. Donovan, Alan R. Chap, Nancy I. Blum,
Margaret K. Blum nor Deborah J. Blum has ever been a director, officer, employee
or consultant to either of the Companies except (i) as a summer job and (ii) as
the foregoing have received fees for attending stockholders' meetings.
3.16 Legal Proceedings. Except as set forth on Part 3.16 the Disclosure
Letter, there are no Actions (whether or not purportedly on behalf of either
Company) pending or, to the knowledge of the Stockholders, threatened against
either Company or any of their properties, rights or Business or relating to the
transactions contemplated by this Agreement. To the knowledge of the
Stockholders, no event has occurred or circumstance exists that may give rise to
or serve as the basis for the commencement of any such action. Neither Company
is in default with respect to any order, writ, injunction or decree of any
Governmental Authority. None of the Actions referred to on Part 3.16 of the
Disclosure Letter, individually or in the aggregate, will have a Material
Adverse Effect on a Company.
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3.17 Orders, Decrees, Etc. There are no orders, decrees, injunctions,
rulings, publications, decisions, directives, consents, pronouncements or
regulations of any court or any Governmental Authority issued against or, to the
knowledge of the Stockholders, binding on, either Company which do or may
affect, limit or control such Company's method or manner of doing business,
except for laws, statutes, ordinances, orders and regulations that affect all
similarly situated businesses.
3.18 Compliance With Law; Permits and Licenses.
(a) Each Company has complied with and is in compliance with
all Laws of any Governmental Authority applicable to it, and to its assets,
property and operations ("Legal Requirement") including, without limitation,
Laws relating to zoning, building codes, licensing, permits, antitrust,
occupational safety and health, environmental protection and conservation, water
or air pollution, toxic and hazardous waste and substance control, consumer
product safety, product liability, hiring, wages, hours, employee benefit plans
and programs, collective bargaining and withholding and social security taxes,
except where any non-compliance will not have a Material Adverse Effect on any
Company.
(b) No event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a violation by
any Company of, or a failure on the part of any Company to comply with, any
Legal Requirement, or (B) may give rise to any obligation on the part of any
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature, except where such event or circumstance will not have a
Material Adverse Effect on any Company.
(c) No Company has received, at any time since January 1,
1994, any notice or other communication (whether oral or written) from any
Governmental Authority or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement or Permit and License, except where any non-compliance will not have
a Material Adverse Effect on any Company, or (B) any actual, alleged, possible,
or potential obligation on the part of any Company to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
(d) Each Company presently holds all Permits and Licenses that
are necessary for or Material to its current and known future use, occupancy or
operation of its assets and properties and the conduct of the Business; each
Company is, and at all times since January 1, 1994 has been, in full compliance
with all of the terms and requirements of such Permits and Licenses and no
notice of violation of any applicable zoning regulations, ordinances or other
similar Laws binding on any Company with respect to its assets, properties or
Business has been received by such Company, the Stockholders or any of their
agents or Affiliates.
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(e) No Company has violated nor is any Company alleged to have
violated, nor is in violation of, any Environmental Law, nor has released,
treated, stored, disposed of or transported, or arranged or contracted for the
release, treatment, storage, disposal or transportation of any Hazardous
Substance in violation of any Environmental Law. Except as set forth on Part
3.18(e) of the Disclosure Letter, there are no Hazardous Substances located at,
in, on, within or under the surface of any Company's assets, properties or
Facilities in violation of applicable Environmental Law. Neither the
Stockholders nor has any Company received, or has any knowledge of, any request
for information, notice of claim, demand, lawsuit, action or other notification
from any Governmental Authority or any third party that they or it may be
responsible for any threatened or actual release of Hazardous Substances, or be
in violation of or in noncompliance with any Environmental Law, and neither the
Stockholders nor any Company is subject to any agreement, consent, decree,
administrative order, notice or enforcement action brought under any
Environmental Law. (With respect to each item set forth in Part 3.18(e) of the
Disclosure Letter, the Stockholders shall quantify the cost of remedying the
problem so disclosed including all possible remediation efforts that may be
required to be undertaken, disclose all regulatory action taken with respect to
the problem, state all possible fines and other legal sanctions associated with
the item any and otherwise provide such other reports and information with
respect to the item as Buyer may reasonably request.) For purposes of this
paragraph 3.18(e), "Environmental Law" means any applicable Federal, state or
local law, rule, regulation, ordinance, program, permit, guidance, order,
consent, decree or notice of violation pertaining to the protection of natural
resources, the environment and the health and safety of employees and the
general public; and "Hazardous Substances" means any material, chemical,
compound, mixture, substance or waste which is regulated by any Governmental
Authority having jurisdiction over any premises, including, but not limited to
(a) any oil or petroleum compounds, flammable substances, explosives,
radioactive materials or any other materials or pollutants which pose a hazard
to any Company's properties or Business or Facilities or to any persons on or
about the premises of any Company's Facility or which cause any of the
Facilities to be in violation of any legal requirements, (b) asbestos, (c)
polychlorinated biphenyls, (d) any material or substance designated as a
hazardous substance, pursuant to Section 311 of the Clean Waters Act, 33 USC
Section 1251, (e) pesticides as defined in the Federal Insecticide and
Environmental Pesticide Control Act, 7 USC Section 136, (f) new chemical
substance or mixture pursuant to Sections 3, 6, and 7 of the Toxic Substance
Control Act, 15 USC Section 2601, (g) hazardous substances pursuant to Section
101 of the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 USC Section 9601 and (h) hazardous substances pursuant to section 1004
of Resource Conservation and Recovery Act, 42 USA Section 6901.
(f) Except as set forth on Part 3.18(f) of the Disclosure
Letter, there is not now and has not been at any time in the past any
underground or above-ground storage tank or pipeline at any Facility of any
Company where the installation, use, maintenance, repair, testing, closure or
removal of such tank or pipeline was not in compliance with all Environmental
Laws and there has been no release from or rupture of any such tank or pipeline,
including without limitation any release from or in connection with the filling
or emptying of such tank.
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3.19 Changes Since December 31, 1998. Except as set forth on Part 3.19
of the Disclosure Letter, since December 31, 1998, each Company has conducted
its business only in the ordinary and usual course and has not experienced any
Material Adverse Effect. Without limiting the generality of the foregoing
sentence, since December 31, 1998, except as set forth in Part 3.19 of the
Disclosure Letter, neither Company has (i) incurred any Liability, except
current liabilities incurred in the ordinary course of business consistent with
past practice; (ii) discharged or satisfied any Lien or paid any Liability,
other than current liabilities shown on the Balance Sheets and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice; (iii) sold, transferred or allowed to
become subject to any Lien any Material assets or written off any Accounts
Receivable or notes, except for the collection of Accounts Receivable in the
ordinary course of business and except for the transactions listed on Part 3.19
of the Disclosure Letter; (iv) mortgaged, pledged or subjected to any other Lien
any of its assets or properties, other than Liens reflected on the Balance
Sheets or as set forth on Part 3.9 of the Disclosure Letter; (v) suffered any
Material damage, destruction or loss (whether or not covered by insurance) or
waived any rights or claims of substantial value; (vi) granted any bonuses or
commissions or increased the compensation payable to any of its employees,
directors or officers or increased the aggregate payment of any fees to
independent contractors except for customary bonuses and regular salary
increases made in accordance with each Company's past practices as summarized on
Part 3.19 of the Disclosure Letter or in accordance with the employee benefit
plans described on Part 3.22 of the Disclosure Letter or granted any severance
or termination pay, or entered into or varied the terms of any employment
agreement with any such person; (vii) made any loans to any individuals, firms,
corporations or other entities; (viii) declared, made, set aside or paid any
dividend, distribution or payment on, or any purchase or redemption of, any
Shares or any commitment therefor, other than as described on Part 3.19 of the
Disclosure Letter; (ix) made any Material change in any method of accounting
(for book or tax purposes), (x) written down the value of any Inventory other
than in the ordinary and usual course of business; (xi) suffered any labor
dispute or work stoppage; (xii) entered into any transaction other than in the
ordinary course of business, (xiii) increased the payments to or benefits under
any profit sharing bonus deferred compensation, savings, insurance pension,
retirement or other employee benefit plan for or with any of the employees of
either of the Companies; or (xiv) agreed (whether or not in writing) to do any
of the foregoing. Since July 31, 1999 the Companies have not declared nor paid
dividends which in the aggregate exceed $1,600,000. Except as otherwise
disclosed herein, since December 31, 1998 the Business of each Company has been
operated only in the regular and ordinary course consistent with past practice.
3.20 No Material Adverse Change. Except as set forth on Part 3.19 or
3.20 of the Disclosure Letter, since December 31, 1998, there has not been any
Material adverse change in the condition (financial or otherwise), Business,
prospects of the Business as currently conducted, or operations, of the
Companies, and there has not been any damage, destruction or loss to property
owned by the Companies, whether or not covered by insurance, that, individually
or in the aggregate, has or will have a Material Adverse Effect on the Business
of either Company. No event has occurred or circumstance exists that the
Stockholders know is reasonably likely to result in a Material adverse change in
the condition (financial or otherwise), Business or the prospect of the
Companies.
3.21 Capital Projects and Expenditures. All capital expenditures of the
Companies since December 31, 1998, and all capital projects and capital
expenditures committed for or undertaken by any Company that have not been
completed by the Closing Date (as well as the terms of any and all financing
arranged in connection therewith and details for payments, if any, made with
respect thereto), and which have a net cost of $50,000, or $150,000 in the
aggregate, are listed on Part 3.19 or 3.21 of the Disclosure Letter.
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3.22 Employee Benefits.
(a) Except for the plans of the Companies set forth on Part 3.22 of the
Disclosure Letter (the "Plans") and Multi-Employer Plans, neither Company nor
any of their ERISA Affiliates maintains or contributes to or has any liability
with respect to any "employee benefit plan" as that term is defined in Section
3(3) of ERISA, or any other bonus, incentive, compensation, profit sharing,
stock, severance, retirement, health, life, disability, group insurance,
vacation, holiday, fringe benefit, employment, stock option, stock purchase,
stock appreciation right, supplemental unemployment, layoff or consulting plan,
agreement, policy or understanding (whether written or oral, qualified or
nonqualified, currently effective or terminated). True and complete copies of
all the Plan documents and summary plan descriptions have been furnished to
Buyer other than with respect to any Multi-Employer Plan (together with all
related trust agreements, insurance contracts or other funding agreements which
implement each Plan, investment manager and investment adviser contracts, and
agreements with third-party administrators, actuaries, consultants, and other
independent contractors, and all other documents, records (including, without
limitation, records accurately setting forth the history of each participant and
beneficiary in connection with each such Plan and accurately stating the
benefits earned and owed to such person under each such Plan) or other materials
related thereto which have been requested by Buyer) other than with respect to
any Multi-Employer Plan.
(b) Each Plan (other than Multi-Employer Plans) has been administered
in compliance with its terms and with all filing, reporting, disclosure and
other requirements of ERISA, the Code (including, without limitation Part 6 and
Part 7 of Subtitle B of Title I of ERISA and Sections 105(h) and 4980B and
Subtitle K of the Code) and all other applicable laws in all respects, and no
Stockholder has any knowledge that the foregoing is not true with respect to the
Multi-Employer Plans, and copies of all filings with the Internal Revenue
Service, the Department of Labor and any other applicable Governmental
Authority, all audit reports, financial statements and actuarial reports for the
three most recent plan years for the Plans, and a statement of the annual cost
of providing coverage, and a statement of liability of the Company and ERISA
affiliate made in accordance with Financial Accounting Statement 106 of the
Financial Accounting Standard Board, under any Plan that is a welfare benefit
plan (as defined at Section 3(1) of ERISA) for former employees of any Company
and the dependents of former employees for the three most recent plan years,
have been furnished to Buyer. Except as set forth on Part 3.22 of the Disclosure
Letter, no written or oral representations have been made to any employee or
former employee of any Company promising or guaranteeing any employee benefit,
payment or funding for the continuation of medical, dental, life or disability
coverage for any period of time beyond the end of the current plan year (except
to the extent coverage is required under Section 4980B of the Code). All oral
and written communications with respect to each Plan currently and in the past
reflect and have reflected the documents and operations of the Plan and no
Person has or had any liability by reason of any such communication or any
failure to communicate with respect to the Plan.
(c) Except as set forth on Part 3.22 of the Disclosure Letter, neither
any Company nor any ERISA Affiliate has ever maintained or contributed to any
plan subject to Section 412 of the Code and Section 302 of ERISA, and to the
knowledge of the Stockholders, neither Company nor any ERISA Affiliate has
effected either a "complete withdrawal" or a "partial withdrawal," as those
terms are defined in Sections 4203 and 4205, respectively, of ERISA, from any
such multi-employer plan which has resulted in a material liability that has not
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been paid. Each Company and each other ERISA Affiliate has made all
contributions required in connection with any multi-employer plan as of the date
hereof by the terms of such multi-employer plan or by the terms of any
collective bargaining agreement. The Stockholders have no knowledge that any
withdrawal liability would occur if a Company withdrew from such Multi-Employee
Plan in a complete withdrawal (as defined in Section 4203 of ERISA) or a partial
withdrawal (as defined in Section 4205 of ERISA) as of the Closing Date. Except
as set forth Part 3.22 of the Disclosure Letter hereof, none of the Companies
nor any ERISA Affiliate has terminated or withdrawn from, or expect to terminate
or withdraw from, (in a complete withdrawal as defined in Section 4203 of ERISA
or a partial withdrawal as defined in Section 4205 of ERISA) which has or will
result in a withdrawal liability (as defined in Section 4201 of ERISA), or is
aware of any withdrawal liability (as defined in Section 4201 of ERISA) assessed
against any Company or any other ERISA Affiliate with respect to, any
Multi-Employer Plan.
(d) Except as set forth on Part 3.22 of the Disclosure Letter, at the
Balance Sheet Date and at the date hereof, there was no bonus, profit sharing,
incentive, commission or other compensation of any kind with respect to work
done prior to the Balance Sheet Date or the date hereof due to or expected by
present or former employees of any Company not paid prior to such date or, with
respect to compensation for work done prior to the Balance Sheet Date, not fully
accrued on the Balance Sheets.
(e) Each Plan that is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), together with its related trust (if any), meets the
requirements of a "qualified plan" under Section 401 in form and in operation
and is tax exempt under Section 501 of the Code and has received a favorable
determination letter, or a favorable determination letter has been applied for,
from the Internal Revenue Service as to the qualification under the Code of such
Plan and the tax-exempt status of such related trust, and nothing has occurred
since the date of such determination letter, or request therefor, that could
reasonably be expected to adversely affect the qualification of such Plan or the
tax-exempt status of such related trust. Each fiduciary and official of each
such Plan is bonded to the extent required by Section 412 of ERISA.
(f) There are no unfunded liabilities existing under any Plan and,
subject to compliance with applicable notice requirements under ERISA and state
laws, each Plan (other than the Kirk & Blum Manufacturing Company Sheet Metal
Workers Local Union 183 Pension Plan) can be terminated promptly following the
Closing Date with no liability to Buyer, any Company, any ERISA Affiliate or any
Person that is under common control, or is treated as a single employer, with
Buyer under Section 414 of the Code or ERISA Section 4001.
(g) With respect to each Plan (i) there have been no prohibited
transactions as defined in Section 406 of ERISA or Section 4975 of the Code
other than such transactions to which an exemption applies, (ii) no fiduciary
(as defined in Section 3(21) of ERISA) has liability for a breach of fiduciary
duty or any other failure to act or comply in connection with the administration
or investment of assets in such Plan, and (iii) no actions, investigations,
suits or claims with respect to the assets thereof (other than routine claims
for benefits) are pending or, to the knowledge of the Stockholders, threatened,
and the Stockholders have no knowledge of any facts that would give rise to or
could reasonably be expected to give rise to any such actions, suits or claims.
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(h) To the knowledge of the Stockholders, no Multi-Employer Plan is in
Reorganization as defined in Section 4241 of ERISA nor insolvent.
3.23 Governmental Approvals. No governmental authorization, approval,
order, license, permit, franchise or consent and no registration, declaration or
filing by any Company or the Stockholders with any Governmental Authority is
required in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, nor does the foregoing
violate any Laws or rulings of any Governmental Authority.
3.24 Tax Matters.
(a) Each Company has duly and timely filed all Returns required to be
filed by it. Neither Company is currently the beneficiary of any extension of
time within which to file any Return. No claim has ever been made by an
authority in a jurisdiction where a Company does not file Returns that it is or
may be subject to taxation by that jurisdiction. All Returns filed by the
Companies were correct and complete in all material respects. Each Company has
paid in full all Taxes (whether or not shown on a Return) required to be paid by
such Company before such payment became delinquent. Each Company has made
adequate provision in the Financial Statements, in conformity with an accrual
method of accounting, consistently applied from period to period, for the
payment of all accrued Taxes not yet payable as of the respective dates of such
Financial Statements. All Taxes that a Company has been required to collect or
withhold have been duly collected or withheld and, to the extent required when
due, have been or will be duly and timely paid to the proper taxing authority.
(b) There are no audits, inquiries, investigations or examinations
relating to any of the Companies' Returns pending or threatened, and there are
no claims that have been or may be asserted relating to any of Companies'
Returns filed for any year which if determined adversely would result in the
assertion by any Governmental Authority of any Tax deficiency against a Company.
There have been no waivers or extensions of statutes of limitations with respect
to Taxes by a Company, or any agreements to extend the time with respect to a
Tax assessment or deficiency.
(c) Neither Company is a party to any tax-sharing Contract or similar
arrangement with any Person. Company has not made a disclosure on a Return
pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations thereunder.
(d) Each Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, Stockholder or other third party.
(e) Neither Company has been a member of an affiliated group filing
consolidated Federal income tax returns, or has any liability for Taxes of any
other person under Treasury Regulation section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(f) Neither Company has filed a consent under Code Section 341(f)
concerning collapsible corporations.
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(g) Neither Company is obligated to make any payments and is not a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Section 280G.
(h) Each Company has satisfied all filing and notification
requirements for sales and use taxes and related taxes.
3.25 Insurance Coverage. Buyer has previously been provided with a copy
of each insurance policy (specifying the insured, the insurer, the amount of
coverage, the type of insurance, the policy number, the expiration date, the
annual premium, and any pending claims thereunder) maintained by either Company.
Neither Company is in default with respect to any provisions contained in any
such insurance policies, and has not failed to give any notice or present any
presently existing Material claim under any such insurance policy in due and
timely fashion.
3.26 Accounts Receivable. Buyer has been previously provided with an
aging report for Accounts Receivables as of September 30, 1999. Accounts
Receivable reflected in the Balance Sheets, and all Accounts Receivable arising
since the Balance Sheet Date, represent bona fide claims of a Company against
debtors for sales actually made, services actually performed or other charges
arising on or before the date hereof, and all the goods delivered and services
performed which gave rise to said Accounts Receivable were delivered or
performed in accordance with applicable orders, Contracts or customer
requirements. Unless paid prior to the Closing Date, to the knowledge of the
Stockholders, the Accounts Receivable are or will be as of the Closing Date
collectible net of the respective reserves shown on the Balance Sheets or on the
accounting records of the Companies as of the Closing Date (which reserves are
adequate and calculated consistent with past practice and, in the case of the
reserves as of the Closing Date, will not be less than $125,000. Subject to such
reserves, to the knowledge of the Stockholders, each of the Accounts Receivable
either has been or will be collected in full, without any set-off, within 90
days (except for those Accounts Receivable which the Stockholders have disclosed
generally are collected over a longer period of time) after the day on which it
first becomes due and payable. There is no contest, claim, or right of set-off,
other than returns in the ordinary course of business, under any Contract with
any obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable.
3.27 Product Quality, Warranty Claims. To the best knowledge of the
Stockholders, all products and services sold, rented, leased, provided or
delivered by the Companies to customers on or prior to the Closing Date conform
or will conform to applicable contractual commitments, express and implied
warranties, product and service specifications and quality standards and, to the
best knowledge of the Stockholders, neither Company has any Liability and there
is no basis for any present or future Action against any Company which might
give rise to any Liability for replacement or repair thereof or other damages in
connection therewith.
3.28 Product Liability. Neither Company has any known Liability (and to
the best knowledge of the Stockholders, there is no basis for any present or
future Action against either Company which might give rise to any Liability)
arising out of any injury to a Person or property or violation of any
Environmental Law as a result of the ownership, possession, provision or use of
any product or service sold, rented, leased, provided or delivered by such
Company on or prior to the Closing Date. All product liability claims that have
been asserted against either Company since December 31, 1995, whether covered by
insurance or not and whether litigation has resulted or not, are listed and
summarized on Part 3.28 of the Disclosure Letter.
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3.29 Inventory. All inventory of the Companies reflected in the Balance
Sheets consists of a quality and quantity usable and salable in the ordinary
course of business, except for obsolete items which are not reflected on the
Balance Sheet and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheets or on
the accounting records of the Companies as of the Closing Date, as the case may
be. All inventories not written off have been priced at the lower of cost or
market on a last in, first out basis. The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable in the present circumstances of the Companies.
3.30 Certain Payments. Since January 1, 1996, no Company nor any
director, officer, agent, or employee of any Company, or any other Person
associated with or acting for or on behalf of any Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of any Company or any affiliate of any Company, or
(iv) in violation of any Legal Requirement, or (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Companies.
3.31 Relationships with Related Persons. Except as set forth in Part
3.31 of the Disclosure Letter, no Stockholder or any Related Person of
Stockholder or of any Company has, or since January 1, 1994 has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the Companies' businesses. No
Stockholder or any Related Person of Stockholders or of any Company owns, or
since January 1, 1994 has owned (of record or as a beneficial owner), an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with any
Company, or (ii) engaged in competition with any Company with respect to any
line of the products or services of such Company. Except as set forth in Part
3.31 of the Disclosure Letter, no Stockholder or any Related Person of
Stockholders or of any Company is a party to any Contract with, or has any claim
or right against, any Company.
3.32 Brokers or Finders. Other than set forth on Part 3.32 of the
Disclosure Letter, the Stockholders, the Companies and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
3.33 Bank Accounts. Part 3.33 of the Disclosure Letter is a complete
and accurate list, as of the Closing Date, of:
(a) the name of each bank in which any Company has
accounts or safe deposit boxes and the account or
safe deposit box numbers;
(b) the name(s) in which the accounts or boxes are held;
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(c) the type of account; and
(d) the name of each person authorized to draw thereon or
have access thereto.
3.34 Powers of Attorney. Neither Company has granted any power of
attorney or entered into any agency or similar agreement whereby a third party
may bind or commit such Company in any manner.
3.35 Year 2000 Compliance.
(i) Definitions. For purposes of this Section 3.35, the following
definitions will apply:
"Software" - means all computer software and subsequent
versions thereof, including but not limited to, source code, object code,
objects, comments, screens, user interfaces, report formats, templates, menus,
buttons and icons, and all files, data, materials manuals, design notes and
other items and documentation related thereto or associated therewith.
"Malfunction" - means the failure to: (a) accurately recognize
dates falling before, on or after the year 2000; (b) accurately record, store,
retrieve and process data input and date information; (c) function in a manner
which does not create any ambiguity as to century; and (d) accurately manage and
manipulate single century and multi-century formulae, including leap year
calculations.
(ii) Performance. Section 3.35 of the Disclosure Letter contains a
complete and accurate description of all activities undertaken by the Companies
in connection with their determining that the Year 2000 will not create a
Malfunction of any Software (the "Program"). The Program constitutes a review of
the areas within the Companies' businesses and operations which could be
adversely affected by a Malfunction. Based solely on the results of the Program,
to the best of the Company's knowledge and except as referenced in the
Disclosure Letter, all of the Companies' Software, computer hardware, and
equipment, owned or used by either of them or used and operated by third parties
on behalf of the Companies, which performs or is or may be required to perform
functions involving dates or the computation of dates, or containing date
related data, has the programming, design and performance capabilities to ensure
that:
(A) it will not suffer any Malfunction;
(B) it will not be adversely affected by, nor require changes
in inputting or operating practices nor produce invalid or incorrect output or
results, nor cause any abnormal ending scenario or suffer any diminution in
functionality or performance as a result of the date change at the end of the
twentieth century or the input, processing, storage or use of dates up to and
including December 31, 2000; and
(C) all date-related data stored electronically by or on
behalf of both Companies is in such form that its input, processing, storage or
use by or on behalf of the either of the Companies will not, directly or
indirectly, cause any Malfunction in any Software, computer hardware or computer
equipment.
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(iii) Repair Plans. The Disclosure Letter contains a brief summary of
the Companies' plans for dealing with all exceptions to the representations and
warranties contained in this Section 3.35. Such plans address the risks that
certain computer applications used by the Companies (or any of their material
suppliers, customers or vendors) may suffer a Malfunction. To the best of the
Stockholders' knowledge, no Malfunction will result in a Material Adverse
Effect.
3.36 Bank Representations. The Stockholders have reviewed the most
recent draft of Section 3 of the Credit Agreement (the "Credit Agreement"),
dated as of the date hereof, among Buyer, CECO Filters, Inc., Air Purator
Corporation, New Busch Co, Inc., U.S. Facilities Management Company, Inc. KBM
and KTI, the several banks and other financial institutions party to such
agreement and PNC Bank, National Association, as agent, and upon execution of
the Credit Agreement by KBM and KTI, except with respect to Section 3.10(c) of
the Credit Agreement, the representations and warranties in Section 3 of such
Credit Agreement, solely as they apply to KBM and KTI, shall be true and correct
to the best knowledge of the Stockholders. With respect to Section 3.10(c), the
Stockholders acknowledge that there would be withdrawal liability if KBM or KTI
were to completely withdraw from one or more of the Multi-Employer Plans, but
that the Stockholders have no actual knowledge that any such withdrawal
liability, either individually, or in the aggregate, would cause a Material
Adverse Effect, as such term is defined in the Credit Agreement.
3.37 Representations and Warranties. The representations and warranties
contained in this Section 3 do not contain any untrue statement of a fact or
omit to state a fact necessary to be stated in order to make the statements made
not misleading. There are no other facts or circumstances known to the
Stockholders not disclosed herein that may Materially and adversely affect the
value of either Company's assets, business prospects, financial condition or
result of operations that have not been set forth in this Agreement or the
Disclosure Letter.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
CEC and Buyer jointly and severally warrant and represent to and agree with the
Stockholders as follows:
4.1 Organization And Good Standing.
(a) Buyer is a corporation organized, validly existing, and in
good standing under the laws of Delaware, with the requisite corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations.
(b) CEC is a corporation organized, validly existing, and in
good standing under the laws of New York, with the requisite corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations.
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4.2 Buyer Authority; No Conflict.
(a) Buyer has the right, power and authority to execute and
deliver this Agreement, the Escrow Agreement, the Non-Competition Agreements and
the Employment Agreements and to perform its obligations under this Agreement,
the Escrow Agreement, the Non-Competition Agreement and the Employment
Agreements. The execution, delivery and performance of this Agreement, the
Escrow Agreement, the Non-Competition Agreements and the Employment Agreements
and the consummation of the transactions contemplated by this Agreement have
been duly authorized and approved by all necessary corporate action of Buyer.
This Agreement, the Escrow Agreement, the Non-Competition Agreements and the
Employment Agreements have been duly and validly executed and delivered by
Buyer. Assuming the due authorization, execution and delivery of this Agreement,
the Escrow Agreement, the Non-Competition Agreements, and the Employment
Agreements by the other parties thereto, this Agreement, the Escrow Agreement,
the Non-Competition Agreements, and the Employment Agreements each constitutes
the legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement, the
Escrow Agreement, the Non-Competition Agreements and the Employment Agreements
by Buyer nor the consummation or performance of any of the transactions
contemplated by Buyer will, directly or indirectly (with or without notice or
lapse of time):
(i) violate any provision of Buyer's articles of
incorporation or bylaws;
(ii) violate any resolution adopted by the board of directors
or the stockholders of Buyer;
(iii) violate any Laws to which Buyer is or may be subject; or
(iv) violate any material Contract to which Buyer is a party
or by which Buyer may be bound.
Except as previously disclosed in writing by Buyer to
Stockholders, Buyer is not and will not be required to obtain any consent from
any Person in connection with the execution and delivery of this Agreement, the
Escrow Agreement, the Non-Competition Agreement and the Employment Agreements or
the consummation or performance of any of the transactions contemplated by this
Agreement.
4.3 CEC Authority; No Conflict.
(a) CEC has the right, power, and authority to execute and
deliver this Agreement and the Stock Warrants and to perform its
obligations hereunder and under the Stock Warrants. The execution and
delivery of this Agreement and the Stock Warrants and the performance
by CEC hereunder and under the Stock Warrants have been duly authorized
and approved by all necessary corporate action of CEC. This Agreement
has been, and the Stock Warrants will be, duly and validly executed and
delivered by CEC. Assuming the due authorization, execution and
delivery of this Agreement by the Stockholders, the occurrence of the
Closing and the due completion of the Stock Warrants as provided
therein, this Agreement and the Stock Warrants will constitute the
legal, valid, and binding obligation of CEC, enforceable against CEC in
accordance with its terms.
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(b) Neither the execution and delivery of this Agreement or
the Stock Warrants by CEC nor the consummation or performance of any of
the transactions contemplated by this Agreement by CEC will, directly
or indirectly (with or without notice or lapse of time):
(i) violate any provision of CEC's articles of
incorporation or bylaws;
(ii) violate any resolution adopted by the board of
directors or the stockholders of CEC;
(iii) violate any Laws to which CEC is or may be subject; or
(iv) violate any material Contract to which CEC is a party
or by which CEC may be bound.
4.4 Warrant Shares. At the Closing, the shares of CEC common stock
initially issuable upon the exercise of the Stock Warrants will have been duly
and validly authorized and reserved for issuance, and such shares, when issued
and delivered in accordance with the provisions of the Stock Warrants, will be
validly issued, fully paid and nonassessable.
4.5 Commission Reports. Since January 1, 1998, CEC has timely filed all
required forms, reports, statements and documents with the Commission, all of
which have complied in all material respects with all applicable requirements of
the Securities Act of 1933, as amended, and the Securities and Exchange Act of
1934, as amended. Buyer has delivered or made available to Stockholders true and
complete copies of (i) CEC's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998, (ii) all other forms, reports, statements and documents
filed by CEC with the Commission since January 1, 1998, and (iii) all reports,
statements and other information provided by CEC to its stockholders since
January 1, 1998 (collectively, the "CEC Reports"). CEC is and has been subject
to the reporting requirements of the Exchange Act of 1934, as amended, and has
timely filed with the Commission all periodic reports required to be filed by it
pursuant thereto and all reports required to be filed under Sections 13, 14 or
15(d) of the Exchange Act since January 1, 1998.
4.6 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended.
4.7 Certain Actions. There is no pending Action that has been commenced
against Buyer or CEC and that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated by this Agreement. To CEC's and Buyer's knowledge, no such Action
has been threatened.
4.8 Governmental Approvals. No governmental authorization, approval,
order, license, permit, franchise or consent and no registration, declaration or
filing by Buyer or CEC with any Governmental Authority is required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby other than the filing by CEC of a Form 8-K with
the Securities and Exchange Commission.
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SECTION 5. CONDITIONS OF BUYER'S OBLIGATIONS TO CLOSE
The obligations of Buyer under this Agreement are, at the option of Buyer,
subject to the conditions set forth below, which conditions may be waived by
Buyer without releasing or waiving any of its rights hereunder.
5.1 Agreements and Conditions. On or before the Closing Date, the
Stockholders shall have complied with and duly performed all agreements and
conditions on their part to be complied with and performed pursuant to or in
connection with this Agreement on or before the Closing Date.
5.2 Representations and Warranties. All of the Stockholders'
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to the Disclosure
Letter.
5.3 No Legal Proceeding. No Action shall have been instituted or
threatened to restrain or prohibit the acquisition by Buyer of the Companies,
and on the Closing Date there are no Actions pending or threatened against any
Stockholders, any Company or any Company's assets that involve a demand for any
judgment or Liability, whether or not covered by insurance, and that may result
in any Material Adverse Effect on any Company.
5.4 Deliveries. Buyer shall have received the deliveries to be made by
all of the Stockholders pursuant to Section 7.
5.5 Consents. Each of the consents identified in Part 3.3 of the
Disclosure Letter must have been obtained and must be in full force and effect.
5.6 Financing. Buyer shall have obtained the financing necessary for
the purchase of the shares contemplated hereby as well as such financing as is
necessary for the operation of the businesses of the Buyer and the Companies on
terms reasonably satisfactory to the Buyer.
SECTION 6. CONDITIONS OF THE STOCKHOLDERS' OBLIGATION TO CLOSE
The obligations of the Stockholders under this Agreement are, at the option of
the Stockholders, subject to the following express conditions, which conditions
may be waived by the Stockholders without releasing or waiving any of their
rights hereunder.
6.1 Agreements and Conditions. On or before the Closing Date, Buyer
shall have complied with and duly performed all of the agreements and conditions
on its part required to be complied with or performed pursuant to this Agreement
on or before the Closing Date.
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6.2 Representations and Warranties. The representations and warranties
of Buyer contained in this Agreement, or otherwise made in writing in connection
with the transactions contemplated hereby, shall be true and correct on and as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
6.3 Deliveries. The Stockholders shall have received the deliveries to
be made by Buyer pursuant to Section 8.
6.4 No Legal Proceeding. No Action shall have been initiated or
threatened to restrain or prohibit the acquisition by Buyer of the Companies,
and on the Closing Date there are no Actions pending or threatened against or
affecting Buyer or Buyer's assets that involve a demand for any judgment or
Liability, whether or not covered by insurance, and that may result in any
Material Adverse Effect on Buyer.
SECTION 7. DELIVERIES OF THE STOCKHOLDERS ON THE CLOSING DATE
The Stockholders agree to deliver to Buyer on the Closing Date the
following:
7.1 Stock Certificates. Certificates representing all of the Shares
being acquired by Buyer hereunder, duly endorsed in blank for transfer or with
appropriate stock powers duly executed in blank, with signatures guaranteed by a
commercial bank or by a member firm of the New York Stock Exchange.
7.2 Appointment. Appointment of Phillip DeZwirek as a trustee of any
Plan sponsored by either Company with any amendment to such Plan required for
such appointment, and resignation of any directors required to allow Phillip
DeZwirek to be elected a director of KBM and KTI immediately following the
Closing.
7.3 Consents. All consents required in connection with the execution
and delivery of this Agreement and the transactions contemplated hereby.
7.4 Possession of Assets. Possession of the assets and properties of
the Companies held by the Stockholders.
7.5 Legal Opinion. The legal opinion of Dinsmore & Shohl LLP in the
form of Exhibit B attached hereto.
7.6 Noncompetition Agreements. Noncompetition Agreements between Buyer
and Richard J. Blum, Lawrence J. Blum and David D. Blum (the "Noncompetition
Agreements") in the form of Exhibit C attached hereto, providing that for a
period of five (5) years from the Closing Date the foregoing individuals shall
not enter into competition with any Company or Buyer.
7.7 Employment Agreements. Employment Agreements between Buyer or an
affiliate and each of Richard J. Blum, Lawrence J. Blum and David D. Blum in the
form of Exhibit D-1, D-2 and D-3, respectively (collectively, the "Employment
Agreements").
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7.8 Escrow Agreement. Copies of the Escrow Agreement duly executed by
each of the Stockholders.
7.9 Buy-Sell Agreement. Fully executed agreement terminating the
buy-sell agreement to which the Shares of KBM are subject.
7.10 Form 3. A Form 3 executed by each of Richard J. Blum, Lawrence J.
Blum and David D. Blum in a form suitable for filing with the Securities and
Exchange Commission.
7.11 Closing Certificate. A certificate executed by Richard J. Blum,
Lawrence J. Blum and David D. Blum to the effect that the Stockholders
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Disclosure Schedule that were delivered by
Stockholders to Buyer prior to the Closing Date in accordance with Section 9.5
hereof), the fulfillment of all of the Stockholders' covenants in all material
respects, and the satisfaction of all conditions to the Closing to be satisfied
by the Stockholders.
7.12 Articles of Incorporation. The Articles of Incorporation of KMB
with all amendments thereto certified by the Secretary of State of the State of
Ohio and the Articles of KTI with all amendments thereto, certified by the
Secretary of State of the State of Indiana, each certified as of a date within
10 days of the Closing Date.
7.13 Good Standing Certificate. Certificates as to the good standing of
KTI and KBM in Indiana and Ohio, respectively, and in each state in which such
corporations are required to be qualified as a foreign corporation, issued by
the appropriate state authority, as of a date within 10 days of the Closing
Date.
7.14 Secretary Certificate of KBM. Certificate of the corporate
secretary of KBM as to the articles of incorporation, bylaws, officers and
directors of KBM.
7.15 Secretary Certificate of KTI. Certificate of the corporate
secretary of KTI as to the articles of incorporation, bylaws, officers and
directors of KTI.
7.16 Release of Lien. UCC-3 Termination Statements with respect to
certain of the liens on the assets of KTI.
7.17 Payoff Letter. Pay-off letters from The Fifth Third Bank, for debt
of KBM and KTI in the form provided to Stockholders by Buyer.
7.18 New Trust. A trust organized by Buyer to hold the stock of KTI
executed by Richard J. Blum as trustee and proof that Richard J. Blum is
currently licensed as an engineer in the States of Indiana and Ohio.
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7.19 Mutual Releases. Mutual releases (the "Releases") executed by all
the Stockholders and the Companies in the form of Exhibit E releasing the
Companies from all liabilities except as set forth on Part 7.19 of the
Disclosure Letter and pursuant to this Agreements and the agreements entered
into at the Closing.
7.20 Financial Statements. Audited Financial Statements of the
Companies for the three one-year periods ending December 31, 1996, 1997 and
1998, respectively, a consent of the accountants preparing such statements to
their inclusion in a Form 8-K to be filed by CEC with the Securities and
Exchange Commission and unaudited financial statements for the nine-month period
ending September 30, 1999 prepared in accordance with GAAP and which the chief
financial officers of the Companies have certified are true and correct and
accurately reflect the financial condition of the Companies.
7.21 Additional Deliveries. Such other documents, instruments and
certificates as counsel for Buyer or counsel for the lender or lenders providing
financing to Buyer for the purchase of Shares hereunder shall reasonably
request.
SECTION 8. DELIVERIES OF BUYER ON THE CLOSING DATE
Buyer agrees to deliver to the Stockholders on the Closing Date the
following:
8.1 Purchase Price. The Purchase Price described in Section 2.3.
8.2 Noncompetition Agreements. Copies of the Noncompetition Agreements
for Richard J. Blum, Lawrence J. Blum and David D. Blum executed by Buyer.
8.3 Employment Agreements. Employment Agreements for each of Richard J.
Blum, Lawrence J. Blum and David D. Blum executed by Buyer and the Stock
Warrants provided for therein.
8.4 Escrow Agreement. The Escrow Agreement executed by Buyer and the
escrow agent.
8.5 Noncompetition Agreement Payments. The amounts payable pursuant to
the Noncompetition Agreements shall be paid to each of Richard J. Blum, Lawrence
J. Blum and David D. Blum by wire transfer to the accounts specified by such
parties.
8.6 Good Standing Certificates. Certificates as to the good standing of
CEC and Buyer issued by the Secretary of State of the State of New York and
Delaware respectively.
8.7 Buyer's Closing Certificate. A certificate executed by CEC and
Buyer to the effect that each of CEC's and Buyer's representations and
warranties in this Agreement was accurate in all material respects as of the
date of this Agreement and is accurate in all material respects as of the
Closing Date as if made on the Closing Date, the fulfillment of all CEC's and
Buyer's covenants in all material respects, and the satisfaction of all
conditions to the Closing to be satisfied by Buyer and CEC.
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8.8 Legal Opinion. The legal opinion of Sugar, Friedberg & Felsenthal
in the form of Exhibit F hereto.
SECTION 9. ADDITIONAL COVENANTS
9.1 Access and Investigation. Between the date of this Agreement and
the Closing Date, Stockholders will, and will cause each Company and its
representatives to, (a) afford Buyer and its representatives and prospective
lenders and their representatives (collectively, "Buyer's Advisors") full and
free access to each Company's personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional financial,
operating, and other data and information as Buyer may reasonably request.
9.2 Operation of the Businesses of the Companies. Between the date of
this Agreement and the Closing Date, Stockholders will, and will cause each
Company to:
(a) conduct the business of such Company only in the ordinary
course of business;
(b) use their best efforts to preserve intact the current
business organization of such Company, keep available the services of
the current officers, employees, and agents of such Company, and
maintain the relations and goodwill with suppliers, customers,
landlords, creditors, employees, agents, and others having business
relationships with such Company;
(c) confer with Buyer concerning operational matters of a
material nature; and
(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of such Company.
9.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, the
Stockholders will not, and will cause each Company not to, without the prior
consent of Buyer, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 3.19 is likely to occur. Neither Company shall incur
any additional Indebtedness.
9.4 Required Approvals. As promptly as practicable after the date of
this Agreement, Stockholders will, and will cause each Company to, make all
filings required by Legal Requirements to be made by them in order to consummate
the transactions contemplated hereby. Between the date of this Agreement and the
Closing Date, Stockholders will, and will cause each Company to, cooperate with
Buyer with respect to all filings that Buyer elects to make or is required by
Legal Requirements to make in connection with the transactions contemplated by
this Agreement.
9.5 Notification. Between the date of this Agreement and the Closing
Date, each Stockholder will promptly notify Buyer in writing if such Stockholder
or any Company becomes aware of any fact or condition that causes or constitutes
a breach of any of Stockholders' representations and warranties as of the date
of this Agreement, or if such Stockholder or any Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, Stockholders will promptly deliver
to Buyer a supplement to the Disclosure Letter specifying such change. During
the same period, each Stockholder will promptly notify Buyer of the occurrence
of any breach of any covenant of Stockholders in this Section 9 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 5 impossible or unlikely.
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9.6 Payment of Indebtedness By Related Persons. Except as expressly
provided in this Agreement, Stockholders will cause all indebtedness owed to a
Company by any Stockholder or any Related Person of any Stockholder to be paid
in full prior to Closing.
9.7 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 14, Stockholders will not, and will cause each
Company and each of their representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to, or consider the merits of
any unsolicited inquiries or proposals from, any Person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the ordinary course of business) of any Company, or any of the capital
stock of any Company, or any merger, consolidation, business combination, or
similar transaction involving any Company.
9.8 Stockholders Best Efforts. Between the date of this Agreement and
the Closing Date, Stockholders will use their best efforts to cause the
conditions in Sections 5 and 6 to be satisfied.
9.9 Buyer's Best Efforts. Between the date of this Agreement and the
Closing Date, Buyer will use its best efforts to cause the conditions in
Sections 5 and 6 to be satisfied.
9.10 Post-Closing Cooperation of Buyer and the Stockholders. The
Stockholders shall cooperate with Buyer, and the Buyer shall use all reasonable
efforts to have the officers, directors and other employees of the Companies
cooperate with the Stockholders, at the Stockholder's request and expense, after
the Closing, in furnishing information, evidence, testimony and other assistance
in connection with any Actions involving the Stockholders and a Company and
based upon Contracts or acts of any Company that were in effect or occurred on
or prior to the Closing. Buyer and the Stockholders shall each cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
any audit, litigation or other Action, or the preparation of Returns with
respect to Taxes or other matters, relating to the period prior to the Closing
Date, at the Stockholders' cost. Such cooperation shall include the retention
and (upon the other party's reasonable request) the provision of records and
information, including work papers of the Companies and their independent
auditors, but excluding records and information that are protected by recognized
professional privilege, related to Tax periods on or prior to the Closing Date,
which are reasonably relevant to any such audit, litigation or other Action, or
any Returns. Buyer and the Stockholders agree (i) to retain all books and
records with respect to Tax matters pertinent to the Companies relating to the
six-year period (or portion thereof) prior to the Closing, and (ii) to give the
other party reasonable written notice prior to destroying or discarding any such
books and records and, in such event and if the other party so requests, Buyer,
the Companies or the Stockholders, as the case may be, shall allow the other
party to take possession of such books and records.
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9.11 Further Assurances of the Stockholders and Buyer. The Stockholders
agree at any time and from time to time after the Closing, upon the request of
Buyer, to do, execute, acknowledge and deliver, or to cause to be done,
executed, acknowledged and delivered, all such further acts, assignments,
transfers, powers of attorney and assurances as may be required and to carry out
the terms and conditions of this Agreement.
9.12 No Disparagement. Except as otherwise required by law, including
without limitation, when a Stockholder is testifying as a result of legal
process served on a Stockholder, and then only upon 10 days prior written notice
to CEC, no Stockholder shall from and after the date hereof, in any way or to
any person, criticize, ridicule, disparage, denigrate or derogate any of the
Companies, CEC or Buyer or any of their Affiliates, or any person who was at any
time an officer or director of any of the Companies, CEC or Buyer or any of
their affiliates, or any products, services or procedures of or rendered by any
of the Companies, CEC or Buyer or any of their Affiliates, regardless of whether
such denigrating or derogatory statements are true and regardless of whether the
acts or omissions or purported acts or omissions on which such statements are
based occurred before or after the date hereof. As used in this section,
"disparage" shall include, in addition to its common law meaning, negative
comments concerning the past, present, or future business ethics or management
decisions, or the quality or effectiveness of the goods or services of Buyer,
CEC, the Companies or any of its Affiliates'.
9.13 Tax Matters.
(a) Code Section 338 Election. At Buyer's option, the Stockholders will
join with Buyer in making an election under Code Sections 338 (and any
corresponding elections under state, local or foreign tax law) (collectively, a
"Section 338 Election") with respect to the purchase and sale of the stock of
either Company or both Companies. In connection therewith, the Stockholders
shall cooperate in executing and filing all returns, reports, documents or
elections required to be executed and filed. Buyer covenants and agrees to
indemnify and hold the Stockholders harmless from any and all Taxes incurred by
the Stockholders as a result of making the Section 338 Election.
(b) S Election. The status of both Companies as S Corporations (within
the meaning of Code Section 1361(a)(1)) shall be maintained to permit a Section
338 Election to be made at the Buyer's option.
9.14 Company Covenants. The Stockholders shall cause the Companies to
act in accordance with the covenants hereof which require the Stockholders to
cause the Companies to act in certain ways and a failure of the Companies to act
or refrain from acting in accordance with such requirements for any reason shall
be deemed a breach by the Stockholders of one of their covenants under this
Agreement.
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9.15 Taxes and Short Period Return. The Stockholders shall be solely
responsible for all Taxes of the Companies resulting from the operation of the
Companies prior to the Closing. The Stockholders shall, at their sole cost and
expense, cause the accountants regularly retained by the Companies to prepare
all federal, state, county and local tax returns of the Companies with respect
to the short period from January 1, 1999 to the Closing Date. Such return shall
be prepared in a fiscally responsible and conservative manner and shall be
delivered to the Buyer together with all necessary supporting schedules within
45 days of the Closing Date for its approval. Such approval shall not relieve
the Stockholders of their responsibility for the preparation of the return and
all tax liability thereunder shall be the responsibility of the Stockholders.
Buyer shall cause the Companies to sign the approved returns and cause such
returns to be timely filed with the appropriate authorities if delivered to
Buyer as required above. Such returns shall be reviewed and approved by the
Buyer's accountants, which approval shall not be unreasonably withheld, prior to
their due date provided that such returns are delivered to the Buyer as provided
above.
SECTION 10. INDEMNIFICATION
10.1 Indemnification by the Stockholders. The Stockholders jointly and
severally agree to indemnify, defend and hold harmless CEC, Buyer and every
Affiliate of Buyer, (including from and after the Closing Date, the Companies)
and the directors, officers, employees, stockholders, affiliates, agents and
successors and assigns of each such indemnified party (collectively "Buyer
Indemnified Parties") from any and all Damages that such person may sustain at
any time by reason of:
(a) the breach or inaccuracy (or alleged breach or inaccuracy) of, or
failure to comply with (or alleged failure to comply with), or a failure to
cause the Companies to comply with any of the warranties, representations,
covenants or agreements of the Stockholders contained in this Agreement or in
the exhibits or schedules hereto. As used in this Agreement, the terms "alleged
breach or inaccuracy" or "alleged failure to comply with" shall only apply to
allegations by parties other than Buyer or its Affiliates as to such matters;
(b) any abatement order, compliance order, consent order, remediation
order, clean-up order or exhumation order, potentially responsible party
notification or Action against a Company arising out of any fact or condition
described or referenced in Part 3.18(e) or (f) of the Disclosure Letter,
including without limiation of the foregoing, the implementation of the
environmental remediation programs under the terms of the plan presented by KBM
to the lenders financing the transaction contemplated hereunder at the Closing
(the "Remediation Plan");
(c) any Accounts Receivable in existence on the Closing Date that are
not collected within 1 year after the Closing to the extent that the aggregate
face value of such uncollected Accounts Receivable exceed the allowance for
doubtful accounts receivables set forth on the Closing Financial Statements of
the Companies.
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<PAGE>
(d) any liability of either of the Companies for the litigation set
forth on Part 3.16 of the Disclosure Letter;
(e) any actions incident to any of the foregoing.
10.2 Indemnification by Buyer. CEC and Buyer jointly and severally
agree to indemnify and hold the Stockholders harmless from and against any and
all Damages that the Stockholders may sustain at any time by reason of the
breach or inaccuracy (or alleged breach or inaccuracy) of, or failure to comply
with (or alleged failure to comply with) any warranties, representations,
conditions, covenants or agreements of Buyer or CEC contained in this Agreement
or in any exhibit or schedule hereto, or for any acts or omissions of Buyer or
CEC after the Closing Date.
10.3 Indemnity Limitations on the Buyer.
(a) Buyer Indemnified Parties shall not have any right to
indemnification under Section 10.1 unless and until such parties shall have
incurred, on a cumulative basis and in the aggregate since the Closing Date,
Damages to which they otherwise are entitled to indemnification under Section
10.1, which in an aggregate amount equal $300,000 (excluding amounts with
respect to which the Buyer Indemnified Parties have been indemnified pursuant to
the next succeeding sentence), in which event the right of Buyer Indemnified
Parties to be so indemnified shall apply only to the extent that such Damages
exceed $300,000 (excluding amounts with respect to which the Buyer Indemnified
Parties have been indemnified pursuant to the next succeeding sentence).
Notwithstanding the foregoing, to the extent that the Buyer Indemnified Parties
have incurred, on a cumulative basis and in the aggregate since the Closing
Date, Damages to which the Buyer Indemnified Parties otherwise are entitled to
indemnification under Section 10.1(b), which in an aggregate amount equal
$100,000 (including without limitation of the foregoing, all amounts expended by
the Buyer or any of the Companies in conformity with the Remediation Plan), the
right of Buyer Indemnified Parties to be so indemnified shall apply only to the
extent that such Damages (including without limitation of the foregoing, all
amounts expended by the Buyer or any of the Companies in conformity with the
Remediation Plan) exceed $100,000.
(b) Buyer Indemnified Parties shall have no right to seek
indemnification under Section 10.1 for Damages which in the aggregate exceed the
Purchase Price other than for Damages resulting from or related to fraud or
intentional misconduct of any Stockholder, in which case no limit shall apply.
(c) Neither Section 10.3(a) nor Section 10.3(b) shall apply to Buyer's
right to indemnification under Section 10.1(d) nor to Buyer's right to any
adjustments to the Purchase Price pursuant to Section 2.4.
10.4 Indemnity Limitations on the Stockholders.
(a) Stockholders shall not have any right to indemnification under
Section 10.2 unless and until the Stockholders shall have incurred, on a
cumulative basis since the Closing Date, Damages to which they otherwise are
entitled to indemnification under Section 10.2, which in an aggregate amount
equal $300,000, in which event the right of Stockholders to be so indemnified
shall apply only to the extent that such Damages exceed $300,000.
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<PAGE>
(b) Stockholders shall have no right to seek indemnification under
Section 10.2 for Damages which in the aggregate exceed the Purchase Price other
than for Damages resulting from or related to fraud or intentional misconduct of
CEC or Buyer, in which case no limit shall apply.
10.5 Insurance Coverage. The parties shall make appropriate adjustments
for insurance coverage in determining Damages for purposes of this Section 10.
Buyer shall use (and shall cause the Companies to use) reasonable efforts to
collect the proceeds of any available insurance which would have the effect of
reducing any Damages (in which case the net proceeds thereof shall reduce such
Damages).
10.6 Sole Remedy. The indemnification provisions set forth in Section
10.1 shall be the Buyer Indemnified Parties' sole remedy for breach by the
Stockholders of any representation, warranty or covenant of Stockholders in this
Agreement or any certificate delivered to Buyer pursuant to this Agreement
except in the case of fraud or intentional misconduct on the part of
Stockholders; provided, however, that any claim for indemnification by the Buyer
Indemnified Parties against the Stockholders under Section 10.1 may be asserted
against the portion of the Purchase Price held in the account created under the
Escrow Agreement in accordance with the terms of such Escrow Agreement. The
indemnification provisions set forth in Section 10.2 shall be Stockholders' sole
remedy for breach by Buyer or CEC of any representation, warranty or covenant of
Buyer or CEC in this Agreement or any certificate delivered by Buyer or CEC
pursuant to this Agreement except in the case of fraud or intentional misconduct
of Buyer or CEC.
10.7 Procedures for Third Party Indemnification. In those instances in
which a third party claim is made against any party hereto, or any party hereto
is made a party defendant in any action or proceeding, and such claim, action or
proceeding involves a matter that is the subject of this indemnification (a
"Claim"), then such party (an "Indemnified Party") shall give written notice (a
"Claims Notice") to the other party hereto (the "Indemnifying Party") of such
claim, action or proceeding, and such Indemnifying Party shall have the right to
join in the defense of said claim, action or proceeding at such Indemnifying
Party's cost and expense and, if the Indemnifying Party agrees in writing to be
bound by and to promptly pay the full amount of any final judgment from which no
further appeal may be taken, and if the Indemnified Party is reasonably assured
of the Indemnifying Party's ability to vigorously contest such claim and satisfy
its obligations under this Agreement, then at the option of the Indemnifying
Party, such Indemnifying Party may take over the defense of such claim, action
or proceeding with counsel reasonably acceptable to the Indemnified Party,
except that, in such case, the Indemnified Party shall have the right to join in
the defense of said claim, action or proceeding at its own cost and expense.
10.8 Information. The party assuming the defense of any Claim shall
keep the other party reasonably informed at all times of the progress and
development of its or their defense of and compromise efforts with respect to
such Claim and shall furnish the other party with copies of all relevant
pleadings, correspondence and other papers. In addition, the parties to this
Agreement shall cooperate with each other and make available to each other and
their representatives all available relevant records or other materials required
by them for their use in defending, compromising or contesting any Claim. The
failure to timely deliver a Claims Notice or otherwise notify the Indemnifying
Party of the commencement of such actions in accordance with this Section 10
shall not relieve the Indemnifying Party from the obligation to indemnify
hereunder except to the extent that the Indemnifying Party establishes by
competent evidence that it has been prejudiced thereby.
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<PAGE>
10.9 Same Counsel. In the event both the Indemnified Party and the
Indemnifying Party are named as defendants in an Action initiated by a third
party, they shall both be represented by the same counsel (on whom they shall
agree), unless such counsel, the Indemnified Party, or the Indemnifying Party
shall determine that such counsel has a conflict of interest in representing
both the Indemnified Party and the Indemnifying Party in the same Action and the
Indemnified Party and the Indemnifying Party do not waive such conflict to the
satisfaction of such counsel, which waiver shall be at the sole and absolute
discretion of the parties hereto.
10.10 Right of Set Off. In addition to any other rights Buyer has under
this paragraph 10 or elsewhere in this Agreement to indemnification or
recoupment, the Stockholders agree that Buyer is entitled to set off any amounts
it may owe the Stockholders under this Agreement or any Exhibits hereto, or any
other amounts owed to the Stockholders by Buyer, including amounts owed under
Section 2.2, against such claims for indemnity or recoupment. Such right of set
off may be exercised by Buyer at the time a claim for indemnity or recoupment is
made by Buyer. In the event such claim is contested by the Stockholders, and the
final resolution of the claim results in a reduction or elimination of such
claim, Buyer shall pay to the Stockholders the amount by which the claim is
reduced (limited by the amount of the set off applied against such claim) plus
interest on such amount at an annual rate equal to the prime rate as announced
from time to time by Buyer's primary lender.
SECTION 11. SURVIVAL OF REPRESENTATIONS: EFFECT OF CERTIFICATES
11.1 Right To Indemnification Not Affected By Knowledge. Except as
provided in section 11.2 below and except with respect to specific breaches of
representations, warranties, covenants or obligations set forth in the
Disclosure Letter and identified as a breach of a representation, warranty,
covenant or obligation (which breaches are hereby waived by Buyer and CEC), all
representations, warranties, covenants, and obligations in this Agreement, the
Disclosure Letter, the supplements to the Disclosure Letter, the certificates
delivered pursuant to Sections 7.11 and 8.7, and any other certificate or
document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. Phillip DeZwirek has no knowledge on the date of this
Agreement of the breach by the Stockholders of any representations, warranties,
covenants or obligations contained in this Agreement. The written waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation shall negate the
right to indemnification, payment of Damages, or other remedy based on such
waived representations, warranties, covenants and obligations.
11.2 Survival. All of the Stockholders' representations, warranties,
and covenants contained in this Agreement, the Disclosure Letter, the
supplements to the Disclosure Letter, and any certificate delivered pursuant to
this Agreement shall survive the Closing until the date two years from the date
hereof; provided, however, that (i) the representations and warranties under
Section 3.4 shall survive forever, and (ii) the representations and warranties
in Sections 3.18(e), 3.18(f), 3.22 and 3.24 shall survive until the close of
business on the 60th day following the expiration of the applicable statute of
limitations with respect to the liabilities in question (giving effect to any
waiver, mitigation or extension thereof).
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<PAGE>
All of CEC's and Buyer's representations, warranties, and covenants
contained in this Agreement and any certificate delivered pursuant to this
Agreement shall survive the Closing until the date two years from the date
hereof..
If notice of a claim for indemnification has been given prior to the
expiration of the applicable representations and warranties by one party to the
other, then the relevant representations and warranties shall survive as to such
claim until such claim has been finally resolved.
SECTION 12. BROKERAGE INDEMNITY
Buyer, on the one hand, and the Stockholders, on the other hand, each
represent to the other that no broker or finder has been involved with any of
the transactions relating to this Agreement other than, in the case of the
Stockholders, McDonald Investments. In the event of a claim by any other broker
or finder that such broker or finder represented or was retained by a Company or
the Stockholders on the one hand, or represented or was retained by Buyer, on
the other hand, in connection herewith, the Stockholders or Buyer, as the case
may be, agree to indemnify and hold the other (and, in the case of
indemnification by the Stockholders, the Companies) harmless from and against
any and all loss, liability, cost, damage, claim and expense, including, without
limitation, attorneys' fees and disbursements, which may be incurred in
connection with such claim.
SECTION 13. NOTICES
All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and shall be deemed to have been given when
hand delivered, when received if sent by same day or overnight recognized
commercial courier service or three business days after being mailed in any
general or branch office of the United States Postal Service, enclosed in a
registered or certified postpaid envelope, return receipt requested, addressed
to the address of the parties stated below or to such changed address as such
party may have fixed by notice:
To the Stockholders:
Richard J. Blum
711 Springhill Lane
Cincinnati, Ohio 45226
40
<PAGE>
- copy to -
George H. Vincent, Esq.
Dinsmore & Shohl LLP
1900 Chemed Center
255 E. Fifth Street
Cincinnati, OH 45202
To Buyer:
c/o CECO Environmental Corp.
505 University Avenue
Suite 1400
Toronto, Ontario M5G 1X3
Canada
Attention: Phillip DeZwirek
- copy to -
Sugar, Friedberg & Felsenthal
30 North LaSalle Street, Suite 2600
Chicago, Illinois 60602-2506
Attention: Leslie J. Weiss, Esq.
provided, that any notice of change of address shall be effective only upon
receipt.
SECTION 14. TERMINATION
14.1 Conditions for Termination. This Agreement may be terminated at
any time prior to the Closing by any of the following:
(a) By mutual written agreement of Buyer and the Stockholders;
(b) By either Buyer or the Stockholders, if the Closing has not
occurred by 11:59 p.m. on the earlier of (i) the date sixty (60) days from the
date hereof, or (ii) December 31, 1999, upon written notice by such terminating
party, provided that at the time such notice is given a material breach of this
Agreement by such terminating party shall not be the reason for the Closing's
failure to have occurred;
(c) Subject to the provisions of Section 14.2, by Buyer, by written
notice to the Stockholders, if there has been a material violation or breach of
any of the Stockholders' covenants or agreements made herein or in connection
herewith or if any representation or warranty of the Stockholders made herein or
in connection herewith proves to be materially inaccurate or misleading with
respect to either Company, taken as a whole; or
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<PAGE>
(d) Subject to the provisions of Section 14.2, by the Stockholders, by
written notice to Buyer, if there has been a material violation or breach of any
of Buyer's covenants or agreements made herein or in connection herewith or if
any representation or warranty of Buyer made herein or in connection herewith
proves to be materially inaccurate or misleading.
14.2 Liability Upon Termination. If this Agreement is terminated as
provided in Section 14.1, then there shall be no liability or obligation on the
part of any party hereto (or any of their respective officers, directors or
employees) except that if Buyer terminates this Agreement pursuant to clause
14.1 (c) or the Stockholders terminate this Agreement pursuant to clause 14.1
(d), the non-terminating party shall remain liable for any breach hereof, but
any damages shall be limited to the out of pocket costs of the terminating
party.
SECTION 15. MISCELLANEOUS
15.1 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, sets forth the entire agreement and understanding among the
parties and merges and supersedes all prior discussions, agreements and
understandings of every kind and nature among them as to the subject matter
hereof, and no party shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement or as may
be on a date on or subsequent to the date hereof duly set forth in a writing
signed by each party that is to be bound thereby. Unless otherwise expressly
defined, terms defined in this Agreement shall have the same meanings when used
in any Exhibit or Schedule and terms defined in any Exhibit or Schedule shall
have the same meanings when used in this Agreement or in any other Schedule.
This Agreement (including the Exhibits and Schedules hereto) shall not be
changed, modified or amended except by a writing signed by each party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by each party to be charged.
15.2 Taxes. Any Taxes in the nature of a sales or transfer tax, and any
stock transfer tax, payable on the sale or transfer of the Shares or the
consummation of any other transaction contemplated hereby shall be paid by the
Stockholders, except as provided in Section 9.13(a) hereof.
15.3 Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the laws of the State of Ohio
without giving effect to principles of conflicts of law.
15.4 Representation by Counsel. Each party hereto represents and agrees
with the other that it has been represented by independent counsel of its own
choosing; it has had the full right and opportunity to consult with its
respective attorneys and other advisors and has availed itself of this right and
opportunity; its authorized officers have carefully read and fully understand
this Agreement in its entirety and have had it fully explained to them by such
party's counsel; it is fully aware of the contents hereof and the meaning,
intent and legal effect thereof; and in the case of a corporation, its
authorized officer is competent to execute this Agreement and has executed this
Agreement free from coercion, duress or undue influence. Each party and its
counsel cooperated in the drafting and preparation of this Agreement and the
documents referred to herein. Accordingly, any rule of law or any legal decision
that would require interpretation of any ambiguities in this Agreement against
the party that drafted it is of no application and is hereby expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intentions of the parties and this Agreement.
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<PAGE>
15.5 Benefit of Parties; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, legal representatives and permitted assigns. Except as provided
below, the Agreement may not be assigned by CEC, Buyer or the Stockholders
except with the prior written consent of the other party or parties, and nothing
herein contained shall confer or is intended to confer any rights under this
Agreement on any third party or entity that is not a party to this Agreement.
The parties agree that CEC and Buyer shall have the right to assign their rights
under this Agreement to the banks and other financial institutions, if any,
providing the financing for the transactions contemplated by the Agreement and
their successor and assigns (collectively, the "Banks"); provided, that, CEC and
Buyer shall remain liable for all their respective obligations under this
Agreement notwithstanding such assignment, and the Banks shall not assume any
obligations hereunder as a result of such assignment.
15.6 Pronouns. Whenever the context requires, the use in this Agreement
of a pronoun of any gender shall be deemed to refer also to any other gender,
the use of the singular shall be deemed to refer also to the plural and the use
of the plural shall be deemed to refer also to the singular.
15.7 Headings. The headings in the sections, paragraphs and Schedules
of this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof. The words "herein," "hereof," "hereto" and
"hereunder," and other words of similar import refer to this Agreement as a
whole and not to any particular provision of this Agreement.
15.8 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel, accountants and
financial advisors except collection expenses as explicitly set forth in the
Notes.
15.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.
15.10 Stockholders Agent. Each Stockholder hereby appoints Richard J.
Blum as attorney-in-fact for the Stockholders (the "Stockholders' Agent") for
purposes of representing the interests of the Stockholders in the resolution of
claims for indemnification hereunder and otherwise with respect to this
Agreement. Each Stockholder hereby authorizes the Stockholder's Agent to take
any and all actions on behalf of all the Stockholders in connection with this
Agreement, including but not limited to amending this Agreement, and each
Stockholder consents to and agrees to be bound by any and all actions taken by
the Stockholders Agent. The Stockholder's Agent shall not be liable to any of
the Stockholders for any error of judgment, any mistake of fact or law or any
act done or omitted by him or her as the Stockholder's Agent in good faith,
unless as the result of his willful misconduct. In case of the resignation,
death or inability of Richard J. Blum to serve as the Stockholders' Agent, David
D. Blum shall become the Stockholders' Agent. If David D. Blum is unable or
unwilling to act as a successor, a successor shall be designated by Stockholders
who formerly held a majority of the common stock of K&B (considering voting and
non-voting stock as a single group). Any such designation by the Stockholders
shall be evidenced by a writing signed by a majority of the Stockholders.
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<PAGE>
15.11 Attorneys' Fees. In the event of any dispute or controversy
between either Company on the one hand and the Stockholders on the other hand
relating to the interpretation of this Agreement or to the transactions
contemplated hereby, the prevailing party shall be entitled to recover from the
other party reasonable attorneys' fees and expenses incurred by the prevailing
party. Such award shall include post-judgment attorney's fees and costs.
15.12 Incorporation by Reference. All Schedules and Exhibits attached
hereto are incorporated herein by reference as though fully set forth at each
point referred to in this Agreement.
15.13 Waiver. No waiver by any party hereto at any time of any breach
of, or compliance with, any condition or provision of this Agreement to be
performed by another party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
15.14 Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, shall relate both to the representations and warranties in
the Section of the Agreement to which they expressly relate and to any other
representation or warranty in this Agreement if such disclosure contains an
appropriate cross-reference or where it is apparent from the nature of the
disclosure in the Disclosure Letter or any supplement thereto that the item
disclosed is responsive to another section of the Disclosure Letter.
(b) In the event of any inconsistency between the statements in
the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
on the day and year first written above.
CEC:
CECO Environmental Corp.
By:/s/ Phillip DeZwirek
---------------------------
Its: President
BUYER:
CECO Group, Inc.
By:/s/ Phillip DeZwirek
---------------------------
Its: President
STOCKHOLDERS: NUMBER OF SHARES OWNED:
KBM KTI
/s/ Richard J. Blum 310
- ----------------------------------
Richard J. Blum, trustee of The
Lawrence J. Blum Irrevocable Stock
Trust, u/a/d 7/21/98
/s/ Richard J. Blum 310
- ----------------------------------
Richard J. Blum, trustee of The
David D. Blum Irrevocable Stock
Trust, u/a/d 7/21/98
/s/ Richard J. Blum
- ---------------------------------- Common A-12,070 310
Richard J. Blum, as trustee of Common B-18,610
/s/ Richard J. Blum
- ----------------------------------
Richard J. Blum, individually
/s/ Lawrence J. Blum
- ---------------------------------- Common A-12,070
Lawrence J. Blum, as trustee of Common B-18,610
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<PAGE>
/s/ Lawrence J. Blum
- ----------------------------------
Lawrence J. Blum, individually
/s/ David D. Blum
- ---------------------------------- Common A-12,070
David D. Blum, as trustee Common B-18,594
/s/ David D. Blum
- ----------------------------------
David D. Blum, individually
/s/ Janet Chap
- ---------------------------------- Common A-8,820
Janet Chap Common B-16,476
/s/ Marilyn Donovan
- ---------------------------------- Common A-8,820
Marilyn Donovan Common B-17,652
/s/ Mary Beth Hines
- ---------------------------------- Common A-8,820
Mary Beth Hines Common B-17,652
- -------------
/s/ Deborah J. Blum
- ---------------------------------- Common B-8,800
Deborah J. Blum Trustee FBO
Jonathon W. Blum
/s/ Deborah J. Blum
- ---------------------------------- Common B-8,800
Deborah J. Blum Trustee FBO
Ann Marie Blum
/s/ Margaret K. Blum
- ---------------------------------- Common B-4,400
Margaret K. Blum, Trustee FBO
Kathryn K. Blum
/s/ Margaret K. Blum
- ---------------------------------- Common B-4,400
Margaret K. Blum, Trustee FBO
Michael R. Blum
/s/ Margaret K. Blum
- ---------------------------------- Common B-4,400
Margaret K. Blum, Trustee FBO
Stephen R. Blum
/s/ Margaret K. Blum
- ---------------------------------- Common B-4,400
Margaret K. Blum, Trustee FBO
Kelsey G. Blum
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<PAGE>
/s/ Nancy I. Blum
- ---------------------------------- Common B-5,872
Nancy I. Blum, Trustee FBO
Daniel D. Blum
/s/ Nancy I. Blum
- ---------------------------------- Common B-5,872
Nancy I. Blum, Trustee FBO
Jeffrey D. Blum
/s/ Nancy I. Blum
- ---------------------------------- Common B-5,872
Nancy I. Blum, Trustee FBO
Elizabeth M. Blum
/s/ Alan R. Chap
- ---------------------------------- Common B-8,808
Alan R. Chap
/s/ Alan R. Chap
- ---------------------------------- Common B- 294
Alan R. Chap, Trustee FBO
Laura E. Chap
/s/ Alan R. Chap
- ---------------------------------- Common B- 294
Alan R. Chap, Trustee FBO
Alan D. Chap
/s/ Alan R. Chap
- ---------------------------------- Common B- 294
Alan R. Chap, Trustee FBO
Brian A. Chap
/s/ Alan R. Chap
- ---------------------------------- Common B- 294
Alan R. Chap, Trustee FBO
Andrew M. Chap
/s/ John C. Donovan
- ---------------------------------- Common B- 8,808
John C. Donovan
/s/ William J. Hines
- ---------------------------------- Common B-8,808
William J. Hines & Marilyn B.
Donovan, Co-Trustees FBO Mary
Beth Hines Children
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<PAGE>
Exhibit 10.2
This Document is subject to the terms of a Subordination Agreement
in favor of PNC Bank, National Association, as agent for certain
banks. Notwithstanding any contrary statement contained in the
within instrument, no payment on account of any obligation arising
from or in connection with the within instrument or any related
agreement (whether of principal, interest or otherwise) shall be
made, paid, received or accepted except in accordance with the terms
of said Subordination Agreement.
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made as of December 7, 1999 by and
among CECO Group, Inc., a Delaware corporation ("CECO"), and RICHARD J. BLUM
(the "Employee").
RECITALS
CECO is a wholly-owned subsidiary of CECO Environmental Corp., a New
York corporation ("CEC");
CEC, CECO and the other direct and indirect subsidiaries of CEC,
including without limitation of the foregoing The Kirk and Blum Manufacturing
Company ("K&B") and kbd/Technic, Inc. ("KTI" and collectively with all of the
foregoing, the "Companies") are engaged in the business of acquiring and
operating businesses that engage in engineering, designing, manufacturing or
installation services in the air pollution control industry including without
limitation of the foregoing, (a) fabrication and installation of industrial
ventilation, dust, fume and mist control systems, as well as automotive spray
booth systems, industrial and process piping and other industrial sheet metal
work, (b) fabrication of parts, subassemblies or customized products for air
pollution and non-air pollution applications from sheet, plate and structural
steel, (c) the provision of standard and non-standard components for contractors
and companies that design and/or install their own air pollution control
equipment, or (d) engineering services concentrated in the industrial
ventilation area (the "Business");
Employee was employed by K&B and KTI, two of the Companies and
wholly-owned subsidiaries of CECO, and will be employed by CECO to assist in the
Business;
Such employment constitutes a confidential relationship wherein
Employee will become familiar with and aware of information as to the specific
manner of doing business and the potential acquisition candidates of the
Companies and their affiliates and future plans with respect thereto, all of
which information is secret and proprietary and constitutes valuable goodwill of
the Companies and their affiliates;
Employee recognizes that the success of Companies' Business is
dependent upon the maintenance of a number of proprietary trade secrets,
including the identity of customers and potential acquisition candidates, the
confidential information regarding and analysis of such candidates and the
financial data of the Companies or either of them or their affiliates, and that
the protection of these proprietary trade secrets is of critical importance to
the Companies; and
<PAGE>
Employee recognizes that the Companies will sustain great loss and
damage if he should violate the provisions of this Agreement. Further, monetary
damages for such losses would be extremely difficult to measure and would
therefore be likely to be inadequate for any violation of this Agreement by
Employee;
TERMS
For good and valuable consideration the parties hereby agree as
follows:
1. Employment: CECO hereby employs Employee, and Employee hereby
accepts employment with CECO. Employee shall be appointed the President and
Chief Executive Officer of CECO. Employee will perform the duties associated
with the offices of President and Chief Executive Officer and will perform such
others duties as may be assigned to him from time to time by the board of
directors of CECO. During his employment, Employee shall devote his full time
and best efforts to promote and further the business and services of CECO and
the other Companies. Employee shall faithfully adhere to, execute and fulfill
all policies established by CECO's board of directors. Employee shall not,
during his employment hereunder, be engaged in any business or perform any
services in any capacity other than for CECO or the other Companies, whether or
not they interfere with his duties to CECO, without the prior approval of the
Board of Directors of CECO, expect that no such approval shall be required with
respect to volunteer activities for organizations with charitable purposes;
provided that such activities do not interfere with his duties for CECO and are
only occasionally during business hours. Without limiting the generality of any
other provisions hereunder, under no circumstances shall Employee accept any
form of remuneration from any business owner or broker with respect to any
matter related to the Business of the Companies.
2. Term. This Agreement shall expire five years from the date hereof,
unless terminated as herein provided (the "Term").
3. Compensation. During the Term, CECO shall compensate Employee as
follows:
a. Salary. For his services during the Term, CECO shall pay to
Employee a base salary of $206,000 per year, payable in accordance with CECO's
standard payroll practices, but no less frequently than in monthly installments,
and which may be increased from time to time in the discretion of the board of
directors of CECO. The payment of salary and any bonuses paid hereunder shall be
subject to all federal, state and local withholding taxes, social security tax
deductions and other general obligations. Employee may be entitled to receive
additional compensation from CECO in such form and only to the extent explicitly
set forth below.
b. Other Compensation. Employee shall be entitled to participate, on
the same terms as other non-union, executive employees of CECO or K&B, in any
medical, dental or other health plan, 401(k) plan, stock option plan,
profit-sharing plan and life insurance plan that CECO or K&B may adopt or
maintain for such employees, any of which plans may be changed, terminated or
eliminated by CECO or K&B at any time in their sole discretion.
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c. Reimbursement of Expenses. CECO shall reimburse Employee for
properly documented expenses that are incurred by Employee on behalf of CECO in
accordance with corporate policies in effect from time to time.
d. Stock Purchase Warrants. Employee shall be granted on the
date hereof a stock purchase warrant (the "Stock Purchase Warrant") in the form
of Exhibit A hereto exercisable for 448,000 shares of CEC's common stock. The
such stock purchase warrant shall become exercisable over a period of four (4)
years at the rate of one-quarter of the stock that can be purchased under such
stock purchase warrant on each of the first four (4) anniversaries of the date
immediately prior to the date of this Agreement. Such Stock Purchase Warrant
shall have a term of ten (10) years.
e. Bonus. In addition to the foregoing, CECO shall pay a bonus
(the "Bonus") to Employee with respect to each the fiscal years ended as of
December 31, 2000, 2001, 2002, 2003 and 2004 equal to (i) 44.8% of 25% of the
net income before interest and taxes in excess of $4,000,000 of CEC as reported
on its audited financial statements filed with the Securities and Exchange
Commission ("SEC") with respect to such year, less (ii) the contribution made on
behalf of Employee to any profit sharing or 401(k) plan by CEC, CECO, K&B or any
affiliate (other than Employee) with respect to such fiscal year. Net income
shall be calculated in accordance with generally accepted accounting principles,
consistently applied, as such may be modified or mandated by rules and
regulations promulgated by the SEC or any other body that may have been
delegated such responsibility.
If this Agreement shall be terminated prior to the expiration of its
term for any reason (other than a termination of this Agreement by CECO without
Cause, as defined below, or Breach by CECO, as defined below), Employee shall
only be paid Bonuses for the period through the date of termination. If Employee
is terminated without Cause and not as a result of disability, as defined below,
or terminates this Agreement as a result of a Breach by CECO, Employee shall
continue to receive Bonuses as if he had been employed for the entire term of
this Agreement. The Bonus with respect to the year of termination (other than
termination without Cause and not as a result of a disability) shall be equal to
a fraction of the amount of the Bonus otherwise payable with respect to such
year as a whole, where the numerator of such fraction shall be the number of
days in the year of termination between January 1 and the date of termination,
inclusive, and the denominator shall be 365 or 366 (the number of days in such
year) as applicable. The Bonus with respect to each year shall be paid on or
prior to May 15, of the year following the year with respect to which such Bonus
relates.
Notwithstanding the foregoing, no Bonus shall be paid if CECO or CEC
is in default under any financing agreement with any bank or other financial
institution or any other material agreement to which CECO or CEC is a party, or
the payment of such Bonus would cause CEC or CECO to be in default under any
such agreement. If no Bonus is paid as a result of the operation of the
foregoing sentence, such Bonus shall accrue interest at the rate of 8% per
annum, calculated on the basis of a 365/366 day year from June 30 of the year
such Bonus was payable. Any such interest and accrued and unpaid Bonus shall be
paid as soon as CEC or CECO ceases to be in default under such agreements and
such payment would not cause a default under any such agreement.
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4. Vacation. Employee shall be entitled to four (4) weeks of paid
vacation in each full calendar year of employment at times mutually acceptable
to Employee and CECO. Vacation shall be earned ratably over the course of a
calendar year, and unused vacation time cannot be carried forward past December
31 of any year without the prior written consent of CECO.
5. Termination by CECO.
a. Termination for Cause. CECO may terminate this Agreement at any
time for Cause, in which case Employee shall be entitled to receive base salary
and Bonus accrued through the date of such termination. Any of the following
shall constitute "Cause":
(i) any material breach by Employee of any of the
terms of this Agreement or his non-competition agreement with
CECO or the Employee Innovations and Proprietary Rights
Assignment Agreement between Employee and CECO where such
breach is not cured within thirty (30) days after written
notice of such breach is delivered to Employee;
(ii) intoxication with alcohol or drugs while on the
premises of CECO or any of the Companies or any customer or
potential customer to the extent that in the reasonable
judgment of management, Employee is abusive or his ability to
perform his duties and responsibilities under this Agreement
is impaired;
(iii) conviction of a felony or any misdemeanor
involving dishonesty, theft, the failure to tell the truth,
other unethical behavior, racial prejudice, drugs, alcohol,
sexual misconduct or any other crime likely to result in
public disparagement with respect to any of the Companies;
(iv) intentional misappropriation of property
belonging to CECO or any of the Companies;
(v) illegal business practices in connection with any
of CECO or the Companies' businesses which could have a
material adverse effect on CEC's, CECO's or any of the
Companies' or their business or financial position or
reputation;
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(vi) excessive absence of Employee from his
employment during usual business hours for reasons other than
vacation, disability or sickness after written notice thereof
is delivered to Employee describing the nature of such excess
absences and affording Employee one more opportunity to avoid
excess absences; or
(vii) failure of Employee to obey directions of the
Board of Directors of CECO.
(b) Termination Without Cause. CECO may terminate the
employment of Employee, and this Agreement, without Cause at any time, in which
event CECO shall pay to Employee, in full satisfaction of CECO's obligations to
Employee under this Agreement, the compensation accrued but unpaid through the
date of the termination of his employment, and shall continue to pay base salary
and Bonuses for the balance of the Term of this Agreement as if he had remained
employed by CECO for such term. Such amounts shall be earned and paid rateably
over the applicable period in accordance with CECO's regular payroll practices.
(c) Breach by CECO. Employee may terminate his employment with
CECO if CECO shall (i) materially breach any of its obligations and
responsibilities under this Agreement and such breach shall be continuing, (ii)
relocate the location of Employee's regular work place to a location more than
35 miles from its current location in Cincinnati, Ohio (excluding travel in the
course of performing Employee's duties), and (iii) demote the Employee to a less
prestigious position without the mutual agreement of CECO and the Employee
(collectively, "Breach by CECO"); provided, that, Employee shall not terminate
his employment under this paragraph (c) unless he shall first have delivered to
CEC a written notice setting forth with particularity the basis for such
termination and shall have given the Board of Directors of CEC an opportunity to
meet with Employee and, if curable, to cure such breach within thirty (30) days
following delivery of such written notice. If Employee's employment is
terminated by reason of Breach by CECO, CECO shall pay the Employee his full
accrued and unpaid compensation through the date of such termination, and shall
continue to pay base salary and Bonuses for the balance of the term of this
Agreement as if he had remained employed by CECO for such term. Such amounts
shall be earned and paid rateably over the applicable period in accordance with
CECO's regular payroll practices.
6. Termination on Account of Death or Disability. If Employee dies
during the Term, this Agreement shall terminate, and CECO shall pay to the
estate of Employee the base salary accrued but unpaid through the date of his
death plus any Bonus accrued through the date of death (which shall be payable
as provided above). The Board of Directors of CECO may elect to terminate the
engagement of Employee for "disability," if Employee is no longer able to
perform the duties of his position due to illness, accident or other physical or
mental condition and such disability is expected to continue, with or without
interruption, for a period of six months, or such greater period as may be
required by any applicable law. If the Board of Directors of CECO determines
that Employee is so disabled, it shall deliver notice to Employee and CECO shall
pay to Employee the base salary accrued but unpaid through the date of the
termination of his employment hereunder plus any Bonuses accrued to the date of
such termination (which shall be payable as provided above) in full satisfaction
of CECO's obligations to Employee under this Agreement.
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7. Termination by Employee. Employee may terminate his employment at
any time. If he does so other than as a result of a Breach by CECO, CECO shall
pay to him the base salary accrued but unpaid through the date of such
termination of his employment in full satisfaction of CECO's obligations to
Employee under this Agreement and CECO shall only be obligated to pay Employee
his Bonus for the period through and ending on the date of termination.
8. a. Confidentiality. Except in the furtherance of the business of the
Companies, during and at all times after Employee's employment:
(i) Employee shall not disclose to any person or entity,
without CECO's prior written consent, any confidential or secret
proprietary information, whether prepared by him or others.
(ii) Employee shall not directly or indirectly use any such
proprietary information other than as directed by CECO in writing.
(iii) Employee shall not remove confidential or secret
proprietary information from the premises of CECO without the prior
written consent of CECO.
Upon termination of his employment for whatever reason, with or without Cause,
Employee will promptly deliver to CECO all originals and copies (whether in
note, memo or other document form or on video, audio or computer tapes or discs
or otherwise) of confidential or secret proprietary information in his
possession, custody or control, whether prepared by him or others.
Confidential or secret proprietary information includes, but is not limited to:
(i) the name of any company or business, all or any
substantial part of which is or at any time was a candidate for
potential acquisition by any of the Companies, together with all
analyses and other information which any of the Companies has
generated, compiled or otherwise obtained with respect to such
candidate, business or potential acquisition, or with respect to the
potential effect of such acquisition on the business, assets, financial
results or prospects of any of the Companies;
(ii) business, pricing and management methods;
(iii) finances, strategies, systems, research, surveys, plans,
reports, recommendations and conclusions;
(iv) names of, arrangements with, or other information
relating to, the Companies' customers, equipment suppliers,
manufacturers, financiers, owners or operators, representatives and
other persons who have business relationships with the Companies or who
are prospects for business relationships with any of the Companies;
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<PAGE>
(v) technical information, work products and know-how; and
(vi) cost, operating, and other management information
systems, and other software and programming.
b. Employee Inventions. Employee shall enter into an Employee
Innovations and Proprietary Rights Assignment Agreement in the form of Exhibit B
attached hereto.
9. Damages, etc. The parties acknowledge that monetary damages will be
inadequate and the Companies will be irreparably damaged if the provisions of
this Agreement are not specifically enforced. CECO shall be entitled, among
other remedies, (a) without any bond or other security being required, to an
injunction restraining any violation of this Agreement by Employee and by any
person or entity to whom Employee provides or proposes to provide any services
in violation of this Agreement, and (b) to require Employee to hold in a
constructive trust, account for and pay over to CECO all compensation and other
benefits which Employee shall derive as a result of any action or omission which
is a violation of any provision of this Agreement.
10. Enforceability. If any provision contained in this Agreement is
determined to be void, illegal or unenforceable, in whole or in part, then the
other provisions contained herein shall remain in full force and effect as if
the provision which was determined to be void, illegal, or unenforceable had not
been contained herein. The courts or other parties enforcing this Agreement
shall be entitled to modify the duration and scope of any restriction contained
herein to the extent necessary to render such restriction enforceable, and such
restriction as so modified shall be enforced.
11. Return of Property. All products, records, designs, plans, manuals,
"field guides", memoranda, lists and other property delivered to Employee by or
on behalf of any of the Companies or by their customers, including, but not
limited to, customers obtained for any of them by Employee, and all records
compiled by Employee which pertain to the business of any of the Companies, or
any of their customers, whether or not confidential, shall be and remain the
property of the Companies, and be subject at all times to the discretion and
control of the Companies. Likewise, all correspondence with customers or
representatives, reports, records, charts, advertising materials, and any data
collected by Employee, or by or on behalf of any of the Companies or their
representatives, whether or not confidential, shall be delivered promptly to
CECO without request by it upon termination of Employee's employment.
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<PAGE>
12. Suits Against the Companies. Both during and after the term of his
employment hereunder, Employee covenants that he will not bring suit or file
counterclaims against the Companies or any of them for corporate misconduct,
unless both of the following shall have occurred: (a) Employee shall have first
made written demand to the Board of Director of CEC to investigate and deal with
such misconduct, and (b) such Board of Directors shall have failed within 45
days after the date of receipt of such demand to establish a Special Litigation
Committee, consisting exclusively of outside directors, to investigate and deal
with such misconduct. Without limiting the generality of and to further
implement the foregoing, Employee irrevocably and unconditionally consents at
the option of either of the Companies to the entry of temporary restraining
orders and temporary and permanent injunctions, without posting bond or other
security, against the filing of any action or counterclaim which is prohibited
hereunder. The opinion of such Board of Directors shall be binding and
conclusive on the determination of which directors constitute "outside
directors", and the determination of the Special Litigation Committee shall be
binding and conclusive on all matters relating to the actual or alleged
misconduct which is referred to it as aforesaid.
13. Cooperation in Proceedings. During and after the termination of
Employee's employment, Employee shall for reasonable compensation consistent
with his compensation from CECO cooperate fully and at reasonable times with any
of the Companies in all litigation and regulatory proceedings with respect to
which any of the Companies seeks Employee's assistance and as to which Employee
has any knowledge or involvement. Without limiting the generality of the
foregoing, Employee shall be available to testify at such litigations and other
proceedings, and will cooperate with counsel to the Companies in preparing
materials and offering advice in such litigation and other proceedings. Except
as required by law, and then only upon reasonable prior written notice to CECO,
Employee shall not in any way cooperate or assist any person or entity in any
matter which is adverse to any of the Companies or to any person who was at any
time an officer or director of any of the Companies.
14. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and will be deemed duly given when
personally delivered, the next business day when deposited with Federal Express
or other nationally recognized overnight courier service delivery prepaid or
five (5) business days after being sent by registered mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Employee: Copy to:
------------------------
- ------------------------ ------------------------
- ------------------------ ------------------------
------------------------
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If to CECO: Copy to:
c/o CECO Environmental Corp. Leslie J. Weiss, Esq.
505 University Avenue Sugar, Friedberg & Felsenthal
Suite 1400 30 North LaSalle Street
Toronto, Ontario M5G 1X3 Suite 2600
Canada Chicago, Illinois 60602-2506
Either party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
15. Survival. The provisions of Sections 8 through 18 and 21 shall
survive the termination of this Agreement.
16. Other Agreements. Employee represents that he has furnished to CECO
copies of all agreements which restrict or limit or could restrict or limit his
services for CECO at any time during the term. However, nothing in this
Agreement shall be construed to render an opinion as to the interpretation or
validity of any agreements with prior employers purporting to restrict or limit
Employee's services for CECO.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to any
choice or conflict of law provision or rule, whether of the State of Ohio or any
other jurisdiction, that would cause the application of the laws of any
jurisdiction other than the State of Ohio. In the event of any dispute or claim
relating to arising out of Employee's employment relationship with CECO,
Employee's stock options, the Stock Purchase Warrant or the termination of
Employee's employment relationship with CECO (including, without limitation of
the foregoing, any claim of wrongful termination or age, sex disability, race or
other discrimination), Employee and CECO agree that (i) all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Cook County, Illinois, and (ii) each waives his or
its rights to have such dispute tried by a court or a jury. RIGHT TO TRIAL BY
JURY IS WAIVED. However, Employee and CECO agree that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of CECO's or any Companies' trade secrets,
proprietary information, other proprietary rights or property. With respect to
each such dispute, each of the parties submits to the jurisdiction of any state
court sitting in Cincinnati, Ohio or the United States District Court for the
Southern District of Ohio.
18. Advice of Counsel. Employee has been advised by his own counsel
concerning this Agreement prior to executing this Agreement.
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19. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. Employee may not assign
either this Agreement or any of Employee's rights, interests or obligations
hereunder. CECO may assign any or all of its rights and interests hereunder to
any person or entity that acquires the business of CECO or any Company, or to
any entity with which such company merges or consolidates.
20 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same agreement.
21 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
22 Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or be construed to be a waiver of any other provision or of a
subsequent or prior breach of this Agreement.
23 Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous negotiations, correspondence, understandings and agreements
between the parties regarding the subject matter of this Agreement. This
Agreement may not be amended or modified or any provision waived except in a
writing signed by both parties and supported by new consideration.
Executed as of the date first above set forth.
CECO GROUP, INC.
By: /s/ Phillip DeZwirek
------------------------
Its: President
/s/ Richard J. Blum
- ----------------------------
Richard J. Blum, Employee
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GUARANTY
The undersigned corporations hereby guaranty the foregoing obligations
of CECO Group, Inc.
CECO ENVIRONMENTAL CORP.
By:/s/ Phillip DeZwirek
---------------------------
Its: President
THE KIRK & BLUM MANUFACTURING
COMPANY
By:/s/ Richard J. Blum
---------------------------
Its: President
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EXHIBIT 10.3
THE ISSUANCE OF THIS WARRANT AND THE COMMON STOCK THAT MAY BE ACQUIRED UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND THIS WARRANT AND
SUCH COMMON STOCK MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER OR OTHER DISPOSITION HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR
AN EXEMPTION UNDER THE ACT AND SUCH LAWS IS AVAILABLE FOR THEIR TRANSFER OR
OTHER DISPOSITION.
CECO ENVIRONMENTAL CORP.
WARRANT
DATED: December 7, 1999 (the "Grant Date")
NUMBER OF SHARES: 448,000
HOLDER: Richard J. Blum
ADDRESS:
- --------------------------------------------------------------------------------
1. Grant of Right to Purchase. THIS CERTIFIES THAT the Holder is entitled to
purchase from CECO ENVIRONMENTAL CORP., a New York corporation (hereinafter
called the "Company"), the number of shares of the Company's common stock
("Common Stock") set forth above, at an exercise price equal to $2.9375 (the
"Exercise Price"). This Warrant may be exercised on or after the one year
anniversary of the date hereof and prior to expiration as provided in Section 8
below.
2. Expiration Date. All rights granted under this Warrant shall expire on
December 6, 2009 (the "Expiration Date") except as provided in Sections 10, 11
and 12 below.
3. Restricted Securities. Subject to Section 9 below, this Warrant and the
Common Stock issuable on exercise of this Warrant (the "Underlying Shares") may
be transferred, sold, assigned or hypothecated only if registered by the Company
under the Act or if the Company has received from counsel to the Holder,
reasonably satisfactory to the Company and its counsel, a written opinion to the
effect that registration of the Warrant or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment or hypothecation.
The Holder shall through his counsel provide such information as is reasonably
necessary in connection with such opinion. This Warrant and the Underlying
Shares shall be appropriately legended to reflect these restrictions and stop
transfer instructions shall apply.
4. Mechanics of Assignment. Subject to Section 9, any permitted assignment of
this Warrant shall be effected by the Holder by (i) executing a written
assignment with the signature of the Holder guaranteed by a commercial bank or a
<PAGE>
member of the New York Stock Exchange; (ii) surrendering this Warrant for
cancellation at the office of the Company, accompanied by the opinion of his
counsel referred to above; and (iii) unless in connection with an effective
registration statement which covers the sale of this Warrant and or the
Underlying Shares, delivery to the Company of a statement by the transferee (in
a form acceptable to the Company and its counsel) that such Warrant is being
acquired by the transferee for investment and not with a view to its
distribution or resale; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) new Warrants representing in the
aggregate rights to purchase the same number of Underlying Shares as are
purchasable under the Warrant surrendered. The transferor will pay all relevant
transfer taxes arising from the assignment of this Warrant. Replacement warrants
shall bear the same legend as is borne by this Warrant.
5. Definition of Holder. The term "Holder" should be deemed to include any
permitted record transferee of this Warrant.
6. Underlying Shares. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free of all taxes, liens, and
charges with respect to the issue thereof and that no personal liability will
attach to the Holder thereof. The Company further covenants and agrees that,
during the periods within which this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant and all other Warrants.
7. No Voting Rights. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company.
8. Adjustments.
(a) Whenever the Company shall (i) declare or pay a dividend or make a
distribution on shares of Common Stock in shares of Common Stock or in any other
shares of capital stock of the Company or in other securities of the Company,
(ii) subdivide, split or reclassify the outstanding shares of Common Stock into
a greater number of shares of Common Stock or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Exercise Price in effect at the time of the record date for such
dividend or distribution or on the effective date of such subdivision, split,
combination or reclassification, shall be proportionately adjusted so that the
Holder shall, upon exchange into shares of Common Stock after such time, be
entitled to receive the number of shares of Common Stock or other securities of
the Company which the Holder would have been entitled to receive immediately
after such time had this Warrant been exchanged into shares of Common Stock
immediately prior to such time. Such adjustment shall be made successively each
time any event described in this paragraph (a) shall occur.
(b) In case of any reclassification, capital reorganization or change
by the Company of the outstanding shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
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value, or as a result of a subdivision, combination or reclassification of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock (which is treated in paragraph (a) above), but including any change
of such shares into one or more other classes or series of shares of capital
stock), or in case of any consolidation of the Company with, or merger of the
Company with or into, another person (other than a consolidation or merger in
which the Company is the continuing entity and which does not result in any
reclassification or change of the Company's outstanding shares), or in case of
any sale or other conveyance to another person of the property of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing person shall provide, as a condition to such transaction, that the
Holder shall acquire, upon exchange for this Warrant the kind and amount of
shares and other securities and property (including cash and evidences of
indebtedness) which would have been received by Holder upon such
reclassification, reorganization, change, consolidation, merger, or sale or
conveyance of assets if the Holder had exchanged this Warrant into shares of
Common Stock immediately prior thereto. Such other person, which shall
thereafter be deemed to be the Company for purposes of this paragraph (b), shall
provide for similar future adjustments as nearly equivalent as may be
practicable to the adjustments provided herein. Such adjustment shall be made
successively each time any event described above in this paragraph (b) shall
occur.
(c) In the event the Company at any time after the date of the original
issuance of this Warrant shall distribute shares of stock or other securities of
other persons, evidences of indebtedness issued by the Company or other property
(other than cash) to the holders of its Common Stock by way of dividend or
otherwise, in either case other than in connection with a capital
reorganization, consolidation, merger or sale or other conveyance of all or
substantially all of the Company's assets (each of which transactions is
provided for in paragraph (b) above), then, in each such case, the Holder, upon
exchange of this Warrant into shares of Common Stock as provided hereby, shall
be entitled to receive, and the Company shall reserve for issuance to the Holder
upon such exchange, the shares of stock or other securities, evidences of
indebtedness, or other property which it would have been entitled to receive if
it had so exchanged and become the holder of record of the shares of Common
Stock issued upon such exchange immediately prior to the record date fixed for
the determination of the stockholders entitled to receive such dividend or
distribution. The foregoing adjustments shall be made successively whenever any
event listed above in this paragraph (c) shall occur.
(d) Upon the occurrence of any event requiring an adjustment of the
Exercise Price, then and in each such case the Company shall give prompt written
notice thereof to the Holder, which notice shall state the Exercise Price
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based and stating that such adjustment
calculation has been reviewed and approved by the Company's independent
certified public accountants.
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(e) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock
payable in cash, stock, property or any security (whether of the
Company or otherwise) or make any other distribution to the
holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of
the Company with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give (A) at least ten
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (A) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Notwithstanding the provisions of this paragraph
(e) set forth above, whenever the Company shall be required to give written
notice of any event, such notice shall be deemed to have been given if the
Company issues a public announcement of such event within the applicable time
frame set out above in this paragraph (e).
9. No Transfers Prior to Death. This Warrant shall be neither transferable nor
assignable by the Holder, either voluntarily or involuntarily, other than by
will or by the laws of descent and distribution and may be exercised, during
Holder's lifetime, only by Holder.
10. Vestings. This Warrant shall become exercisable in installments, the Holder
having the right to purchase from the Company the following number of Underlying
Shares upon exercise of the Warrant, on and after the following dates:
(a) on and after the date that is one (1) year after the Grant Date, not
more than twenty-five percent (25%) of the total number of Underlying Shares
issuable pursuant to this Warrant; and
(b) on and after the date that is two (2) years after the Grant Date, not
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more than fifty percent (50%) of the total number of Underlying Shares issuable
pursuant to this Warrant (less any Underlying Shares previously purchased
pursuant to prior partial exercises of this Warrant); and
(c) on and after the date that is three (3) years after the Grant Date,
not more than seventy-five percent (75%) of the total number of Underlying
Shares issuable pursuant to this Warrant (less any Underlying Shares previously
purchased pursuant to prior partial exercises of this Warrant); and
(d) on and after the date that is four (4) years after the Grant Date
all of the Underlying Shares issuable pursuant to this Warrant (less any
Underlying Shares previously purchased pursuant to prior partial exercises of
this Warrant).
If the initial Holder (i) voluntarily terminates his employment with the Company
or any of its subsidiaries (other than a termination under Section 5(c) of the
initial Holder's employment agreement with CECO Group, Inc.), (ii) is terminated
for Cause, as defined in and pursuant to the Holder's employment agreement with
a subsidiary of the Company, (iii) dies or (iv) ceases to be employed by the
Company or any of its subsidiaries as a result of becoming disabled, then the
right to purchase additional Underlying Shares hereunder, other than Underlying
Shares that the initial Holder then had the right to purchase immediately prior
to such event, shall immediately terminate. The right to purchase Underlying
Shares that the Holder then has the right to purchase shall be, subject to the
provisions of Sections 11 and 12 hereof, exercisable prior to the Expiration
Date. Once exercisable, the right to purchase Underlying Shares shall remain so
exercisable unless this Warrant is sooner terminated under Sections 11 and 12 of
this Warrant.
11. Accelerated Termination of Warrant Term. The Warrant shall cease to be
exercisable (a) at the Expiration Date, or (b) prior to the Expiration Date,
should one of the following provisions become applicable:
(i) Except as otherwise provided in subparagraphs (ii),
(iii), (iv) or (v) below, should the initial Holder cease to be an employee of
the Company or any of its subsidiaries at any time prior to the Expiration Date
(other than a termination under Section 5(c) of the initial Holder's employment
agreement with CECO Group, Inc.), then the remaining period for exercising this
Warrant shall be a twelve (12) complete calendar month period commencing on the
date of such cessation of employee status, but in no event shall this Warrant be
exercisable at any time after the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this Warrant
shall terminate and cease to be outstanding.
(ii) Should the initial Holder die while this Warrant is
outstanding, then the executors or administrators of Holder's estate or Holder's
heirs or legatees (as the case may be) shall have the right to exercise this
Warrant for the number of shares (if any) for which the Warrant is exercisable
on the date of such Holder's death. Such right shall lapse and this Warrant
shall cease to be exercisable upon the earlier of (i) twelve (12) complete
calendar months commencing on the date of the Holder's death or (ii) the
Expiration Date.
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(iii) Should the initial Holder become permanently disabled
and cease by reason thereof to be an employee of the Company or any of its
subsidiaries at any time during the Warrant term, then Holder shall have a
period of twelve (12) complete calendar months commencing on the date of the
Holder's cessation of Employee status during which to exercise this Warrant;
provided, however, that in no event shall this Warrant be exercisable at any
time after the Expiration Date. The initial Holder shall be deemed to be
permanently disabled if Holder is, by reason of any medically determinable
physical or mental impairment expected to result in death or to be of continuous
duration of not less than six months, unable to perform his usual duties for the
Company or its subsidiary corporations.
(iv) Should the initial Holder's status as an employee be
terminated for cause (including, but not limited to, any act of dishonesty,
willful misconduct, failure to perform material duties, fraud or embezzlement or
any unauthorized disclosure or use of confidential information or trade secrets
or as otherwise defined in the initial Holder's employment agreement with the
Company's subsidiary) or should the initial Holder make or attempt to make any
unauthorized use or disclosure of the confidential information or trade secrets
of the Company or any subsidiary corporations, then in any such event this
Warrant shall terminate and cease to be exercisable upon the earlier of (i) the
date that is thirty (30) days after the date of such termination of employee
status or such unauthorized disclosure or use of confidential or secret
information or attempt thereat, or (ii) the Expiration Date. Nothing hereunder
shall limit any remedy available to the Company, any subsidiary corporation, at
law, in equity or otherwise, recoverable from Holder for any such act,
disclosure or use by Holder.
(v) Should the initial Holder's status as an employee of a
subsidiary of the Company be terminated by such subsidiary other than for Cause,
as defined in the initial Holder's employment agreement with such subsidiary,
this Warrant shall not expire until the Expiration Date except as provided in
Section 12 below.
12. Special Termination of Warrant.
(a) In the event the Company shall engage in one or more of the
following transactions (a "Corporate Transaction"):
(i) a merger, consolidation or acquisition in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
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(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is purchased by, exchanged with or otherwise transferred to new
holders in a single transaction or a series of related transactions;
then this Warrant shall expire upon the consummation of such Corporate
Transaction and cease to be exercisable, unless the obligations of the Company
under this Warrant are expressly assumed by the successor corporation or
corporation parent thereof. The Company shall provide the Holder at least thirty
(30) days prior written notice of the date of the Corporate Transaction and
whether, upon such Corporate Transaction, this Warrant shall expire or be
assumed by the successor corporation or parent corporation thereof. The Company
can give no assurance that this Warrant shall be assumed by the successor
corporation or its parent company and it may occur that some of the Company's
stock purchase warrants and stock options outstanding on or prior to the date of
a Corporate Transaction will be assumed or otherwise modified while this Warrant
is terminated or vice versa. Such termination or assumption will not necessary
be on the same terms on which other substantially similar warrants are
terminated or assumed.
(b) In the event of a Corporate Transaction, the Company shall accelerate
the vesting schedule contained in Section 10 hereof, and the Holder shall have
the right to exercise the Warrant with respect to all Underlying Shares not then
subject to purchase pursuant to Section 10 for a period of not less than five
(5) days ending on the date of the consummation of the Corporate Transaction.
The Company shall give the Holder written notice of such period.
(c) This Warrant shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
13. Mechanics of Exercise. The rights represented by this Warrant may be
exercised at any time within the period above specified by (i) surrender of this
Warrant, endorsed to the Company, with signature guaranteed by a commercial bank
or a member firm of the New York Stock Exchange, at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), accompanied by a statement signed by the
Holder stating the extent to which the Holder is exercising this Warrant; (ii)
payment to the Company of the exercise price for the number of Underlying Shares
specified in the above-mentioned writing together with applicable stock transfer
taxes, if any; and (iii) unless in connection with an effective registration
statement which covers the sale Underlying Shares, the delivery to the Company
of a statement by the Holder (in a form acceptable to the Company and its
counsel) that such Underlying Shares are being acquired by the Holder for
investment and not with a view to their distribution or resale.
14. Miscellaneous. This Warrant shall be governed by and construed in accordance
with the laws of the state of New York. The federal and state courts in Chicago,
Illinois shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer, and to be dated as of the date set forth above.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
-----------------------------------
Name: Phillip DeZwirek
---------------------------------
Its: President
----------------------------------
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EXHIBIT 10.4
This Document is subject to the terms of a Subordination Agreement
in favor of PNC Bank, National Association, as agent for certain
banks. Notwithstanding any contrary statement contained in the
within instrument, no payment on account of any obligation arising
from or in connection with the within instrument or any related
agreement (whether of principal, interest or otherwise) shall be
made, paid, received or accepted except in accordance with the terms
of said Subordination Agreement.
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made as of December 7, 1999 by and
among The Kirk & Blum Manufacturing Company, an Ohio corporation ("K&B"), and
LAWRENCE J. BLUM (the "Employee").
RECITALS
K&B is a wholly-owned subsidiary of CECO Group, Inc., a Delaware
corporation. CECO is a wholly-owned subsidiary of CECO Environmental Corp., a
New York corporation ("CEC");
CEC, CECO and the other direct and indirect subsidiaries of CEC,
including without limitation of the foregoing K&B and kbd/Technic, Inc. ("KTI"
and collectively with all of the foregoing, the "Companies") are engaged in the
business of acquiring and operating businesses that engage in engineering,
designing, manufacturing or installation services in the air pollution control
industry including without limitation of the foregoing, (a) fabrication and
installation of industrial ventilation, dust, fume and mist control systems, as
well as automotive spray booth systems, industrial and process piping and other
industrial sheet metal work, (b) fabrication of parts, subassemblies or
customized products for air pollution and non-air pollution applications from
sheet, plate and structural steel, (c) the provision of standard and
non-standard components for contractors and companies that design and/or install
their own air pollution control equipment, or (d) engineering services
concentrated in the industrial ventilation area (the "Business");
Employee was employed by K&B and KTI, two of the Companies and
wholly-owned subsidiaries of CECO, and will be employed by CECO to assist in the
Business;
Such employment constitutes a confidential relationship wherein
Employee will become familiar with and aware of information as to the specific
manner of doing business and the potential acquisition candidates of the
Companies and their affiliates and future plans with respect thereto, all of
which information is secret and proprietary and constitutes valuable goodwill of
the Companies and their affiliates;
<PAGE>
Employee recognizes that the success of Companies' Business is
dependent upon the maintenance of a number of proprietary trade secrets,
including the identity of customers and potential acquisition candidates, the
confidential information regarding and analysis of such candidates and the
financial data of the Companies or either of them or their affiliates, and that
the protection of these proprietary trade secrets is of critical importance to
the Companies; and
Employee recognizes that the Companies will sustain great loss and
damage if he should violate the provisions of this Agreement. Further, monetary
damages for such losses would be extremely difficult to measure and would
therefore be likely to be inadequate for any violation of this Agreement by
Employee;
TERMS
For good and valuable consideration the parties hereby agree as
follows:
1. Employment: K&B hereby employs Employee, and Employee hereby accepts
employment with K&B. Employee shall be appointed the Vice President of K&B.
Employee will perform the duties associated with such office and will perform
such others duties as may be assigned to him from time to time by the board of
directors, president or chief executive officer of K&B. During his employment,
Employee shall devote his full time and best efforts to promote and further the
business and services of K&B and the other Companies. Employee shall faithfully
adhere to, execute and fulfill all policies established by K&B's board of
directors. Employee shall not, during his employment hereunder, be engaged in
any business or perform any services in any capacity other than for K&B or the
other Companies, whether or not they interfere with his duties to K&B, without
the prior approval of the Board of Directors of K&B, expect that no such
approval shall be required with respect to volunteer activities for
organizations with charitable purposes; provided that such activities do not
interfere with his duties for K&B and are only occasionally during business
hours. Without limiting the generality of any other provisions hereunder, under
no circumstances shall Employee accept any form of remuneration from any
business owner or broker with respect to any matter related to the Business of
the Companies.
2. Term. This Agreement shall expire five years from the date hereof,
unless terminated as herein provided (the "Term").
3. Compensation. During the Term, K&B shall compensate Employee as
follows:
a. Salary. For his services during the Term, K&B shall pay to
Employee a base salary of $100,000 per year, payable in accordance with K&B's
standard payroll practices, but no less frequently than in monthly installments,
and which may be increased from time to time in the discretion of the board of
directors of K&B. The payment of salary and any bonuses paid hereunder shall be
subject to all federal, state and local withholding taxes, social security tax
deductions and other general obligations. Employee may be entitled to receive
additional compensation from K&B in such form and only to the extent explicitly
set forth below.
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b. Other Compensation. Employee shall be entitled to
participate, on the same terms as other non-union, executive employees of K&B,
in any medical, dental or other health plan, 401(k) plan, stock option plan,
profit-sharing plan and life insurance plan that K&B may adopt or maintain for
such employees, any of which plans may be changed, terminated or eliminated by
K&B at any time in their sole discretion.
c. Reimbursement of Expenses. K&B shall reimburse Employee for
properly documented expenses that are incurred by Employee on behalf of K&B in
accordance with corporate policies in effect from time to time.
d. Stock Purchase Warrants. Employee shall be granted on the
date hereof a stock purchase warrant (the "Stock Purchase Warrant") in the form
of Exhibit A hereto exercisable for 217,000 shares of CEC's common stock. The
such stock purchase warrant shall become exercisable over a period of four (4)
years at the rate of one-quarter of the stock that can be purchased under such
stock purchase warrant on each of the first four (4) anniversaries of the date
immediately prior to the date of this Agreement. Such Stock Purchase Warrant
shall have a term of ten (10) years.
e. Bonus. In addition to the foregoing, K&B shall pay a bonus
(the "Bonus") to Employee with respect to each the fiscal years ended as of
December 31, 2000, 2001, 2002, 2003 and 2004 equal to (i) 21.7% of 25% of the
net income before interest and taxes in excess of $4,000,000 of CEC as reported
on its audited financial statements filed with the Securities and Exchange
Commission ("SEC") with respect to such year, less (ii) the contribution made on
behalf of Employee to any profit sharing or 401(k) plan by CEC, CECO, K&B or any
affiliate (other than Employee) with respect to such fiscal year. Net income
shall be calculated in accordance with generally accepted accounting principles,
consistently applied, as such may be modified or mandated by rules and
regulations promulgated by the SEC or any other body that may have been
delegated such responsibility.
If this Agreement shall be terminated prior to the expiration of its
term for any reason (other than a termination of this Agreement by K&B without
Cause, as defined below, or Breach by K&B, as defined below), Employee shall
only be paid Bonuses for the period through the date of termination. If Employee
is terminated without Cause and not as a result of disability, as defined below,
or terminates this Agreement as a result of a Breach by K&B, Employee shall
continue to receive Bonuses as if he had been employed for the entire term of
this Agreement. The Bonus with respect to the year of termination (other than
termination without Cause and not as a result of a disability) shall be equal to
a fraction of the amount of the Bonus otherwise payable with respect to such
year as a whole, where the numerator of such fraction shall be the number of
days in the year of termination between January 1 and the date of termination,
inclusive, and the denominator shall be 365 or 366 (the number of days in such
year) as applicable. The Bonus with respect to each year shall be paid on or
prior to May 15, of the year following the year with respect to which such Bonus
relates.
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Notwithstanding the foregoing, no Bonus shall be paid if K&B,
CECO or CEC is in default under any financing agreement with any bank or other
financial institution or any other material agreement to which K&B, CECO or CEC
is a party, or the payment of such Bonus would cause K&B,CEC or CECO to be in
default under any such agreement. If no Bonus is paid as a result of the
operation of the foregoing sentence, such Bonus shall accrue interest at the
rate of 8% per annum, calculated on the basis of a 365/366 day year from June 30
of the year such Bonus was payable. Any such interest and accrued and unpaid
Bonus shall be paid as soon as CEC, K&B or CECO ceases to be in default under
such agreements and such payment would not cause a default under any such
agreement.
4. Vacation. Employee shall be entitled to four (4) weeks of paid
vacation in each full calendar year of employment at times mutually acceptable
to Employee and K&B. Vacation shall be earned ratably over the course of a
calendar year, and unused vacation time cannot be carried forward past December
31 of any year without the prior written consent of K&B.
5. Termination by K&B.
a. Termination for Cause. K&B may terminate this Agreement at
any time for Cause, in which case Employee shall be entitled to receive base
salary and Bonus accrued through the date of such termination. Any of the
following shall constitute "Cause":
(i) any material breach by Employee of any of the
terms of this Agreement or his non-competition agreement with
K&B or the Employee Innovations and Proprietary Rights
Assignment Agreement between Employee and K&B where such
breach is not cured within thirty (30) days after written
notice of such breach is delivered to Employee;
(ii) intoxication with alcohol or drugs while on the
premises of K&B or any of the Companies or any customer or
potential customer to the extent that in the reasonable
judgment of management, Employee is abusive or his ability to
perform his duties and responsibilities under this Agreement
is impaired;
(iii) conviction of a felony or any misdemeanor
involving dishonesty, theft, the failure to tell the truth,
other unethical behavior, racial prejudice, drugs, alcohol,
sexual misconduct or any other crime likely to result in
public disparagement with respect to any of the Companies;
(iv) intentional misappropriation of property
belonging to K&B or any of the Companies;
(v) illegal business practices in connection with any
of K&B or the Companies' businesses which could have a
material adverse effect on CEC's, CECO's, K&B's or any of the
Companies' or their business or financial position or
reputation;
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(vi) excessive absence of Employee from his
employment during usual business hours for reasons other than
vacation, disability or sickness after written notice thereof
is delivered to Employee describing the nature of such excess
absences and affording Employee one more opportunity to avoid
excess absences; or
(vi) failure of Employee to obey directions of the
Board of Directors of K&B, the president or chief executive
officer of K&B.
(b) Termination Without Cause. K&B may terminate the
employment of Employee, and this Agreement, without Cause at any time, in which
event K&B shall pay to Employee, in full satisfaction of K&B's obligations to
Employee under this Agreement, the compensation accrued but unpaid through the
date of the termination of his employment, and shall continue to pay base salary
and Bonuses for the balance of the Term of this Agreement as if he had remained
employed by K&B for such term. Such amounts shall be earned and paid rateably
over the applicable period in accordance with K&B's regular payroll practices.
(c) Breach by K&B. Employee may terminate his employment with
K&B if K&B shall (i) materially breach any of its obligations and
responsibilities under this Agreement and such breach shall be continuing, (ii)
relocate the location of Employee's regular work place to a location more than
35 miles from its current location in Cincinnati, Ohio (excluding travel in the
course of performing Employee's duties), and (iii) demote the Employee to a less
prestigious position without the mutual agreement of K&B and the Employee
(collectively, "Breach by K&B"); provided, that, Employee shall not terminate
his employment under this paragraph (c) unless he shall first have delivered to
CEC a written notice setting forth with particularity the basis for such
termination and shall have given the Board of Directors of CEC an opportunity to
meet with Employee and, if curable, to cure such breach within thirty (30) days
following delivery of such written notice. If Employee's employment is
terminated by reason of Breach by K&B, K&B shall pay the Employee his full
accrued and unpaid compensation through the date of such termination, and shall
continue to pay base salary and Bonuses for the balance of the term of this
Agreement as if he had remained employed by K&B for such term. Such amounts
shall be earned and paid rateably over the applicable period in accordance with
K&B's regular payroll practices.
6. Termination on Account of Death or Disability. If Employee dies
during the Term, this Agreement shall terminate, and K&B shall pay to the estate
of Employee the base salary accrued but unpaid through the date of his death
plus any Bonus accrued through the date of death (which shall be payable as
provided above). The Board of Directors of K&B may elect to terminate the
engagement of Employee for "disability," if Employee is no longer able to
perform the duties of his position due to illness, accident or other physical or
mental condition and such disability is expected to continue, with or without
interruption, for a period of six months, or such greater period as may be
required by any applicable law. If the Board of Directors of K&B determines that
Employee is so disabled, it shall deliver notice to Employee and K&B shall pay
to Employee the base salary accrued but unpaid through the date of the
termination of his employment hereunder plus any Bonuses accrued to the date of
such termination (which shall be payable as provided above) in full satisfaction
of K&B's obligations to Employee under this Agreement.
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7. Termination by Employee. Employee may terminate his employment at
any time. If he does so other than as a result of a Breach by K&B, K&B shall pay
to him the base salary accrued but unpaid through the date of such termination
of his employment in full satisfaction of K&B's obligations to Employee under
this Agreement and K&B shall only be obligated to pay Employee his Bonus for the
period through and ending on the date of termination.
8. a. Confidentiality. Except in the furtherance of the business of the
Companies, during and at all times after Employee's employment:
(i) Employee shall not disclose to any person or entity,
without K&B's prior written consent, any confidential or secret
proprietary information, whether prepared by him or others.
(ii) Employee shall not directly or indirectly use any such
proprietary information other than as directed by K&B in writing.
(iii) Employee shall not remove confidential or secret
proprietary information from the premises of K&B without the prior
written consent of K&B.
Upon termination of his employment for whatever reason, with or without Cause,
Employee will promptly deliver to K&B all originals and copies (whether in note,
memo or other document form or on video, audio or computer tapes or discs or
otherwise) of confidential or secret proprietary information in his possession,
custody or control, whether prepared by him or others.
Confidential or secret proprietary information includes, but is not limited to:
(i) the name of any company or business, all or any
substantial part of which is or at any time was a candidate for
potential acquisition by any of the Companies, together with all
analyses and other information which any of the Companies has
generated, compiled or otherwise obtained with respect to such
candidate, business or potential acquisition, or with respect to the
potential effect of such acquisition on the business, assets, financial
results or prospects of any of the Companies;
(ii) business, pricing and management methods;
(iii) finances, strategies, systems, research, surveys, plans,
reports, recommendations and conclusions;
(iv) names of, arrangements with, or other information
relating to, the Companies' customers, equipment suppliers,
manufacturers, financiers, owners or operators, representatives and
other persons who have business relationships with the Companies or who
are prospects for business relationships with any of the Companies;
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(v) technical information, work products and know-how; and
(vi) cost, operating, and other management information
systems, and other software and programming.
b. Employee Inventions. Employee shall enter into an Employee
Innovations and Proprietary Rights Assignment Agreement in the form of Exhibit B
attached hereto.
9. Damages, etc. The parties acknowledge that monetary damages will be
inadequate and the Companies will be irreparably damaged if the provisions of
this Agreement are not specifically enforced. K&B shall be entitled, among other
remedies, (a) without any bond or other security being required, to an
injunction restraining any violation of this Agreement by Employee and by any
person or entity to whom Employee provides or proposes to provide any services
in violation of this Agreement, and (b) to require Employee to hold in a
constructive trust, account for and pay over to K&B all compensation and other
benefits which Employee shall derive as a result of any action or omission which
is a violation of any provision of this Agreement.
10. Enforceability. If any provision contained in this Agreement is
determined to be void, illegal or unenforceable, in whole or in part, then the
other provisions contained herein shall remain in full force and effect as if
the provision which was determined to be void, illegal, or unenforceable had not
been contained herein. The courts or other parties enforcing this Agreement
shall be entitled to modify the duration and scope of any restriction contained
herein to the extent necessary to render such restriction enforceable, and such
restriction as so modified shall be enforced.
11. Return of Property. All products, records, designs, plans, manuals,
"field guides", memoranda, lists and other property delivered to Employee by or
on behalf of any of the Companies or by their customers, including, but not
limited to, customers obtained for any of them by Employee, and all records
compiled by Employee which pertain to the business of any of the Companies, or
any of their customers, whether or not confidential, shall be and remain the
property of the Companies, and be subject at all times to the discretion and
control of the Companies. Likewise, all correspondence with customers or
representatives, reports, records, charts, advertising materials, and any data
collected by Employee, or by or on behalf of any of the Companies or their
representatives, whether or not confidential, shall be delivered promptly to K&B
without request by it upon termination of Employee's employment.
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<PAGE>
12. Suits Against the Companies. Both during and after the term of his
employment hereunder, Employee covenants that he will not bring suit or file
counterclaims against the Companies or any of them for corporate misconduct,
unless both of the following shall have occurred: (a) Employee shall have first
made written demand to the Board of Director of CEC to investigate and deal with
such misconduct, and (b) such Board of Directors shall have failed within 45
days after the date of receipt of such demand to establish a Special Litigation
Committee, consisting exclusively of outside directors, to investigate and deal
with such misconduct. Without limiting the generality of and to further
implement the foregoing, Employee irrevocably and unconditionally consents at
the option of either of the Companies to the entry of temporary restraining
orders and temporary and permanent injunctions, without posting bond or other
security, against the filing of any action or counterclaim which is prohibited
hereunder. The opinion of such Board of Directors shall be binding and
conclusive on the determination of which directors constitute "outside
directors", and the determination of the Special Litigation Committee shall be
binding and conclusive on all matters relating to the actual or alleged
misconduct which is referred to it as aforesaid.
13. Cooperation in Proceedings. During and after the termination of
Employee's employment, Employee shall for reasonable compensation consistent
with his compensation from K&B cooperate fully and at reasonable times with any
of the Companies in all litigation and regulatory proceedings with respect to
which any of the Companies seeks Employee's assistance and as to which Employee
has any knowledge or involvement. Without limiting the generality of the
foregoing, Employee shall be available to testify at such litigations and other
proceedings, and will cooperate with counsel to the Companies in preparing
materials and offering advice in such litigation and other proceedings. Except
as required by law, and then only upon reasonable prior written notice to K&B,
Employee shall not in any way cooperate or assist any person or entity in any
matter which is adverse to any of the Companies or to any person who was at any
time an officer or director of any of the Companies.
14. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and will be deemed duly given when
personally delivered, the next business day when deposited with Federal Express
or other nationally recognized overnight courier service delivery prepaid or
five (5) business days after being sent by registered mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Employee: Copy to:
______________________________
________________________ ______________________________
________________________ ______________________________
______________________________
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If to K&B: Copy to:
c/o CECO Environmental Corp. Leslie J. Weiss, Esq.
505 University Avenue Sugar, Friedberg & Felsenthal
Suite 1400 30 North LaSalle Street
Toronto, Ontario M5G 1X3 Suite 2600
Canada Chicago, Illinois 60602-2506
Either party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
15. Survival. The provisions of Sections 8 through 18 and 21 shall
survive the termination of this Agreement.
16. Other Agreements. Employee represents that he has furnished to K&B
copies of all agreements which restrict or limit or could restrict or limit his
services for K&B at any time during the term. However, nothing in this Agreement
shall be construed to render an opinion as to the interpretation or validity of
any agreements with prior employers purporting to restrict or limit Employee's
services for K&B.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to any
choice or conflict of law provision or rule, whether of the State of Ohio or any
other jurisdiction, that would cause the application of the laws of any
jurisdiction other than the State of Ohio. In the event of any dispute or claim
relating to arising out of Employee's employment relationship with K&B,
Employee's stock options, the Stock Purchase Warrant or the termination of
Employee's employment relationship with K&B (including, without limitation of
the foregoing, any claim of wrongful termination or age, sex disability, race or
other discrimination), Employee and K&B agree that (i) all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Cook County, Illinois, and (ii) each waives his or
its rights to have such dispute tried by a court or a jury. RIGHT TO TRIAL BY
JURY IS WAIVED. However, Employee and K&B agree that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of K&B's or any Companies' trade secrets, proprietary
information, other proprietary rights or property. With respect to each such
dispute, each of the parties submits to the jurisdiction of any state court
sitting in Cincinnati, Ohio or the United States District Court for the Southern
District of Ohio.
18. Advice of Counsel. Employee has been advised by his own counsel
concerning this Agreement prior to executing this Agreement.
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19. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. Employee may not assign
either this Agreement or any of Employee's rights, interests or obligations
hereunder. K&B may assign any or all of its rights and interests hereunder to
any person or entity that acquires the business of K&B or any Company, or to any
entity with which such company merges or consolidates.
20 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same agreement.
21 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
22 Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or be construed to be a waiver of any other provision or of a
subsequent or prior breach of this Agreement.
23 Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous negotiations, correspondence, understandings and agreements
between the parties regarding the subject matter of this Agreement. This
Agreement may not be amended or modified or any provision waived except in a
writing signed by both parties and supported by new consideration.
Executed as of the date first above set forth.
THE KIRK & BLUM MANUFACTURING COMPANY
By: /s/ Richard J. Blum
-------------------------------
Its: President
--------------------------
Lawrence J. Blum
- -----------------------------------
Lawrence J. Blum, Employee
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<PAGE>
GUARANTY
The undersigned corporations hereby guaranty the foregoing obligations
of The Kirk & Blum Manufacturing Company.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
----------------------------
Its: President
-----------------------
CECO GROUP, INC.
By: /s/ Phillip DeZwirek
----------------------------
Its: President
-----------------------
11
<PAGE>
EXHIBIT 10.5
THE ISSUANCE OF THIS WARRANT AND THE COMMON STOCK THAT MAY BE ACQUIRED UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND THIS WARRANT AND
SUCH COMMON STOCK MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER OR OTHER DISPOSITION HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR
AN EXEMPTION UNDER THE ACT AND SUCH LAWS IS AVAILABLE FOR THEIR TRANSFER OR
OTHER DISPOSITION.
CECO ENVIRONMENTAL CORP.
WARRANT
DATED: December 7, 1999 (the "Grant Date")
NUMBER OF SHARES: 217,000
HOLDER: Lawrence J. Blum
ADDRESS:
- -------------------------------------------------------------------------------
1. Grant of Right to Purchase. THIS CERTIFIES THAT the Holder is entitled to
purchase from CECO ENVIRONMENTAL CORP., a New York corporation (hereinafter
called the "Company"), the number of shares of the Company's common stock
("Common Stock") set forth above, at an exercise price equal to $2.9375 (the
"Exercise Price"). This Warrant may be exercised on or after the one year
anniversary of the date hereof and prior to expiration as provided in Section 8
below.
2. Expiration Date. All rights granted under this Warrant shall expire on
December 6, 2009 (the "Expiration Date") except as provided in Sections 10, 11
and 12 below.
3. Restricted Securities. Subject to Section 9 below, this Warrant and the
Common Stock issuable on exercise of this Warrant (the "Underlying Shares") may
be transferred, sold, assigned or hypothecated only if registered by the Company
under the Act or if the Company has received from counsel to the Holder,
reasonably satisfactory to the Company and its counsel, a written opinion to the
effect that registration of the Warrant or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment or hypothecation.
The Holder shall through his counsel provide such information as is reasonably
necessary in connection with such opinion. This Warrant and the Underlying
Shares shall be appropriately legended to reflect these restrictions and stop
transfer instructions shall apply.
<PAGE>
4. Mechanics of Assignment. Subject to Section 9, any permitted assignment of
this Warrant shall be effected by the Holder by (i) executing a written
assignment with the signature of the Holder guaranteed by a commercial bank or a
member of the New York Stock Exchange; (ii) surrendering this Warrant for
cancellation at the office of the Company, accompanied by the opinion of his
counsel referred to above; and (iii) unless in connection with an effective
registration statement which covers the sale of this Warrant and or the
Underlying Shares, delivery to the Company of a statement by the transferee (in
a form acceptable to the Company and its counsel) that such Warrant is being
acquired by the transferee for investment and not with a view to its
distribution or resale; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) new Warrants representing in the
aggregate rights to purchase the same number of Underlying Shares as are
purchasable under the Warrant surrendered. The transferor will pay all relevant
transfer taxes arising from the assignment of this Warrant. Replacement warrants
shall bear the same legend as is borne by this Warrant.
5. Definition of Holder. The term "Holder" should be deemed to include any
permitted record transferee of this Warrant.
6. Underlying Shares. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free of all taxes, liens, and
charges with respect to the issue thereof and that no personal liability will
attach to the Holder thereof. The Company further covenants and agrees that,
during the periods within which this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant and all other Warrants.
7. No Voting Rights. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company.
8. Adjustments.
(a) Whenever the Company shall (i) declare or pay a dividend or make a
distribution on shares of Common Stock in shares of Common Stock or in any other
shares of capital stock of the Company or in other securities of the Company,
(ii) subdivide, split or reclassify the outstanding shares of Common Stock into
a greater number of shares of Common Stock or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Exercise Price in effect at the time of the record date for such
dividend or distribution or on the effective date of such subdivision, split,
combination or reclassification, shall be proportionately adjusted so that the
Holder shall, upon exchange into shares of Common Stock after such time, be
entitled to receive the number of shares of Common Stock or other securities of
the Company which the Holder would have been entitled to receive immediately
after such time had this Warrant been exchanged into shares of Common Stock
immediately prior to such time. Such adjustment shall be made successively each
time any event described in this paragraph (a) shall occur.
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<PAGE>
(b) In case of any reclassification, capital reorganization or change by the
Company of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision, combination or reclassification of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common Stock
(which is treated in paragraph (a) above), but including any change of such
shares into one or more other classes or series of shares of capital stock), or
in case of any consolidation of the Company with, or merger of the Company with
or into, another person (other than a consolidation or merger in which the
Company is the continuing entity and which does not result in any
reclassification or change of the Company's outstanding shares), or in case of
any sale or other conveyance to another person of the property of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing person shall provide, as a condition to such transaction, that the
Holder shall acquire, upon exchange for this Warrant the kind and amount of
shares and other securities and property (including cash and evidences of
indebtedness) which would have been received by Holder upon such
reclassification, reorganization, change, consolidation, merger, or sale or
conveyance of assets if the Holder had exchanged this Warrant into shares of
Common Stock immediately prior thereto. Such other person, which shall
thereafter be deemed to be the Company for purposes of this paragraph (b), shall
provide for similar future adjustments as nearly equivalent as may be
practicable to the adjustments provided herein. Such adjustment shall be made
successively each time any event described above in this paragraph (b) shall
occur.
(c) In the event the Company at any time after the date of the original
issuance of this Warrant shall distribute shares of stock or other securities of
other persons, evidences of indebtedness issued by the Company or other property
(other than cash) to the holders of its Common Stock by way of dividend or
otherwise, in either case other than in connection with a capital
reorganization, consolidation, merger or sale or other conveyance of all or
substantially all of the Company's assets (each of which transactions is
provided for in paragraph (b) above), then, in each such case, the Holder, upon
exchange of this Warrant into shares of Common Stock as provided hereby, shall
be entitled to receive, and the Company shall reserve for issuance to the Holder
upon such exchange, the shares of stock or other securities, evidences of
indebtedness, or other property which it would have been entitled to receive if
it had so exchanged and become the holder of record of the shares of Common
Stock issued upon such exchange immediately prior to the record date fixed for
the determination of the stockholders entitled to receive such dividend or
distribution. The foregoing adjustments shall be made successively whenever any
event listed above in this paragraph (c) shall occur.
(d) Upon the occurrence of any event requiring an adjustment of the Exercise
Price, then and in each such case the Company shall give prompt written notice
thereof to the Holder, which notice shall state the Exercise Price resulting
from such adjustment, setting forth in reasonable detail the method upon which
such calculation is based and stating that such adjustment calculation has been
reviewed and approved by the Company's independent certified public accountants.
3
<PAGE>
(e) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock
payable in cash, stock, property or any security (whether of the
Company or otherwise) or make any other distribution to the
holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of
the Company with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give (A) at least ten
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (A) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Notwithstanding the provisions of this paragraph
(e) set forth above, whenever the Company shall be required to give written
notice of any event, such notice shall be deemed to have been given if the
Company issues a public announcement of such event within the applicable time
frame set out above in this paragraph (e).
9. No Transfers Prior to Death. This Warrant shall be neither transferable nor
assignable by the Holder, either voluntarily or involuntarily, other than by
will or by the laws of descent and distribution and may be exercised, during
Holder's lifetime, only by Holder.
10. Vestings. This Warrant shall become exercisable in installments, the Holder
having the right to purchase from the Company the following number of Underlying
Shares upon exercise of the Warrant, on and after the following dates:
(a) on and after the date that is one (1) year after the Grant Date, not more
than twenty-five percent (25%) of the total number of Underlying Shares issuable
pursuant to this Warrant; and
4
<PAGE>
(b) on and after the date that is two (2) years after the Grant Date, not
more than fifty percent (50%) of the total number of Underlying Shares issuable
pursuant to this Warrant (less any Underlying Shares previously purchased
pursuant to prior partial exercises of this Warrant); and
(c) on and after the date that is three (3) years after the Grant Date, not
more than seventy-five percent (75%) of the total number of Underlying Shares
issuable pursuant to this Warrant (less any Underlying Shares previously
purchased pursuant to prior partial exercises of this Warrant); and
(d) on and after the date that is four (4) years after the Grant Date all of
the Underlying Shares issuable pursuant to this Warrant (less any Underlying
Shares previously purchased pursuant to prior partial exercises of this
Warrant).
If the initial Holder (i) voluntarily terminates his employment with the Company
or any of its subsidiaries (other than a termination under Section 5(c) of the
initial Holder's employment agreement with CECO Group, Inc.), (ii) is terminated
for Cause, as defined in and pursuant to the Holder's employment agreement with
a subsidiary of the Company, (iii) dies or (iv) ceases to be employed by the
Company or any of its subsidiaries as a result of becoming disabled, then the
right to purchase additional Underlying Shares hereunder, other than Underlying
Shares that the initial Holder then had the right to purchase immediately prior
to such event, shall immediately terminate. The right to purchase Underlying
Shares that the Holder then has the right to purchase shall be, subject to the
provisions of Sections 11 and 12 hereof, exercisable prior to the Expiration
Date. Once exercisable, the right to purchase Underlying Shares shall remain so
exercisable unless this Warrant is sooner terminated under Sections 11 and 12 of
this Warrant.
11. Accelerated Termination of Warrant Term. The Warrant shall cease to be
exercisable (a) at the Expiration Date, or (b) prior to the Expiration Date,
should one of the following provisions become applicable:
(i) Except as otherwise provided in subparagraphs (ii),
(iii), (iv) or (v) below, should the initial Holder cease to be an employee of
the Company or any of its subsidiaries at any time prior to the Expiration Date
(other than a termination under Section 5(c) of the initial Holder's employment
agreement with CECO Group, Inc.), then the remaining period for exercising this
Warrant shall be a twelve (12) complete calendar month period commencing on the
date of such cessation of employee status, but in no event shall this Warrant be
exercisable at any time after the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this Warrant
shall terminate and cease to be outstanding.
(ii) Should the initial Holder die while this Warrant is
outstanding, then the executors or administrators of Holder's estate or Holder's
heirs or legatees (as the case may be) shall have the right to exercise this
Warrant for the number of shares (if any) for which the Warrant is exercisable
on the date of such Holder's death. Such right shall lapse and this Warrant
shall cease to be exercisable upon the earlier of (i) twelve (12) complete
calendar months commencing on the date of the Holder's death or (ii) the
Expiration Date.
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<PAGE>
(iii) Should the initial Holder become permanently disabled
and cease by reason thereof to be an employee of the Company or any of its
subsidiaries at any time during the Warrant term, then Holder shall have a
period of twelve (12) complete calendar months commencing on the date of the
Holder's cessation of Employee status during which to exercise this Warrant;
provided, however, that in no event shall this Warrant be exercisable at any
time after the Expiration Date. The initial Holder shall be deemed to be
permanently disabled if Holder is, by reason of any medically determinable
physical or mental impairment expected to result in death or to be of continuous
duration of not less than six months, unable to perform his usual duties for the
Company or its subsidiary corporations.
(iv) Should the initial Holder's status as an employee be
terminated for cause (including, but not limited to, any act of dishonesty,
willful misconduct, failure to perform material duties, fraud or embezzlement or
any unauthorized disclosure or use of confidential information or trade secrets
or as otherwise defined in the initial Holder's employment agreement with the
Company's subsidiary) or should the initial Holder make or attempt to make any
unauthorized use or disclosure of the confidential information or trade secrets
of the Company or any subsidiary corporations, then in any such event this
Warrant shall terminate and cease to be exercisable upon the earlier of (i) the
date that is thirty (30) days after the date of such termination of employee
status or such unauthorized disclosure or use of confidential or secret
information or attempt thereat, or (ii) the Expiration Date. Nothing hereunder
shall limit any remedy available to the Company, any subsidiary corporation, at
law, in equity or otherwise, recoverable from Holder for any such act,
disclosure or use by Holder.
(v) Should the initial Holder's status as an employee of a
subsidiary of the Company be terminated by such subsidiary other than for Cause,
as defined in the initial Holder's employment agreement with such subsidiary,
this Warrant shall not expire until the Expiration Date except as provided in
Section 12 below.
12. Special Termination of Warrant.
(a) In the event the Company shall engage in one or more of the following
transactions (a "Corporate Transaction"):
(i) a merger, consolidation or acquisition in which the
Company is not the surviving entity, except for a transaction the principal
purpose of which is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
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<PAGE>
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is purchased by, exchanged with or otherwise transferred to new
holders in a single transaction or a series of related transactions;
then this Warrant shall expire upon the consummation of such Corporate
Transaction and cease to be exercisable, unless the obligations of the Company
under this Warrant are expressly assumed by the successor corporation or
corporation parent thereof. The Company shall provide the Holder at least thirty
(30) days prior written notice of the date of the Corporate Transaction and
whether, upon such Corporate Transaction, this Warrant shall expire or be
assumed by the successor corporation or parent corporation thereof. The Company
can give no assurance that this Warrant shall be assumed by the successor
corporation or its parent company and it may occur that some of the Company's
stock purchase warrants and stock options outstanding on or prior to the date of
a Corporate Transaction will be assumed or otherwise modified while this Warrant
is terminated or vice versa. Such termination or assumption will not necessary
be on the same terms on which other substantially similar warrants are
terminated or assumed.
(b) In the event of a Corporate Transaction, the Company shall accelerate the
vesting schedule contained in Section 10 hereof, and the Holder shall have the
right to exercise the Warrant with respect to all Underlying Shares not then
subject to purchase pursuant to Section 10 for a period of not less than five
(5) days ending on the date of the consummation of the Corporate Transaction.
The Company shall give the Holder written notice of such period.
(c) This Warrant shall not in any way affect the right of the Company to make
changes in its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
13. Mechanics of Exercise. The rights represented by this Warrant may be
exercised at any time within the period above specified by (i) surrender of this
Warrant, endorsed to the Company, with signature guaranteed by a commercial bank
or a member firm of the New York Stock Exchange, at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), accompanied by a statement signed by the
Holder stating the extent to which the Holder is exercising this Warrant; (ii)
payment to the Company of the exercise price for the number of Underlying Shares
specified in the above-mentioned writing together with applicable stock transfer
taxes, if any; and (iii) unless in connection with an effective registration
statement which covers the sale Underlying Shares, the delivery to the Company
of a statement by the Holder (in a form acceptable to the Company and its
counsel) that such Underlying Shares are being acquired by the Holder for
investment and not with a view to their distribution or resale.
14. Miscellaneous. This Warrant shall be governed by and construed in accordance
with the laws of the state of New York. The federal and state courts in Chicago,
Illinois shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer, and to be dated as of the date set forth above.
CECO ENVIRONMENTAL CORP.
By: Phillip DeZwirek
-------------------------------
Name: Phillip DeZwirek
-----------------------------
Its: President
------------------------------
8
<PAGE>
EXHIBIT 10.6
This Document is subject to the terms of a Subordination Agreement
in favor of PNC Bank, National Association, as agent for certain
banks. Notwithstanding any contrary statement contained in the
within instrument, no payment on account of any obligation arising
from or in connection with the within instrument or any related
agreement (whether of principal, interest or otherwise) shall be
made, paid, received or accepted except in accordance with the terms
of said Subordination Agreement.
EMPLOYMENT AGREEMENT
This agreement ("Agreement") is made as of December 7, 1999 by and
among The Kirk & Blum Manufacturing Company, an Ohio corporation ("K&B"), and
DAVID D. BLUM (the "Employee").
RECITALS
K&B is a wholly-owned subsidiary of CECO Group, Inc., a Delaware
corporation. CECO is a wholly-owned subsidiary of CECO Environmental Corp., a
New York corporation ("CEC");
CEC, CECO and the other direct and indirect subsidiaries of CEC,
including without limitation of the foregoing K&B and kbd/Technic, Inc. ("KTI"
and collectively with all of the foregoing, the "Companies") are engaged in the
business of acquiring and operating businesses that engage in engineering,
designing, manufacturing or installation services in the air pollution control
industry including without limitation of the foregoing, (a) fabrication and
installation of industrial ventilation, dust, fume and mist control systems, as
well as automotive spray booth systems, industrial and process piping and other
industrial sheet metal work, (b) fabrication of parts, subassemblies or
customized products for air pollution and non-air pollution applications from
sheet, plate and structural steel, (c) the provision of standard and
non-standard components for contractors and companies that design and/or install
their own air pollution control equipment, or (d) engineering services
concentrated in the industrial ventilation area (the "Business");
Employee was employed by K&B and KTI, two of the Companies and
wholly-owned subsidiaries of CECO, and will be employed by CECO to assist in the
Business;
Such employment constitutes a confidential relationship wherein
Employee will become familiar with and aware of information as to the specific
manner of doing business and the potential acquisition candidates of the
Companies and their affiliates and future plans with respect thereto, all of
which information is secret and proprietary and constitutes valuable goodwill of
the Companies and their affiliates;
<PAGE>
Employee recognizes that the success of Companies' Business is
dependent upon the maintenance of a number of proprietary trade secrets,
including the identity of customers and potential acquisition candidates, the
confidential information regarding and analysis of such candidates and the
financial data of the Companies or either of them or their affiliates, and that
the protection of these proprietary trade secrets is of critical importance to
the Companies; and
Employee recognizes that the Companies will sustain great loss and
damage if he should violate the provisions of this Agreement. Further, monetary
damages for such losses would be extremely difficult to measure and would
therefore be likely to be inadequate for any violation of this Agreement by
Employee;
TERMS
For good and valuable consideration the parties hereby agree as
follows:
1. Employment: K&B hereby employs Employee, and Employee hereby accepts
employment with K&B. Employee shall be appointed the Vice President of K&B.
Employee will perform the duties associated with such office and will perform
such others duties as may be assigned to him from time to time by the board of
directors, president or chief executive officer of K&B. During his employment,
Employee shall devote his full time and best efforts to promote and further the
business and services of K&B and the other Companies. Employee shall faithfully
adhere to, execute and fulfill all policies established by K&B's board of
directors. Employee shall not, during his employment hereunder, be engaged in
any business or perform any services in any capacity other than for K&B or the
other Companies, whether or not they interfere with his duties to K&B, without
the prior approval of the Board of Directors of K&B, expect that no such
approval shall be required with respect to volunteer activities for
organizations with charitable purposes; provided that such activities do not
interfere with his duties for K&B and are only occasionally during business
hours. Without limiting the generality of any other provisions hereunder, under
no circumstances shall Employee accept any form of remuneration from any
business owner or broker with respect to any matter related to the Business of
the Companies.
2. Term. This Agreement shall expire five years from the date hereof,
unless terminated as herein provided (the "Term").
3. Compensation. During the Term, K&B shall compensate Employee as
follows:
a. Salary. For his services during the Term, K&B shall pay to
Employee a base salary of $154,000 per year, payable in accordance with K&B's
standard payroll practices, but no less frequently than in monthly installments,
and which may be increased from time to time in the discretion of the board of
directors of K&B. The payment of salary and any bonuses paid hereunder shall be
subject to all federal, state and local withholding taxes, social security tax
deductions and other general obligations. Employee may be entitled to receive
additional compensation from K&B in such form and only to the extent explicitly
set forth below.
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b. Other Compensation. Employee shall be entitled to
participate, on the same terms as other non-union, executive employees of K&B,
in any medical, dental or other health plan, 401(k) plan, stock option plan,
profit-sharing plan and life insurance plan that K&B may adopt or maintain for
such employees, any of which plans may be changed, terminated or eliminated by
K&B at any time in their sole discretion.
c. Reimbursement of Expenses. K&B shall reimburse Employee for
properly documented expenses that are incurred by Employee on behalf of K&B in
accordance with corporate policies in effect from time to time.
d. Stock Purchase Warrants. Employee shall be granted on the
date hereof a stock purchase warrant (the "Stock Purchase Warrant") in the form
of Exhibit A hereto exercisable for 335,000 shares of CEC's common stock. The
such stock purchase warrant shall become exercisable over a period of four (4)
years at the rate of one-quarter of the stock that can be purchased under such
stock purchase warrant on each of the first four (4) anniversaries of the date
immediately prior to the date of this Agreement. Such Stock Purchase Warrant
shall have a term of ten (10) years.
e. Bonus. In addition to the foregoing, K&B shall pay a bonus
(the "Bonus") to Employee with respect to each the fiscal years ended as of
December 31, 2000, 2001, 2002, 2003 and 2004 equal to (i) 33.5% of 25% of the
net income before interest and taxes in excess of $4,000,000 of CEC as reported
on its audited financial statements filed with the Securities and Exchange
Commission ("SEC") with respect to such year, less (ii) the contribution made on
behalf of Employee to any profit sharing or 401(k) plan by CEC, CECO, K&B or any
affiliate (other than Employee) with respect to such fiscal year. Net income
shall be calculated in accordance with generally accepted accounting principles,
consistently applied, as such may be modified or mandated by rules and
regulations promulgated by the SEC or any other body that may have been
delegated such responsibility.
If this Agreement shall be terminated prior to the expiration of its
term for any reason (other than a termination of this Agreement by K&B without
Cause, as defined below, or Breach by K&B, as defined below), Employee shall
only be paid Bonuses for the period through the date of termination. If Employee
is terminated without Cause and not as a result of disability, as defined below,
or terminates this Agreement as a result of a Breach by K&B, Employee shall
continue to receive Bonuses as if he had been employed for the entire term of
this Agreement. The Bonus with respect to the year of termination (other than
termination without Cause and not as a result of a disability) shall be equal to
a fraction of the amount of the Bonus otherwise payable with respect to such
year as a whole, where the numerator of such fraction shall be the number of
days in the year of termination between January 1 and the date of termination,
inclusive, and the denominator shall be 365 or 366 (the number of days in such
year) as applicable. The Bonus with respect to each year shall be paid on or
prior to May 15, of the year following the year with respect to which such Bonus
relates.
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Notwithstanding the foregoing, no Bonus shall be paid if K&B,
CECO or CEC is in default under any financing agreement with any bank or other
financial institution or any other material agreement to which K&B, CECO or CEC
is a party, or the payment of such Bonus would cause K&B,CEC or CECO to be in
default under any such agreement. If no Bonus is paid as a result of the
operation of the foregoing sentence, such Bonus shall accrue interest at the
rate of 8% per annum, calculated on the basis of a 365/366 day year from June 30
of the year such Bonus was payable. Any such interest and accrued and unpaid
Bonus shall be paid as soon as CEC, K&B or CECO ceases to be in default under
such agreements and such payment would not cause a default under any such
agreement.
4. Vacation. Employee shall be entitled to four (4) weeks of paid
vacation in each full calendar year of employment at times mutually acceptable
to Employee and K&B. Vacation shall be earned ratably over the course of a
calendar year, and unused vacation time cannot be carried forward past December
31 of any year without the prior written consent of K&B.
5. Termination by K&B.
a. Termination for Cause. K&B may terminate this Agreement at
any time for Cause, in which case Employee shall be entitled to receive base
salary and Bonus accrued through the date of such termination. Any of the
following shall constitute "Cause":
(i) any material breach by Employee of any of the
terms of this Agreement or his non-competition agreement with
K&B or the Employee Innovations and Proprietary Rights
Assignment Agreement between Employee and K&B where such
breach is not cured within thirty (30) days after written
notice of such breach is delivered to Employee;
(ii) intoxication with alcohol or drugs while on the
premises of K&B or any of the Companies or any customer or
potential customer to the extent that in the reasonable
judgment of management, Employee is abusive or his ability to
perform his duties and responsibilities under this Agreement
is impaired;
(iii) conviction of a felony or any misdemeanor
involving dishonesty, theft, the failure to tell the truth,
other unethical behavior, racial prejudice, drugs, alcohol,
sexual misconduct or any other crime likely to result in
public disparagement with respect to any of the Companies;
(iv) intentional misappropriation of property
belonging to K&B or any of the Companies;
(v) illegal business practices in connection with any
of K&B or the Companies' businesses which could have a
material adverse effect on CEC's, CECO's, K&B's or any of the
Companies' or their business or financial position or
reputation;
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(vi) excessive absence of Employee from his
employment during usual business hours for reasons other than
vacation, disability or sickness after written notice thereof
is delivered to Employee describing the nature of such excess
absences and affording Employee one more opportunity to avoid
excess absences; or
(vi) failure of Employee to obey directions of the
Board of Directors of K&B, the president or chief executive
officer of K&B.
(b) Termination Without Cause. K&B may terminate the
employment of Employee, and this Agreement, without Cause at any time, in which
event K&B shall pay to Employee, in full satisfaction of K&B's obligations to
Employee under this Agreement, the compensation accrued but unpaid through the
date of the termination of his employment, and shall continue to pay base salary
and Bonuses for the balance of the Term of this Agreement as if he had remained
employed by K&B for such term. Such amounts shall be earned and paid rateably
over the applicable period in accordance with K&B's regular payroll practices.
(c) Breach by K&B. Employee may terminate his employment with
K&B if K&B shall (i) materially breach any of its obligations and
responsibilities under this Agreement and such breach shall be continuing, (ii)
relocate the location of Employee's regular work place to a location more than
35 miles from its current location in Cincinnati, Ohio (excluding travel in the
course of performing Employee's duties), and (iii) demote the Employee to a less
prestigious position without the mutual agreement of K&B and the Employee
(collectively, "Breach by K&B"); provided, that, Employee shall not terminate
his employment under this paragraph (c) unless he shall first have delivered to
CEC a written notice setting forth with particularity the basis for such
termination and shall have given the Board of Directors of CEC an opportunity to
meet with Employee and, if curable, to cure such breach within thirty (30) days
following delivery of such written notice. If Employee's employment is
terminated by reason of Breach by K&B, K&B shall pay the Employee his full
accrued and unpaid compensation through the date of such termination, and shall
continue to pay base salary and Bonuses for the balance of the term of this
Agreement as if he had remained employed by K&B for such term. Such amounts
shall be earned and paid rateably over the applicable period in accordance with
K&B's regular payroll practices.
6. Termination on Account of Death or Disability. If Employee dies
during the Term, this Agreement shall terminate, and K&B shall pay to the estate
of Employee the base salary accrued but unpaid through the date of his death
plus any Bonus accrued through the date of death (which shall be payable as
provided above). The Board of Directors of K&B may elect to terminate the
engagement of Employee for "disability," if Employee is no longer able to
perform the duties of his position due to illness, accident or other physical or
mental condition and such disability is expected to continue, with or without
interruption, for a period of six months, or such greater period as may be
required by any applicable law. If the Board of Directors of K&B determines that
Employee is so disabled, it shall deliver notice to Employee and K&B shall pay
to Employee the base salary accrued but unpaid through the date of the
termination of his employment hereunder plus any Bonuses accrued to the date of
such termination (which shall be payable as provided above) in full satisfaction
of K&B's obligations to Employee under this Agreement.
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7. Termination by Employee. Employee may terminate his employment at
any time. If he does so other than as a result of a Breach by K&B, K&B shall pay
to him the base salary accrued but unpaid through the date of such termination
of his employment in full satisfaction of K&B's obligations to Employee under
this Agreement and K&B shall only be obligated to pay Employee his Bonus for the
period through and ending on the date of termination.
8. a. Confidentiality. Except in the furtherance of the business of the
Companies, during and at all times after Employee's employment:
(i) Employee shall not disclose to any person or entity,
without K&B's prior written consent, any confidential or secret
proprietary information, whether prepared by him or others.
(ii) Employee shall not directly or indirectly use any such
proprietary information other than as directed by K&B in writing.
(iii) Employee shall not remove confidential or secret
proprietary information from the premises of K&B without the prior
written consent of K&B.
Upon termination of his employment for whatever reason, with or without Cause,
Employee will promptly deliver to K&B all originals and copies (whether in note,
memo or other document form or on video, audio or computer tapes or discs or
otherwise) of confidential or secret proprietary information in his possession,
custody or control, whether prepared by him or others.
Confidential or secret proprietary information includes, but is not limited to:
(i) the name of any company or business, all or any
substantial part of which is or at any time was a candidate for
potential acquisition by any of the Companies, together with all
analyses and other information which any of the Companies has
generated, compiled or otherwise obtained with respect to such
candidate, business or potential acquisition, or with respect to the
potential effect of such acquisition on the business, assets, financial
results or prospects of any of the Companies;
(ii) business, pricing and management methods;
(iii) finances, strategies, systems, research, surveys, plans,
reports, recommendations and conclusions;
(iv) names of, arrangements with, or other information
relating to, the Companies' customers, equipment suppliers,
manufacturers, financiers, owners or operators, representatives and
other persons who have business relationships with the Companies or who
are prospects for business relationships with any of the Companies;
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(v) technical information, work products and know-how; and
(vi) cost, operating, and other management information
systems, and other software and programming.
b. Employee Inventions. Employee shall enter into an Employee
Innovations and Proprietary Rights Assignment Agreement in the form of Exhibit B
attached hereto.
9. Damages, etc. The parties acknowledge that monetary damages will be
inadequate and the Companies will be irreparably damaged if the provisions of
this Agreement are not specifically enforced. K&B shall be entitled, among other
remedies, (a) without any bond or other security being required, to an
injunction restraining any violation of this Agreement by Employee and by any
person or entity to whom Employee provides or proposes to provide any services
in violation of this Agreement, and (b) to require Employee to hold in a
constructive trust, account for and pay over to K&B all compensation and other
benefits which Employee shall derive as a result of any action or omission which
is a violation of any provision of this Agreement.
10. Enforceability. If any provision contained in this Agreement is
determined to be void, illegal or unenforceable, in whole or in part, then the
other provisions contained herein shall remain in full force and effect as if
the provision which was determined to be void, illegal, or unenforceable had not
been contained herein. The courts or other parties enforcing this Agreement
shall be entitled to modify the duration and scope of any restriction contained
herein to the extent necessary to render such restriction enforceable, and such
restriction as so modified shall be enforced.
11. Return of Property. All products, records, designs, plans, manuals,
"field guides", memoranda, lists and other property delivered to Employee by or
on behalf of any of the Companies or by their customers, including, but not
limited to, customers obtained for any of them by Employee, and all records
compiled by Employee which pertain to the business of any of the Companies, or
any of their customers, whether or not confidential, shall be and remain the
property of the Companies, and be subject at all times to the discretion and
control of the Companies. Likewise, all correspondence with customers or
representatives, reports, records, charts, advertising materials, and any data
collected by Employee, or by or on behalf of any of the Companies or their
representatives, whether or not confidential, shall be delivered promptly to K&B
without request by it upon termination of Employee's employment.
12. Suits Against the Companies. Both during and after the term of his
employment hereunder, Employee covenants that he will not bring suit or file
counterclaims against the Companies or any of them for corporate misconduct,
unless both of the following shall have occurred: (a) Employee shall have first
made written demand to the Board of Director of CEC to investigate and deal with
such misconduct, and (b) such Board of Directors shall have failed within 45
days after the date of receipt of such demand to establish a Special Litigation
Committee, consisting exclusively of outside directors, to investigate and deal
with such misconduct. Without limiting the generality of and to further
implement the foregoing, Employee irrevocably and unconditionally consents at
the option of either of the Companies to the entry of temporary restraining
orders and temporary and permanent injunctions, without posting bond or other
security, against the filing of any action or counterclaim which is prohibited
hereunder. The opinion of such Board of Directors shall be binding and
conclusive on the determination of which directors constitute "outside
directors", and the determination of the Special Litigation Committee shall be
binding and conclusive on all matters relating to the actual or alleged
misconduct which is referred to it as aforesaid.
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13. Cooperation in Proceedings. During and after the termination of
Employee's employment, Employee shall for reasonable compensation consistent
with his compensation from K&B cooperate fully and at reasonable times with any
of the Companies in all litigation and regulatory proceedings with respect to
which any of the Companies seeks Employee's assistance and as to which Employee
has any knowledge or involvement. Without limiting the generality of the
foregoing, Employee shall be available to testify at such litigations and other
proceedings, and will cooperate with counsel to the Companies in preparing
materials and offering advice in such litigation and other proceedings. Except
as required by law, and then only upon reasonable prior written notice to K&B,
Employee shall not in any way cooperate or assist any person or entity in any
matter which is adverse to any of the Companies or to any person who was at any
time an officer or director of any of the Companies.
14. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and will be deemed duly given when
personally delivered, the next business day when deposited with Federal Express
or other nationally recognized overnight courier service delivery prepaid or
five (5) business days after being sent by registered mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Employee: Copy to:
__________________________
________________________ __________________________
________________________ __________________________
__________________________
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If to K&B: Copy to:
c/o CECO Environmental Corp. Leslie J. Weiss, Esq.
505 University Avenue Sugar, Friedberg & Felsenthal
Suite 1400 30 North LaSalle Street
Toronto, Ontario M5G 1X3 Suite 2600
Canada Chicago, Illinois 60602-2506
Either party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
15. Survival. The provisions of Sections 8 through 18 and 21 shall
survive the termination of this Agreement.
16. Other Agreements. Employee represents that he has furnished to K&B
copies of all agreements which restrict or limit or could restrict or limit his
services for K&B at any time during the term. However, nothing in this Agreement
shall be construed to render an opinion as to the interpretation or validity of
any agreements with prior employers purporting to restrict or limit Employee's
services for K&B.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to any
choice or conflict of law provision or rule, whether of the State of Ohio or any
other jurisdiction, that would cause the application of the laws of any
jurisdiction other than the State of Ohio. In the event of any dispute or claim
relating to arising out of Employee's employment relationship with K&B,
Employee's stock options, the Stock Purchase Warrant or the termination of
Employee's employment relationship with K&B (including, without limitation of
the foregoing, any claim of wrongful termination or age, sex disability, race or
other discrimination), Employee and K&B agree that (i) all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitration Association in Cook County, Illinois, and (ii) each waives his or
its rights to have such dispute tried by a court or a jury. RIGHT TO TRIAL BY
JURY IS WAIVED. However, Employee and K&B agree that this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of K&B's or any Companies' trade secrets, proprietary
information, other proprietary rights or property. With respect to each such
dispute, each of the parties submits to the jurisdiction of any state court
sitting in Cincinnati, Ohio or the United States District Court for the Southern
District of Ohio.
18. Advice of Counsel. Employee has been advised by his own counsel
concerning this Agreement prior to executing this Agreement.
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19. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective heirs,
legal representatives, successors and permitted assigns. Employee may not assign
either this Agreement or any of Employee's rights, interests or obligations
hereunder. K&B may assign any or all of its rights and interests hereunder to
any person or entity that acquires the business of K&B or any Company, or to any
entity with which such company merges or consolidates.
20 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same agreement.
21 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
22 Waiver. The waiver of a breach of any provision of this Agreement
shall not operate or be construed to be a waiver of any other provision or of a
subsequent or prior breach of this Agreement.
23 Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
or contemporaneous negotiations, correspondence, understandings and agreements
between the parties regarding the subject matter of this Agreement. This
Agreement may not be amended or modified or any provision waived except in a
writing signed by both parties and supported by new consideration.
Executed as of the date first above set forth.
THE KIRK & BLUM MANUFACTURING COMPANY
By: /s/ Richard J. Blum
-----------------------------
Its: President
/s/ David D. Blum
- ----------------------------------
David D. Blum, Employee
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GUARANTY
The undersigned corporations hereby guaranty the foregoing obligations
of The Kirk & Blum Manufacturing Company.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
------------------------------
Its: President
CECO GROUP, INC.
By: /s/ Phillip DeZwirek
-------------------------------
Its: President
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THE ISSUANCE OF THIS WARRANT AND THE COMMON STOCK THAT MAY BE ACQUIRED UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND THIS WARRANT AND
SUCH COMMON STOCK MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER OR OTHER DISPOSITION HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR
AN EXEMPTION UNDER THE ACT AND SUCH LAWS IS AVAILABLE FOR THEIR TRANSFER OR
OTHER DISPOSITION.
CECO ENVIRONMENTAL CORP.
WARRANT
DATED: December 7, 1999 (the "Grant Date")
NUMBER OF SHARES: 335,000
HOLDER: David D. Blum
ADDRESS:
- -------------------------------------------------------------------------------
1. Grant of Right to Purchase. THIS CERTIFIES THAT the Holder is entitled to
purchase from CECO ENVIRONMENTAL CORP., a New York corporation (hereinafter
called the "Company"), the number of shares of the Company's common stock
("Common Stock") set forth above, at an exercise price equal to $2.9375 (the
"Exercise Price"). This Warrant may be exercised on or after the one year
anniversary of the date hereof and prior to expiration as provided in Section 8
below.
2. Expiration Date. All rights granted under this Warrant shall expire on
December 6, 2009 (the "Expiration Date") except as provided in Sections 10, 11
and 12 below.
3. Restricted Securities. Subject to Section 9 below, this Warrant and the
Common Stock issuable on exercise of this Warrant (the "Underlying Shares") may
be transferred, sold, assigned or hypothecated only if registered by the Company
under the Act or if the Company has received from counsel to the Holder,
reasonably satisfactory to the Company and its counsel, a written opinion to the
effect that registration of the Warrant or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment or hypothecation.
The Holder shall through his counsel provide such information as is reasonably
necessary in connection with such opinion. This Warrant and the Underlying
Shares shall be appropriately legended to reflect these restrictions and stop
transfer instructions shall apply.
4. Mechanics of Assignment. Subject to Section 9, any permitted assignment of
this Warrant shall be effected by the Holder by (i) executing a written
assignment with the signature of the Holder guaranteed by a commercial bank or a
member of the New York Stock Exchange; (ii) surrendering this Warrant for
cancellation at the office of the Company, accompanied by the opinion of his
counsel referred to above; and (iii) unless in connection with an effective
registration statement which covers the sale of this Warrant and or the
Underlying Shares, delivery to the Company of a statement by the transferee (in
a form acceptable to the Company and its counsel) that such Warrant is being
acquired by the transferee for investment and not with a view to its
distribution or resale; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) new Warrants representing in the
aggregate rights to purchase the same number of Underlying Shares as are
purchasable under the Warrant surrendered. The transferor will pay all relevant
transfer taxes arising from the assignment of this Warrant. Replacement warrants
shall bear the same legend as is borne by this Warrant.
<PAGE>
5. Definition of Holder. The term "Holder" should be deemed to include any
permitted record transferee of this Warrant.
6. Underlying Shares. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and nonassessable and free of all taxes, liens, and
charges with respect to the issue thereof and that no personal liability will
attach to the Holder thereof. The Company further covenants and agrees that,
during the periods within which this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant and all other Warrants.
7. No Voting Rights. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company.
8. Adjustments.
(a) Whenever the Company shall (i) declare or pay a dividend or make a
distribution on shares of Common Stock in shares of Common Stock or in any other
shares of capital stock of the Company or in other securities of the Company,
(ii) subdivide, split or reclassify the outstanding shares of Common Stock into
a greater number of shares of Common Stock or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Exercise Price in effect at the time of the record date for such
dividend or distribution or on the effective date of such subdivision, split,
combination or reclassification, shall be proportionately adjusted so that the
Holder shall, upon exchange into shares of Common Stock after such time, be
entitled to receive the number of shares of Common Stock or other securities of
the Company which the Holder would have been entitled to receive immediately
after such time had this Warrant been exchanged into shares of Common Stock
immediately prior to such time. Such adjustment shall be made successively each
time any event described in this paragraph (a) shall occur.
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(b) In case of any reclassification, capital reorganization or change by the
Company of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision, combination or reclassification of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common Stock
(which is treated in paragraph (a) above), but including any change of such
shares into one or more other classes or series of shares of capital stock), or
in case of any consolidation of the Company with, or merger of the Company with
or into, another person (other than a consolidation or merger in which the
Company is the continuing entity and which does not result in any
reclassification or change of the Company's outstanding shares), or in case of
any sale or other conveyance to another person of the property of the Company as
an entirety or substantially as an entirety, the Company or such successor or
purchasing person shall provide, as a condition to such transaction, that the
Holder shall acquire, upon exchange for this Warrant the kind and amount of
shares and other securities and property (including cash and evidences of
indebtedness) which would have been received by Holder upon such
reclassification, reorganization, change, consolidation, merger, or sale or
conveyance of assets if the Holder had exchanged this Warrant into shares of
Common Stock immediately prior thereto. Such other person, which shall
thereafter be deemed to be the Company for purposes of this paragraph (b), shall
provide for similar future adjustments as nearly equivalent as may be
practicable to the adjustments provided herein. Such adjustment shall be made
successively each time any event described above in this paragraph (b) shall
occur.
(c) In the event the Company at any time after the date of the original
issuance of this Warrant shall distribute shares of stock or other securities of
other persons, evidences of indebtedness issued by the Company or other property
(other than cash) to the holders of its Common Stock by way of dividend or
otherwise, in either case other than in connection with a capital
reorganization, consolidation, merger or sale or other conveyance of all or
substantially all of the Company's assets (each of which transactions is
provided for in paragraph (b) above), then, in each such case, the Holder, upon
exchange of this Warrant into shares of Common Stock as provided hereby, shall
be entitled to receive, and the Company shall reserve for issuance to the Holder
upon such exchange, the shares of stock or other securities, evidences of
indebtedness, or other property which it would have been entitled to receive if
it had so exchanged and become the holder of record of the shares of Common
Stock issued upon such exchange immediately prior to the record date fixed for
the determination of the stockholders entitled to receive such dividend or
distribution. The foregoing adjustments shall be made successively whenever any
event listed above in this paragraph (c) shall occur.
(d) Upon the occurrence of any event requiring an adjustment of the Exercise
Price, then and in each such case the Company shall give prompt written notice
thereof to the Holder, which notice shall state the Exercise Price resulting
from such adjustment, setting forth in reasonable detail the method upon which
such calculation is based and stating that such adjustment calculation has been
reviewed and approved by the Company's independent certified public accountants.
(e) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock
payable in cash, stock, property or any security (whether of the
Company or otherwise) or make any other distribution to the
holders of its Common Stock;
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(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of
the Company with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give (A) at least ten
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (B) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (A) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (B) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Notwithstanding the provisions of this paragraph
(e) set forth above, whenever the Company shall be required to give written
notice of any event, such notice shall be deemed to have been given if the
Company issues a public announcement of such event within the applicable time
frame set out above in this paragraph (e).
9. No Transfers Prior to Death. This Warrant shall be neither transferable nor
assignable by the Holder, either voluntarily or involuntarily, other than by
will or by the laws of descent and distribution and may be exercised, during
Holder's lifetime, only by Holder.
10. Vestings. This Warrant shall become exercisable in installments, the Holder
having the right to purchase from the Company the following number of Underlying
Shares upon exercise of the Warrant, on and after the following dates:
(a) on and after the date that is one (1) year after the Grant Date, not more
than twenty-five percent (25%) of the total number of Underlying Shares issuable
pursuant to this Warrant; and
(b) on and after the date that is two (2) years after the Grant Date, not
more than fifty percent (50%) of the total number of Underlying Shares issuable
pursuant to this Warrant (less any Underlying Shares previously purchased
pursuant to prior partial exercises of this Warrant); and
4
<PAGE>
(c) on and after the date that is three (3) years after the Grant Date, not
more than seventy-five percent (75%) of the total number of Underlying Shares
issuable pursuant to this Warrant (less any Underlying Shares previously
purchased pursuant to prior partial exercises of this Warrant); and
(d) on and after the date that is four (4) years after the Grant Date all of
the Underlying Shares issuable pursuant to this Warrant (less any Underlying
Shares previously purchased pursuant to prior partial exercises of this
Warrant).
If the initial Holder (i) voluntarily terminates his employment with the Company
or any of its subsidiaries (other than a termination under Section 5(c) of the
initial Holder's employment agreement with CECO Group, Inc.), (ii) is terminated
for Cause, as defined in and pursuant to the Holder's employment agreement with
a subsidiary of the Company, (iii) dies or (iv) ceases to be employed by the
Company or any of its subsidiaries as a result of becoming disabled, then the
right to purchase additional Underlying Shares hereunder, other than Underlying
Shares that the initial Holder then had the right to purchase immediately prior
to such event, shall immediately terminate. The right to purchase Underlying
Shares that the Holder then has the right to purchase shall be, subject to the
provisions of Sections 11 and 12 hereof, exercisable prior to the Expiration
Date. Once exercisable, the right to purchase Underlying Shares shall remain so
exercisable unless this Warrant is sooner terminated under Sections 11 and 12 of
this Warrant.
11. Accelerated Termination of Warrant Term. The Warrant shall cease to be
exercisable (a) at the Expiration Date, or (b) prior to the Expiration Date,
should one of the following provisions become applicable:
(i) Except as otherwise provided in subparagraphs (ii),
(iii), (iv) or (v) below, should the initial Holder cease to be an employee of
the Company or any of its subsidiaries at any time prior to the Expiration Date
(other than a termination under Section 5(c) of the initial Holder's employment
agreement with CECO Group, Inc.), then the remaining period for exercising this
Warrant shall be a twelve (12) complete calendar month period commencing on the
date of such cessation of employee status, but in no event shall this Warrant be
exercisable at any time after the Expiration Date. Upon the expiration of such
twelve (12) month period or (if earlier) upon the Expiration Date, this Warrant
shall terminate and cease to be outstanding.
(ii) Should the initial Holder die while this Warrant is
outstanding, then the executors or administrators of Holder's estate or Holder's
heirs or legatees (as the case may be) shall have the right to exercise this
Warrant for the number of shares (if any) for which the Warrant is exercisable
on the date of such Holder's death. Such right shall lapse and this Warrant
shall cease to be exercisable upon the earlier of (i) twelve (12) complete
calendar months commencing on the date of the Holder's death or (ii) the
Expiration Date.
5
<PAGE>
(iii) Should the initial Holder become permanently disabled
and cease by reason thereof to be an employee of the Company or any of its
subsidiaries at any time during the Warrant term, then Holder shall have a
period of twelve (12) complete calendar months commencing on the date of the
Holder's cessation of Employee status during which to exercise this Warrant;
provided, however, that in no event shall this Warrant be exercisable at any
time after the Expiration Date. The initial Holder shall be deemed to be
permanently disabled if Holder is, by reason of any medically determinable
physical or mental impairment expected to result in death or to be of continuous
duration of not less than six months, unable to perform his usual duties for the
Company or its subsidiary corporations.
(iv) Should the initial Holder's status as an employee be
terminated for cause (including, but not limited to, any act of dishonesty,
willful misconduct, failure to perform material duties, fraud or embezzlement or
any unauthorized disclosure or use of confidential information or trade secrets
or as otherwise defined in the initial Holder's employment agreement with the
Company's subsidiary) or should the initial Holder make or attempt to make any
unauthorized use or disclosure of the confidential information or trade secrets
of the Company or any subsidiary corporations, then in any such event this
Warrant shall terminate and cease to be exercisable upon the earlier of (i) the
date that is thirty (30) days after the date of such termination of employee
status or such unauthorized disclosure or use of confidential or secret
information or attempt thereat, or (ii) the Expiration Date. Nothing hereunder
shall limit any remedy available to the Company, any subsidiary corporation, at
law, in equity or otherwise, recoverable from Holder for any such act,
disclosure or use by Holder.
(v) Should the initial Holder's status as an employee of a
subsidiary of the Company be terminated by such subsidiary other than for Cause,
as defined in the initial Holder's employment agreement with such subsidiary,
this Warrant shall not expire until the Expiration Date except as provided in
Section 12 below.
12. Special Termination of Warrant.
(a) In the event the Company shall engage in one or more of the following
transactions (a "Corporate Transaction"):
(i) a merger, consolidation or acquisition in which the
Company is not the surviving entity, except for a transaction the principal
purpose of which is to change the state of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any other corporate reorganization or business
combination in which fifty percent (50%) or more of the Company's outstanding
voting stock is purchased by, exchanged with or otherwise transferred to new
holders in a single transaction or a series of related transactions;
6
<PAGE>
then this Warrant shall expire upon the consummation of such Corporate
Transaction and cease to be exercisable, unless the obligations of the Company
under this Warrant are expressly assumed by the successor corporation or
corporation parent thereof. The Company shall provide the Holder at least thirty
(30) days prior written notice of the date of the Corporate Transaction and
whether, upon such Corporate Transaction, this Warrant shall expire or be
assumed by the successor corporation or parent corporation thereof. The Company
can give no assurance that this Warrant shall be assumed by the successor
corporation or its parent company and it may occur that some of the Company's
stock purchase warrants and stock options outstanding on or prior to the date of
a Corporate Transaction will be assumed or otherwise modified while this Warrant
is terminated or vice versa. Such termination or assumption will not necessary
be on the same terms on which other substantially similar warrants are
terminated or assumed.
(b) In the event of a Corporate Transaction, the Company shall accelerate the
vesting schedule contained in Section 10 hereof, and the Holder shall have the
right to exercise the Warrant with respect to all Underlying Shares not then
subject to purchase pursuant to Section 10 for a period of not less than five
(5) days ending on the date of the consummation of the Corporate Transaction.
The Company shall give the Holder written notice of such period.
(c) This Warrant shall not in any way affect the right of the Company to make
changes in its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
13. Mechanics of Exercise. The rights represented by this Warrant may be
exercised at any time within the period above specified by (i) surrender of this
Warrant, endorsed to the Company, with signature guaranteed by a commercial bank
or a member firm of the New York Stock Exchange, at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), accompanied by a statement signed by the
Holder stating the extent to which the Holder is exercising this Warrant; (ii)
payment to the Company of the exercise price for the number of Underlying Shares
specified in the above-mentioned writing together with applicable stock transfer
taxes, if any; and (iii) unless in connection with an effective registration
statement which covers the sale Underlying Shares, the delivery to the Company
of a statement by the Holder (in a form acceptable to the Company and its
counsel) that such Underlying Shares are being acquired by the Holder for
investment and not with a view to their distribution or resale.
14. Miscellaneous. This Warrant shall be governed by and construed in accordance
with the laws of the state of New York. The federal and state courts in Chicago,
Illinois shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer, and to be dated as of the date set forth above.
CECO ENVIRONMENTAL CORP.
By: Phillip DeZwirek
----------------------------
Name: Phillip DeZwirek
--------------------------
Its: President
---------------------------
8
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================================================================================
EXHIBIT 10.8
CREDIT AGREEMENT
among
CECO GROUP, INC.,
CECO FILTERS, INC.,
AIR PURATOR CORPORATION,
NEW BUSCH CO., INC.,
THE KIRK & BLUM MANUFACTURING COMPANY, and
KBD/TECHNIC, INC.,
as Borrowers
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION
as Agent
Dated as of December 7, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
BACKGROUND........................................................................................................1
SECTION 1. DEFINITIONS...........................................................................................1
1.1 Defined Terms...................................................................................1
1.2 Other Definitional Provisions..................................................................20
1.3 Construction...................................................................................20
SECTION 2. THE CREDITS..........................................................................................21
2.1 Revolving Credit Loans.........................................................................21
2.2 Term Loans.....................................................................................22
2.3 General Provisions Regarding Loans.............................................................23
2.4 Letter of Credit Subfacility...................................................................24
2.5 Fees...........................................................................................27
2.6 Notes; Repayment of Loans......................................................................27
2.7 Interest on Loans..............................................................................28
2.8 Default Rate; Additional Interest; Alternate Rate of Interest..................................29
2.9 Termination, Reduction, Extension of Commitments; Additional Banks.............................29
2.10 Optional and Mandatory Prepayments of Loans....................................................31
2.11 Illegality.....................................................................................32
2.12 Requirements of Law............................................................................33
2.13 Taxes..........................................................................................34
2.14 Indemnity......................................................................................35
2.15 Pro Rata Treatment, etc........................................................................36
2.16 Payments.......................................................................................36
2.17 Borrowers' Representative......................................................................36
2.18 Conversion and Continuation Options............................................................37
SECTION 3. REPRESENTATIONS AND WARRANTIES.......................................................................38
3.1 Financial Condition............................................................................38
3.2 No Adverse Change..............................................................................38
3.3 Existence; Compliance with Law.................................................................38
3.4 Power; Authorization; Enforceable Obligations..................................................39
3.5 No Legal Bar...................................................................................39
3.6 No Material Litigation.........................................................................39
3.7 No Default.....................................................................................39
3.8 Taxes..........................................................................................40
3.9 Federal Regulations............................................................................40
3.10 ERISA..........................................................................................40
3.11 Investment Company Act; Public Utility Holding Company Act.....................................41
3.12 Purpose of Loans; Letters of Credit............................................................41
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.13 Environmental Matters.........................................................................41
3.14 Ownership of the Borrowers.....................................................................42
3.15 Patents, Trademarks, etc.......................................................................42
3.16 Ownership of Property..........................................................................42
3.17 Licenses, etc..................................................................................43
3.18 No Burdensome Restrictions.....................................................................43
3.19 Labor Matters..................................................................................43
3.20 Partnerships...................................................................................43
3.21 No Material Misstatements......................................................................43
3.22 Affiliated Business Enterprises................................................................43
3.23 Acquisition Documents..........................................................................43
3.24 Year 2000 Compliance...........................................................................44
SECTION 4. CONDITIONS PRECEDENT.................................................................................45
4.1 Conditions to Closing..........................................................................45
4.2 Conditions to Each Loan........................................................................47
SECTION 5. AFFIRMATIVE COVENANTS................................................................................48
5.1 Financial Statements...........................................................................48
5.2 Certificates; Other Information................................................................49
5.3 Payment of Obligations.........................................................................49
5.4 Conduct of Business and Maintenance of Existence...............................................49
5.5 Maintenance of Property; Insurance.............................................................50
5.6 Inspection of Property; Books and Records; Discussions.........................................50
5.7 Notices........................................................................................51
5.8 Environmental Laws.............................................................................52
5.9 Ownership of Borrowers; Joinder of Subsidiaries................................................52
5.10 Management Changes.............................................................................53
5.12 Plans and Benefit Arrangements.................................................................53
5.13 Interest Rate Protection.......................................................................53
5.14 Further Assurances; Power of Attorney..........................................................54
SECTION 6. NEGATIVE COVENANTS...................................................................................54
6.1 Financial Covenants............................................................................54
6.2 Limitation on Debt.............................................................................56
6.3 Limitation on Liens............................................................................56
6.4 Limitations on Fundamental Changes.............................................................58
6.5 Limitation on Sale of Assets...................................................................58
6.7 Limitation on Distributions and Investments....................................................59
6.8 Transactions with Affiliates...................................................................59
6.9 Sale and Leaseback.............................................................................59
6.10 Continuation of or Change in Business..........................................................59
6.12 Changes in Organizational Documents............................................................59
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7. EVENTS OF DEFAULT....................................................................................60
7.1 Events of Default..............................................................................60
7.2 Remedies.......................................................................................62
SECTION 8. THE AGENT............................................................................................65
8.1 Appointment....................................................................................65
8.2 Delegation of Duties...........................................................................65
8.3 Exculpatory Provisions.........................................................................65
8.4 Reliance by Agent..............................................................................65
8.5 Notice of Default..............................................................................66
8.6 Non-Reliance on Agent and Other Banks..........................................................66
8.7 Indemnification................................................................................67
8.8 Agent in its Individual Capacity...............................................................67
8.9 Successor Agent................................................................................67
8.10 Beneficiaries..................................................................................67
SECTION 9. MISCELLANEOUS........................................................................................68
9.1 Amendments and Waivers.........................................................................68
9.2 Notices........................................................................................68
9.3 No Waiver; Cumulative Remedies.................................................................70
9.4 Survival of Representations and Warranties.....................................................70
9.5 Payment of Expenses and Taxes..................................................................70
9.6 Successors and Assigns.........................................................................71
9.7 Confidentiality................................................................................74
9.8 Adjustments; Set-off...........................................................................74
9.9 Counterparts...................................................................................75
9.10 Severability...................................................................................75
9.11 Integration....................................................................................75
9.12 GOVERNING LAW..................................................................................76
9.13 Submission To Jurisdiction; Waivers............................................................76
9.14 Acknowledgments................................................................................76
9.15 WAIVERS OF JURY TRIAL..........................................................................77
9.16 Borrowers' Obligations.........................................................................77
</TABLE>
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<PAGE>
SCHEDULES
- ---------
SCHEDULE I Bank and Commitment Information
SCHEDULE 3.3 Compliance with Laws
SCHEDULE 3.6 Existing Litigation
SCHEDULE 3.10 ERISA Matters
SCHEDULE 3.13 Environmental Matters
SCHEDULE 3.14 Ownership of Borrowers and USFM
SCHEDULE 3.16 Real Property Interests
SCHEDULE 3.19 Labor Matters
SCHEDULE 3.20 Interests in Partnerships
SCHEDULE 6.2 Permitted Debt
SCHEDULE 6.3 Existing Liens
EXHIBITS
EXHIBIT A Form of Borrowing Request
EXHIBIT B-1 Form of Revolving Credit Note
EXHIBIT B-2 Form of Term Loan A Note
EXHIBIT B-3 Form of Term Loan B Note
EXHIBIT B-4 Form of Term Loan C Note
EXHIBIT C Form of Assignment and Acceptance
EXHIBIT D Form of Borrowing Base Certificate
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") dated as of December
7, 1999, by and among CECO GROUP, INC. (the "Parent Company"), CECO FILTERS,
INC., AIR PURATOR CORPORATION, NEW BUSCH CO., INC., THE KIRK & BLUM
MANUFACTURING COMPANY, and KBD/TECHNIC, INC. (together with the Parent Company,
the "Borrowers"), the several banks and other financial institutions from time
to time parties to this Agreement (the "Banks"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association, as administrative agent (in such
capacity, the "Agent").
BACKGROUND
The Borrowers have requested that the Banks make Loans and
issue or participate in Letters of Credit (these terms and certain other terms
are defined in Section 1.1 hereof) to the Borrowers, and the Banks severally
have agreed to make Loans and/or participate in the issuance of Letters of
Credit on the terms and conditions herein contained. Proceeds of the Loans will
be used for the purposes described herein.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements herein set forth and for other consideration,
the receipt and sufficiency of which is hereby acknowledged and intending to be
legally bound hereby, covenant and agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Acquisition Documents": shall mean all documents, instruments
and agreements evidencing the K&B Acquisition.
"Administrative Fees": as defined in subsection 2.5(b).
"Affiliate": any Person (other than a Subsidiary, or an
officer, director or employee of any of the Borrowers who would not be
an Affiliate but for such Person's status as an officer, director
and/or employee) which, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the Borrowers, and any member, director, officer or
employee of any such Person or any Subsidiary of a Borrower. For
purposes of this definition, "control" shall mean the power, directly
or indirectly, either to (i) vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or
(ii) direct or in effect cause the direction of the management and
policies of such Person whether by contract or otherwise.
<PAGE>
"Applicable Commitment Fee Percentage": until the earlier of
(i) the expiration of the twelve month period commencing on the Closing
Date, and (ii) a Secondary Offering, one half of one percent (0.5%) per
annum. Thereafter, the percent per annum determined by reference to the
table set forth on Annex I hereto under the caption "Ongoing Margins",
based upon the Borrowers' compliance with the Leverage Ratio at the
levels set forth in such table as such Leverage Ratio is shown on the
Applicable Margin Certificate required pursuant to subsection 5.2(a)
for any fiscal quarter; provided, that any changes in the Applicable
Commitment Fee Percentage pursuant to the foregoing provisions shall
become effective from the fifth day following the date the Agent shall
have received the Applicable Margin Certificate in respect of such
fiscal quarter. In the event that the Applicable Margin Certificate
required pursuant to Section 5.2(a) for any fiscal quarter is not
timely delivered, then the Applicable Commitment Fee Percentage shall
be determined by reference to Compliance Level IV, commencing as of the
date such certificate was required to be delivered until the delivery
of such certificate. In the event that the actual Leverage Ratio
referred to in the table is subsequently determined to be different
than as shown on the Applicable Margin Certificate (or as determined
pursuant to the preceding sentence in the absence of delivery of an
Applicable Margin Certificate) for any fiscal quarter, the Applicable
Commitment Fee Percentage shall be recalculated for the applicable
period based on such actual Leverage Ratio.
"Applicable Margin": until the earlier of (i) the expiration
of the twelve month period commencing on the Closing Date, and (ii) a
Secondary Offering, the amount set forth on Annex I under the caption
"Initial Applicable Margin". Thereafter, the percent per annum
determined by reference to the table set forth on Annex I hereto under
the caption "Ongoing Margins", based upon the Borrowers' compliance
with the Leverage Ratio at the levels set forth in such table as such
Leverage Ratio is shown on the Applicable Margin Certificate required
pursuant to Section 5.2(a) for any fiscal quarter; provided, that any
changes in the Applicable Margin pursuant to the foregoing provisions
shall become effective from the day following the date the Agent shall
have received the Applicable Margin Certificate in respect of such
fiscal quarter. In the event that the Applicable Margin Certificate
required pursuant to Section 5.2(a) for any fiscal quarter is not
timely delivered, then the Applicable Margin shall be determined by
reference to Compliance Level IV, commencing as of the date such
certificate was required to be delivered until the delivery of such
certificate. In the event that the actual Leverage Ratio referred to in
the table is subsequently determined to be different than as shown on
the Applicable Margin Certificate (or as determined pursuant to the
preceding sentence in the absence of delivery of an Applicable Margin
Certificate) for any fiscal quarter, the Applicable Margin shall be
recalculated for the applicable period based on such actual Leverage
Ratio.
"Applicable Margin Certificate": as defined in Section 5.2(a).
2
<PAGE>
"Asset Sale": means any sale, lease, transfer or other
disposition or casualty loss of assets (each referred to for the
purposes of this definition as a "disposition") by a Borrower other
than (a) a disposition by a Borrower to another Borrower, (b)
disposition of inventory in the ordinary course of business, (c)
dispositions of surplus or obsolete inventory or equipment, waste or
by-product material in the ordinary course of business and (d)
dispositions of Permitted Investments.
"Assignment and Acceptance": an assignment and acceptance
entered into by a Bank and an assignee, and acknowledged by the Agent,
in the form of Exhibit C or such other form as shall be approved by the
Agent.
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/100th of 1%) equal to the Prime Rate in
effect on such day. Any change in the Base Rate due to a change in the
Prime Rate shall be effective on the effective date of such change in
the Prime Rate.
"Base Rate Borrowing": a Borrowing comprised of Base Rate
Loans.
"Base Rate Loans": Loans bearing interest at a rate determined
by reference to the Base Rate.
"Bonus Pool Payments": shall mean payments to Richard J. Blum,
Lawrence J. Blum and David Blum, each pursuant to Section 3(e) of an
Employment Agreement with one of the Borrowers in effect as of the date
hereof.
"Borrowers": those Persons defined as such in the preamble of
this Agreement.
"Borrowers' Representative": as defined in Section 2.17.
"Borrowing": each group of Loans of a single Type made by the
Banks on a single date, and, in the case of Eurodollar Loans, as to
which a single Interest Period is in effect.
"Borrowing Request": a request made pursuant to Section 2.1(c)
in the form of Exhibit A.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in Pittsburgh, Pennsylvania are
authorized or required by law to close; provided, however, that, when
used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London Interbank Market.
3
<PAGE>
"Capital Lease": at any time, a lease with respect to which
the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"CECO": CECO Environmental Corp., the parent company of the
Parent Company.
"CECO Debt Repayments": means amounts paid to CECO to permit
payments by CECO to third party creditors and subject to a
Subordination Agreement, to be immediately paid by CECO to one or more
of the creditors under such Subordination Agreement; provided, that no
such amounts may be paid to CECO if CECO would not be permitted to make
such payment to such creditors under the Subordination Agreement.
"Closing": as defined in Section 4.3.
"Closing Date": as defined in Section 4.3.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Commitments": as to any Bank, the obligations of such Bank to
make Term Loans and Revolving Credit Loans to the Borrowers hereunder
in an aggregate principal amount at any one time outstanding not to
exceed the respective amounts set forth opposite such Bank's name on
Schedule I or in the Assignment and Acceptance pursuant to which such
Bank becomes a party to this Agreement, as the same may be permanently
terminated, reduced and extended from time to time pursuant to the
provisions of Section 2.9 or changed by subsequent assignments pursuant
to subsection 9.6(b).
"Commitment Fee": as defined in subsection 2.5(a).
"Commitment Percentage": as to any Bank at any time, the
proportion (expressed as a percentage) that the sum of such Bank's
Commitments bears to the Total Commitment (or, at any time after the
Commitments shall have expired or been terminated, the percentage which
the amount of such Bank's Loans constitutes of the aggregate amount of
the Loans of the Banks then outstanding).
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrowers within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrowers and which is treated as a single employer under
Section 414 of the Code.
4
<PAGE>
"Contingent Obligation": with respect to any Person (for the
purpose of this definition, the "Obligor") any obligation (except the
endorsement in the ordinary course of business of instruments for
deposit or collection) of the Obligor guaranteeing or in effect
guaranteeing any indebtedness of any other Person (for the purpose of
this definition, the "Primary Obligor") in any manner, whether directly
or indirectly, including (without limitation) indebtedness incurred
through an agreement, contingent or otherwise, by the Obligor:
(a) to purchase such indebtedness of the Primary
Obligor or any Property or assets constituting security
therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such
indebtedness (except to the extent such indebtedness
otherwise appears on Borrowers' balance sheet as
indebtedness), or
(ii) to maintain working capital or other balance
sheet condition or any income statement condition of
the Primary Obligor or otherwise to advance or make
available funds for the purchase or payment of such
indebtedness or obligation; or
(c) to lease Property or to purchase Securities or
other Property or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the
ability of the Primary Obligor to make payment of the
indebtedness or obligation.
For purposes of computing the amount of any Contingent Obligation, in
connection with any computation of indebtedness or other liability, it
shall be assumed that, without duplication, the indebtedness or other
liabilities of the Primary Obligor that are the subject of such
Contingent Obligation are direct obligations of the issuer of such
Contingent Obligation.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any
of its property is bound.
"Debt": with respect to any Person, at any time, without
duplication, all of (i) its liabilities for borrowed money, including
any Subordinated Debt, (ii) its liabilities secured by any Lien
existing on property owned by such Person (whether or not such
liabilities have been assumed), (iii) its liabilities in respect to
Capital Leases; (iv) its liabilities under Contingent Obligations and
under Interest Rate Protection Agreements; (v) its liabilities for
amounts borrowed against cash surrender value of life insurance; and
5
<PAGE>
(vi) all other obligations which are required by GAAP to be shown as
liabilities on its balance sheet but excluding (x) deferred taxes and
other deferred or long-term liabilities and other amounts not in
respect of borrowed money and (y) the aggregate amount of accounts
receivable sold, factored or otherwise transferred for value without
recourse (other than for breach of representations).
"Default": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition precedent therein set forth, has been
satisfied.
"Distribution": in respect of any corporation, (a) dividends,
distributions or other payments on account of any capital stock of the
corporation (except distributions in common stock of such corporation);
(b) the redemption or acquisition of such stock or of warrants, rights
or other options to purchase such stock (except when solely in exchange
for common stock of such corporation); (c) all Bonus Pool Payments; and
(d) any payment on account of, or the setting apart of any assets for a
sinking or other analogous fund for, the purchase, redemption,
defeasance, retirement or other acquisition of any share of any class
of capital stock of such corporation or any warrants or options to
purchase any such stock.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"EBITDA": for any period, net income (or loss) of a Person for
such period, plus the amount of income taxes, interest expense,
reasonable expenses arising out of the preparation, negotiation,
execution and delivery of the Acquisition Documents and the Loan
Documents, depreciation and amortization deducted from earnings in
determining net income (or loss) of such Person , all as determined on
a consolidated basis in accordance with GAAP.
"EBITDA Threshold": for the fiscal quarter ending December 31,
1999, EBITDA of CECO Filters, Inc., prior to any management fees paid
to CECO for such period, in excess of $562,500.
"Eligible Inventory" shall mean and include raw materials,
supplies and finished goods Inventory excluding work in process, valued
at the lower of cost or market value, determined on a
first-in-first-out basis, which (i) is not, in Agent's opinion,
obsolete, slow moving or unmerchantable and (ii) Agent, in its
reasonable discretion, shall not deem ineligible Inventory, based on
such considerations as Agent may from time to time deem appropriate,
including, without limitation, whether the Inventory is subject to a
perfected, first priority security interest in favor of Agent and
whether the Inventory conforms to all standards imposed by any
governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof.
Eligible Inventory shall include all Inventory in-transit for which
title has passed to a Borrower, which is insured to the full value
thereof and for which Agent shall have in its possession (a) all
negotiable bills of lading properly endorsed and (b) all non-negotiable
bills of lading issued in Agent's name.
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"Eligible Receivables" shall mean and include each Receivable
of each Borrower arising in the ordinary course of such Borrower's
business and which Agent, in its reasonable credit judgment, shall deem
to be an Eligible Receivable, based on such considerations as Agent may
from time to time deem appropriate. A Receivable shall not be deemed
eligible unless such Receivable is subject to Agent's first priority
perfected security interest and no other Lien (other than Permitted
Liens), and is evidenced by an invoice or other documentary evidence
satisfactory to Agent. In addition, unless otherwise agreed by Agent,
no Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by a Borrower to an Affiliate
of a Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than ninety (90) days after the
original invoice date, unless such Receivable (i) is due or unpaid less
than one hundred twenty days (120) after the original invoice date from
a customer having a debt rating of "BAA" or higher by Moody's or "BBB"
or higher by S&P and is not in dispute, or (ii) is otherwise acceptable
to the Banks; provided, that, the Borrowers shall provide the Agent
with a list of all customers for which the condition in clause (i)
above is applicable;
(c) fifty percent (50%) or more of the Receivables from such
customer are past due, unless such Receivable (i) is due or unpaid less
than one hundred twenty days (120) after the original invoice date from
a customer having a debt rating of "A3" or higher by Moody's or "A-" or
higher by S&P and is not in dispute, or (ii) is otherwise acceptable to
the Banks; provided, that, the Borrowers shall provide the Agent with a
list of all customers for which the condition in clause (i) above is
applicable;
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached in any
material respect;
(e) the customer shall (i) apply for, suffer, or consent to
the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial
part of its property or call a meeting of its creditors, (ii) admit in
writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a
general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing
for the relief of debtors, or (vii) acquiesce to, or fail to have
dismissed within 60 days, any petition which is filed against it in any
involuntary case under such bankruptcy laws;
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(f) the sale is to a customer outside the continental United
States of America, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its reasonable
discretion; provided, that this subsection shall not cause Receivables
of any customer in Canada ("Canadian Receivables") to be ineligible
except to the extent that all such Canadian Receivables exceed $250,000
at any date of determination.
(g) the sale to the customer is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper, unless
Agent maintains a perfected security with respect to such Receivable or
the Receivable is otherwise satisfactory to the Banks;
(h) the customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless such
Borrower assigns its right to payment of such Receivable to Agent
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
subsection 3727 et seq. and 41 U.S.C. subsection 15 et seq.) or has
otherwise complied with other applicable statutes or ordinances;
(i) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the customer or the services
giving rise to such Receivable have not been performed by a Borrower
and accepted by the customer or the Receivable otherwise does not
represent a final sale;
(j) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the customer is also a creditor or
supplier of a Borrower or the Receivable is contingent in any respect
or for any reason;
(k) a Borrower has made any agreement with any customer for
any deduction therefrom, except for discounts or allowances which are
reflected in the calculation of the face value of each respective
invoice related thereto (which face value is used in calculating
availability under Section 2.1 hereof);
(l) any return, rejection or repossession of the merchandise
has occurred; or
(m) such Receivable is not payable to a Borrower.
"Environmental Laws": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or binding requirements of any Governmental
Authority, or binding Requirement of Law (including common law)
regulating, relating to or imposing liability or standards of conduct
concerning protection of the environment, as now or may at any time
hereafter be in effect.
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"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by
a member bank of such System.
"Eurodollar Base Rate": with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100th of 1%) equal to the rate determined
by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the
average of the London interbank offered rates of interest per annum for
Dollars set forth on Telerate display page 3750 or such other display
page on the Telerate System as may replace such page to evidence the
average of rates quoted by banks designated by the British Bankers'
Association (or appropriate successor, or if the British Bankers'
Association or its successor ceases to provide such quotes, a
comparable replacement determined by the Agent), for an amount
approximately equal in principal amount to PNC's portion of such
Eurodollar Loan.
"Eurodollar Borrowing": a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan": any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate in accordance with the
provisions of Section 2.
"Eurodollar Rate": with respect to each Eurodollar Loan, a
rate per annum determined in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any fiscal year, the excess, if any,
of (a) EBITDA before Bonus Pool Payments, less (b) principal payments
under this Agreement, interest expense (other than deferred interest in
respect of Subordinated Debt), taxes (other than deferred taxes), and
capital expenditures, all determined for CECO on a consolidated basis
in accordance with GAAP.
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"Exposure": as to any Bank at any date, an amount equal to the
sum of (a) the aggregate principal amount of all Loans made by such
Bank then outstanding, and (b) such Bank's pro rata share of the
maximum amount available to be drawn under all Letters of Credit then
outstanding.
"Federal Funds Effective Rate": for any day, 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 on the next succeeding 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
the day of such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fee Letter": that certain letter from the Agent to the
Borrowers' Representative dated November 17, 1999 regarding certain
administrative fees and closing fees.
"Fees": the Commitment Fees, the Administrative Fees and the
Letter of Credit Fees.
"Fixed Charge Coverage Ratio": at the date of determination,
the ratio of (i) EBITDA less capital expenditures to (ii) the sum of
interest expense (other than deferred interest in respect of
Subordinated Debt), income taxes (other than deferred taxes),
dividends, Bonus Pool Payments (other than deferred Bonus Pool
Payments) and scheduled principal amortization deducted in determining
EBITDA, each determined for CECO on a consolidated basis and calculated
as of the end of the fiscal quarter ending on or immediately preceding
such date.
"GAAP": at any time with respect to the determination of the
character or amount of any asset or liability or item of income or
expense, or any consolidation or other accounting computation,
generally accepted accounting principles as in effect on the date of,
or at the end of the period covered by, the financial statements from
which such asset, liability, item of income, or item of expense, is
derived, or, in the case of any such computation, as in effect on the
date when such computation is required to be determined.
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranty": that certain Guaranty and Suretyship Agreement
between CECO and the Agent, dated as of the date hereof, and any
Guaranty and Suretyship Agreement entered into after the Closing Date
by a newly created or acquired Subsidiary of any Borrower.
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"Initial Audit": as defined in subsection 5.6(c).
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Coverage Ratio": at the date of determination, the
ratio of (i) EBITDA less capital expenditures to (ii) interest expense
(other than deferred interest in respect of Subordinated Debt) deducted
in determining EBITDA, each determined for CECO on a consolidated basis
and calculated as of the end of the fiscal quarter ending on or
immediately preceding such date.
"Interest Payment Date": (a) as to any Base Rate Loan, the
last day of each calendar month, (b) as to any Eurodollar Loan having
an Interest Period of three months or less, the last day of such
Interest Period, and (c) as to any Eurodollar Loan having an Interest
Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period and
the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrowers in their notice of borrowing or notice of conversion,
given with respect thereto; and
(ii) thereafter, each period commencing on the last day
of the next preceding Interest Period applicable to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrowers by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto;
provided that, the foregoing provisions relating to Interest Periods
are subject to the following:
(i) if any Interest Period would end on a day other than
a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, with respect to Eurodollar Loans only,
such next succeeding Business Day would fall in the next calendar
month, in which case such Interest Period shall end on the next
preceding Business Day;
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(ii) with respect to Eurodollar Loans, any Interest
Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month;
(iii) an Interest Period that otherwise would extend
beyond the Termination Date shall end on the Termination Date; and
(iv) the Borrowers shall select Interest Periods so as
not to require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Interest Rate Protection Agreements": as defined in Section
5.13.
"Inventory": has the meaning given in the Uniform Commercial
Code in effect in the Commonwealth of Pennsylvania on the date hereof.
"Investments": investments (by loan or extension of credit,
purchase, advance, guaranty, capital contribution or otherwise) made in
cash or by delivery of Property, by the Borrowers (i) in any Person,
whether by acquisition of stock or other ownership interest,
indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or (ii) in any Property or (iii) any agreement to
do any of the foregoing.
"Issuing Bank": PNC Bank, National Association, as issuer of
Letters of Credit hereunder and each other Bank as is hereafter
authorized by the Agent to issue a Letter of Credit hereunder.
"K&B Acquisition": shall mean the acquisition by the Parent
Company of 100% of the Capital Stock of each of the K&B entities.
"K&B Entities": shall mean The Kirk & Blum Manufacturing
Company and kbd/Technic, Inc.
"L/C Coverage Requirement": with respect to each Letter of
Credit at any time, 100% of the maximum amount available to be drawn
thereunder at such time (determined without regard to whether any
conditions to drawing could be met at such time).
"Letter of Credit Fee": as defined in subsection 2.4(b).
"Letters of Credit": as defined in subsection 2.4(a).
"Leverage Ratio": at the date of determination, the ratio of
consolidated Debt of CECO (but excluding that certain Debt of CECO for
funds borrowed to purchase the Peerless Stock, if the market value of
the Peerless Stock then owned by CECO exceeds the amount of such Debt)
to EBITDA, each determined for CECO on a consolidated basis and
calculated as of the end of the fiscal quarter ending on or immediately
preceding such date.
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"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge, or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the same
economic effect as any of the foregoing).
"Life Insurance": the life insurance policies covering the
lives of Steven I. Taub, Richard J. Blum, Lawrence J. Blum and David D.
Blum.
"Loans": the Revolving Credit Loans and Term Loans made by the
Banks to the Borrowers pursuant to Section 2.1. Each Loan shall be (i)
either a Eurodollar Loan or a Base Rate Loan and (ii) either a
Revolving Credit Loan or a Term Loan.
"Loan Documents": this Agreement, the Notes, the Security
Documents, the Guaranty, the assignments, subordinations, guaranties
and all other agreements delivered in connection with this Agreement.
"Material Adverse Effect": a material adverse effect on (a)
the validity or enforceability of this Agreement or any other Loan
Document, (b) the business, Property, assets, financial condition,
results of operations or prospects of the Borrowers taken as a whole,
(c) the ability of the Borrowers taken as a whole duly and punctually
to pay their Debts and perform their obligations hereunder, or (d) the
ability of the Agent or any of the Banks, to the extent permitted, to
enforce their legal remedies pursuant to this Agreement or any other
Loan Document.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls, and
ureaformaldehyde insulation.
"Moody's": Moody's Investors Services, Inc.
"Mortgages": collectively, the Open-End Mortgage and Security
Agreements, dated as of the date hereof, between the Agent and one of
the Borrowers.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a) (3) of ERISA.
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<PAGE>
"Net Sale Proceeds": with respect to any Asset Sale, the
amount equal to (i) the sum of (A) the aggregate amount received in
cash (including any cash received by way of deferred payment pursuant
to a note receivable, other non-cash consideration or otherwise, but
only as and when such cash is so received) in connection with such
Asset Sale and (B) the aggregate amount of any tax refunds received or
any reduction in tax liability realized by the Borrowers as a result of
any tax loss realized by the Borrowers in connection with such Asset
Sale minus (ii) the sum of (A) the principal amount of Debt which is
secured by the asset that is the subject of such Asset Sale (other than
Debt assumed by the purchaser of such asset) and which is required to
be, and is, repaid in connection with such Asset Sale (other than Debt
hereunder) and (B) the reasonable fees, commissions, income taxes and
other out-of-pocket expenses incurred by the Borrower in connection
with such Asset Sale.
"Note": a Revolving Credit Note, a Term Loan A Note, a Term
Loan B Note, or a Term Loan C Note.
"Parent Company": CECO Group, Inc.
"Participant": as defined in Section 9.6(f).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Peerless Stock": capital stock of Peerless Manufacturing
Company owned by CECO on the Closing Date.
"Permitted Acquisition": an acquisition by a Borrower of the
stock or assets of a Person on terms acceptable to the Agent and the
Required Banks.
"Permitted Investments": Investments in:
(a) one or more Subsidiaries thereof which are or
hereafter agree to become Borrowers hereunder or execute and
deliver a Guaranty to the Agent;
(b) Property to be used in the ordinary course of
business of the Borrowers;
(c) current assets arising from the sale or purchase
of goods and services in the ordinary course of business of
the Borrowers;
(d) direct obligations of the United States of
America, or any agency or instrumentality thereof or
obligations guaranteed by the United States of America,
provided that such obligations mature within one (1) year from
the date of acquisition thereof;
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<PAGE>
(e) certificates of deposit, time deposits or
banker's acceptances, maturing within one (1) year from the
date of acquisition, with banks or trust companies organized
under the laws of the United States, the unsecured long-term
debt obligations of which are rated "A3" or higher by Moody's
or "A-" or higher by S&P, and issued, or in the case of
banker's acceptance, accepted, by a bank or trust company
having capital, surplus and undivided profits aggregating at
least $500,000,000;
(f) commercial paper given the highest rating by
either S&P or Moody's maturing not more than 270 days from the
date of creation thereof;
(g) mutual funds registered with the Securities and
Exchange Commission under the Investment Company Act of 1940
that hold themselves out as "money market funds;"
(h) trade credit extended on usual and customary
terms in the ordinary course of business;
(i) advances to employees to meet expenses incurred
by such employees in the ordinary course of business;
(j) loans (including loans to officers, directors or
employees), advances and investments not exceeding in the
aggregate $100,000 at any one time outstanding;
(k) ownership by a Borrower of USFM; and
(l) Permitted Acquisitions.
"Person": an individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrowers or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledge Agreement": collectively, the Pledge Agreements, dated
as of the date hereof, between each of the Borrowers having any
Subsidiaries as of the Closing Date, and the Agent.
"PNC": PNC Bank, National Association, a national banking
association.
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"Prime Rate": the rate of interest per annum announced from
time to time by PNC as its prime rate in effect at its principal office
in Pittsburgh, Pennsylvania; each change in the Prime Rate shall be
effective on the date such change is announced as effective. This rate
of interest is determined from time to time by PNC as a means of
pricing some loans to its customers and is neither tied to any external
rate of interest or index nor does it necessarily reflect the lowest
rate of interest actually charged by PNC to any particular class or
category of customers of PNC.
"Property": any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"Receivable": has the meaning given for "account" in the
Uniform Commercial Code in effect in the Commonwealth of Pennsylvania
on the date hereof.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Regulation X": Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, except to the extent that notice thereof has been
waived by the PBGC.
"Required Banks": at any time, Banks the Exposures of which
aggregate 100% of the aggregate Exposure at such time of all Banks, or
at any time that no Loans are outstanding, Banks the Commitments of
which aggregate 100% of the Total Commitment.
"Requirement of Law": as to any Person, the Certificate of
Incorporation, By-Laws, Operating Agreement or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case binding upon such Person or any of
its property or to which such Person or any of its property is subject.
"Responsible Officer": as to any Borrower, any officer of such
Borrower.
"Responsible Reporting Officer": as to either of the K&B
Entities and CECO Filters, Inc., any officer of such party; and as to
any other Borrower, the president, chief financial officer, chief
executive officer or chief operating officer of such Borrower.
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"Revolving Credit Commitment": means $10,000,000, as reduced
from time to time pursuant to Section 2.9.
"Revolving Credit Facility": the revolving credit facility
pursuant to which the Banks will make Revolving Credit Loans up to the
Revolving Credit Commitment.
"Revolving Credit Loan": a revolving credit loan made by the
Banks to the Borrowers pursuant to the Revolving Credit Facility.
"Revolving Credit Note": a promissory note of the Borrowers in
the form of Exhibit B-1 executed and delivered pursuant to Section 2.6.
"S&P": Standard & Poor's Rating Group, a division of
McGraw-Hill Corporation.
"Secondary Offering": an offering of equity Securities issued
by CECO, the proceeds of which are used to reduce the outstanding
principal amount of the Term Loans pursuant to Section 2.10 or for
other purposes permitted herein.
"Security": "security" as defined in Section 2(1) of the
Securities Act of 1933, as amended.
"Security Agreement": the Security Agreement, dated as of the
date hereof, among the Agent, the Borrowers and USFM.
"Security Documents": the Security Agreement, the Pledge
Agreement, the Mortgages, and all assignments, landlord waivers and
other documents or instruments related to the Agent's taking security
of any kind for the Loans.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Solvent": as to any Person, as of the time of determination,
the financial condition under which the following conditions are
satisfied:
(a) the fair market value of the assets of such
Person will exceed the debts and liabilities, subordinated,
contingent or otherwise, of such Person; and
(b) the present fair saleable value of the Property
of such Person will be greater than the amount that will be
required to pay the probable liability of such Person on its
debts and other liabilities, subordinated, contingent or
otherwise, as such debts and other liabilities become absolute
and matured; and
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<PAGE>
(c) such Person will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and
(d) such Person will not have unreasonably small
capital with which to conduct the businesses in which it is
engaged as such businesses are then conducted and are proposed
to be conducted after the date thereof.
"Subordinated Debt": at any time, all Debt of any Borrower
subordinated to all of the obligations of all of the Borrowers to the
Banks on terms satisfactory to the Banks.
"Subordination Agreement": an agreement entered into in
connection herewith, pursuant to which a creditor of any Borrower or
CECO agrees to subordinate amounts owed to it by such Borrower or CECO
on terms acceptable to the Agent.
"Subsidiary": as to any Person, (i) any corporation, limited
liability company, company or trust of which 50% or more (by number of
shares or number of votes) of the outstanding capital stock, interests,
shares or similar items of beneficial interest normally entitled to
vote for the election of one or more directors, members or trustees
(regardless of any contingency which does or may suspend or dilute the
voting rights) is at such time owned directly or indirectly by such
person or one or more of such Person's Subsidiaries, or any partnership
of which such Person is a general partner or of which 50% or more of
the partnership interests is at the time directly or indirectly owned
by such Person or one or more of such Person's Subsidiaries, and (ii)
any corporation, company, trust, partnership or other entity which is
controlled or capable of being controlled by such Person or one or more
of such Person's subsidiaries. Unless otherwise indicated, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement
shall refer to a Subsidiary of the Parent Company.
"Term Loan A": the term loan made by each Bank to the
Borrowers in the aggregate principal amount of $14,500,000 pursuant to
Section 2.2.
"Term Loan A Note": the promissory notes of the Borrowers in
the form of Exhibit B-2 executed and delivered pursuant to Section 2.6,
evidencing the Term Loan A of each Bank.
"Term Loan B": the term loan made by each Bank to the
Borrowers in the aggregate principal amount of $8,500,000 pursuant to
Section 2.2.
"Term Loan B Note": the promissory notes of the Borrowers in
the form of Exhibit B-3 executed and delivered pursuant to Section 2.6,
evidencing the Term Loan B of each Bank.
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"Term Loan C": the term loan made by each Bank to the
Borrowers in the aggregate principal amount of $2,000,000 pursuant to
Section 2.2.
"Term Loan C Note": the promissory notes of the Borrowers in
the form of Exhibit B-4 executed and delivered pursuant to Section 2.6,
evidencing the Term Loan C of each Bank.
"Term Loan Commitment": the commitment, set forth on Schedule
I hereto, of each Bank to make a Term Loan A, a Term Loan B, and a Term
Loan C on the Closing Date, as applicable.
"Term Loans": collectively, the Term Loan A, Term Loan B, and
Term Loan C of each Bank.
"Termination Date": December 6, 2004.
"Total Commitment": at any time, the aggregate amount of the
Banks' Commitments, as in effect at such time.
"Total Commitment Percentage": as to any Bank at any time, the
proportion (expressed as a percentage) that such Bank's Commitments
bear to the Total Commitment.
"Tranche": the collective reference to Eurodollar Loans whose
Interest Periods begin on the same date and end on the same later date
(whether or not such Loans originally were made on the same date).
"Type": when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the
Loans comprising such Borrowing is determined. For purposes hereof,
"Rate" shall include the Eurodollar Rate and the Base Rate.
"Voting Stock": capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors (or
Persons performing similar functions) and, as applicable, any equity,
participation or ownership interests in any partnership, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture or any other Person which
interests are similar by analogy to capital stock or ownership rights
giving rise to voting or governance rights.
"Wholly-Owned Subsidiary": at any time, any Subsidiary one
hundred percent (100%) of all of the equity Securities (except
directors' qualifying shares) and voting Securities of which are owned
by any one or more of the Borrowers at such time.
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1.2 Other Definitional Provisions. Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto.
1.3 Construction. (a) Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole, "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has the meaning represented
by the phrase "including without limitation." References in this Agreement to
"determination" of or by the Agent or the Banks shall be deemed to include good
faith estimates by the Agent or the Banks (in the case of quantitative
determinations) and good faith beliefs by the Agent or the Banks (in the case of
qualitative determinations). Whenever the Agent or the Banks are granted the
right herein to act in their sole discretion or to grant or withhold consent
such right shall be exercised in good faith, except as otherwise provided
herein. Except as otherwise expressly provided, all references herein to the
"knowledge of" or "best knowledge of" a Borrower, the Borrowers or the Parent
Company shall be deemed to refer to the knowledge of a Responsible Reporting
Officer thereof. The words "hereof," "herein," "hereunder", "hereby" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. The section and other headings contained
in this Agreement and the Table of Contents preceding this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified. As used herein, the words "facsimile", "telecopy" and "fax" shall all
have the same meanings.
(b) Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate). As used herein and in the Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Company and any Subsidiary thereof not defined in subsection 1.1 and
accounting terms partly defined in subsection 1.1, to the extent not defined,
shall have the respective meanings given to them under GAAP. In the event that
any future change in GAAP, without more, materially affects the Borrowers'
compliance with any financial covenant herein, the Borrowers, the Banks and the
Agent shall use their best efforts to modify such covenant in order to account
for such change and to secure for the Banks the intended benefits of such
covenant.
SECTION 2. THE CREDITS
2.1 Revolving Credit Loans. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Bank, severally and not jointly, agrees to make Revolving Credit Loans to
the Borrowers, at any time or from time to time on or after the date hereof and
until the Termination Date or until the Commitments of such Bank in respect of
the Revolving Credit Commitment shall have been terminated in accordance
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with the terms hereof, in an aggregate principal amount at any time outstanding
not exceeding the lesser of (x) the aggregate Revolving Credit Commitment, less
(i) the amount of outstanding Letters of Credit, and (ii) $2,000,000 until Term
Loan C shall have been timely paid in full and the EBITDA Threshold shall have
been satisfied, and (y) an amount equal to the sum of the following as of any
date of determination:
(i) 75% of the Borrowers' aggregate Eligible
Receivables, plus
(ii) 50% of the Borrowers' aggregate Eligible
Inventory, plus
(iii) the net cash surrender value of Life Insurance
to the extent not then borrowed against by the Borrowers, minus
(v) the aggregate amount of outstanding Letters of
Credit, minus
(vi) such reserves as the Agent may reasonably deem
proper and necessary from time to time based on the results of an audit
performed by independent auditors selected by the Agent.
(b) Notwithstanding anything to the contrary contained
herein, at no time shall the sum of the outstanding aggregate principal amount
of all Revolving Credit Loans made by all Banks plus the aggregate undrawn face
amount of all outstanding Letters of Credit exceed (i) prior to the date Term
Loan C shall have been timely paid in full and the EBITDA Threshold shall have
been satisfied, the Revolving Credit Commitment less $2,000,000, or (ii) at all
other times, the Revolving Credit Commitment.
The Revolving Credit Commitment may be terminated or reduced from time to time
pursuant to Section 2.9(a) and (b). Within the foregoing limits, the Borrowers
may borrow, repay and reborrow under the Revolving Credit Facility on or after
the date hereof and prior to the Termination Date, subject to the terms,
provisions and limitations set forth herein.
(c) Each Revolving Credit Loan shall be made as part of a
Borrowing consisting of Revolving Credit Loans made by the Banks ratably in
accordance with their applicable Commitment Percentages with respect to
Revolving Credit Loans; provided, however, that the failure of any Bank to make
any Revolving Credit Loan shall not in itself relieve any other Bank of its
obligation to lend hereunder (it being understood, however, that no Bank shall
be responsible for the failure of any other Bank to make any Revolving Credit
Loan required to be made by such other Bank). The Revolving Credit Loans
comprising any Borrowing shall be in a minimum aggregate principal amount of
$500,000 or a whole multiple of $100,000 in excess thereof (or an aggregate
principal amount equal to the remaining balance of the available Revolving
Credit Commitment). Each Borrowing shall be comprised entirely of Eurodollar
Loans or Base Rate Loans, as the Borrowers may request pursuant to Section 2.1.
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(d) In order to request a Borrowing, in addition to any
other conditions to borrowing provided in this Agreement, the Borrowers shall
hand deliver or telecopy (or notify by telephone and promptly confirm by hand
delivery or facsimile) to the Agent the information requested by the form of
Borrowing Request attached as Exhibit A hereto (i) in the case of a Eurodollar
Borrowing, not later than 10:30 a.m., Pittsburgh time, three Business Days
before a proposed Borrowing and (ii) in the case of a Base Rate Borrowing, not
later than 10:30 a.m., Pittsburgh time, on the day of a proposed Borrowing. Such
notice shall be irrevocable and shall in each case specify (x) whether the
Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate
Borrowing; (y) the date of such Borrowing (which shall be a Business Day) and
the amount thereof; and (z) if such Borrowing is to be a Eurodollar Borrowing,
the Interest Period with respect thereto. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the Borrowers shall be deemed to
have selected an Interest Period of one month's duration. The Agent shall
promptly advise the Banks of any notice given pursuant to this Section 2.1 and
of each Bank's portion of the requested Borrowing.
2.2 Term Loans. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Bank,
severally and not jointly, agrees to make a Term Loan A, a Term Loan B, and a
Term Loan C to the Borrowers in the amount of such Bank's applicable Term Loan
Commitments; provided, however, that the failure of any Bank to make any Term
Loan shall not in itself relieve any other Bank of its obligation to lend
hereunder (it being understood, however, that no Bank shall be responsible for
the failure of any other Bank to make any Term Loan required to be made by such
other Bank). Each Term Loan shall be comprised entirely of Eurodollar Loans or
Base Rate Loans, as the Borrowers may request pursuant to Section 2.3. The Term
Loans shall be advanced on the Closing Date. On or before the Closing Date, the
Borrowers shall have delivered to the Agent the information requested by the
form of Borrowing Request attached as Exhibit A hereto with respect to the Term
Loans.
2.3 General Provisions Regarding Loans. Subject to Section
2.3(b), each Bank shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to the
Agent in Pittsburgh, Pennsylvania, not later than 1:00 p.m., Pittsburgh time,
and the Agent shall by 3:00 p.m., Pittsburgh time, credit the amounts so
received to the general deposit account of the Borrowers with the Agent or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Banks. Loans shall be made by the Banks pro rata in accordance with
Section 2.15. Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's portion of such Borrowing, the Agent may assume that such Bank has
made such portion available to the Agent on the date of such Borrowing in
accordance with this paragraph and the Agent may, in reliance upon such
assumption, make available to the Borrowers on such date a corresponding amount.
If and to the extent that such Bank shall not have made such portion available
to the Agent, such Bank and the Borrowers severally agree to repay to the
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Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrowers until the date such amount is repaid to the Agent at (i) in the case
of the Borrowers, the interest rate applicable at the time to the Loans
comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds
Effective Rate. If such Bank shall repay to the Agent such corresponding amount,
such amount shall constitute such Bank's Loan as part of such Borrowing for
purposes of this Agreement.
(b) The Borrowers may refinance all or any part of
any Borrowing under the Revolving Credit Facility with any other Borrowing under
the Revolving Credit Facility, subject to the conditions and limitations set
forth herein and elsewhere in this Agreement. Any Borrowing under the Revolving
Credit Facility or part thereof so refinanced shall be deemed to be repaid in
accordance with Section 2.6 with the proceeds of a new Borrowing under the
Revolving Credit Facility and the proceeds of the new Borrowing, to the extent
they do not exceed the principal amount of the Borrowing being refinanced, shall
not be paid by the Banks to the Agent or by the Agent to the Borrowers;
provided, however, that (i) if the principal amount extended by a Bank in a
refinancing is greater than the principal amount extended by such Bank in the
Borrowing being refinanced, then such Bank shall pay such difference to the
Agent for distribution to the Banks described in (ii) below, (ii) if the
principal amount extended by a Bank in the Borrowing being refinanced is greater
than the principal amount agreed to be extended by such Bank in the refinancing,
the Agent shall return the difference to such Bank out of amounts received
pursuant to (i) above, and (iii) to the extent any Bank fails to pay the Agent
amounts due from it pursuant to (i) above, any Revolving Credit Loan or portion
thereof being refinanced with such amounts shall not be deemed repaid in
accordance with Section 2.6 and shall be payable by the Borrowers without
prejudice to the Borrowers' rights against any such Bank.
(c) Each Bank may at its option fulfill its
commitment hereunder with respect to any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Bank to make such Eurodollar Loan;
provided, however, that (A) any exercise of such option shall not affect the
obligation of the Borrowers to repay such Eurodollar Loan in accordance with the
terms of the Agreement and the applicable Note and (B) the Borrowers shall not
be liable for increased costs under Sections 2.11 or 2.12 to the extent that (x)
such costs could be avoided by the use of a different branch or Affiliate to
make Eurodollar Loans and (y) such use would not, in the judgment of such Bank,
entail any significant additional expense for which such Bank shall not be
indemnified hereunder or otherwise be disadvantageous to it.
(d) All Borrowings, conversions and continuations of
Loans hereunder and all selections of Interest Periods hereunder shall be in
such amounts and be made pursuant to such elections that, after giving effect
thereto, (A) the aggregate principal amount of the Loans comprising each Tranche
of Eurodollar Loans shall be equal to $500,000 or a whole multiple of $100,000
in excess thereof and (B) the Borrowers shall not have outstanding at any one
time more than in the aggregate five (5) separate Tranches of Eurodollar Loans.
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(e) Notwithstanding any other provision of this
Agreement, the Borrowers shall not be entitled to request any Borrowing if the
Interest Period requested with respect thereto would end after the Termination
Date.
(f) Each Loan is made to all Borrowers and all of
Borrowers' obligations under this Agreement, the Notes and the other Loan
Documents shall be joint and several.
2.4 Letter of Credit Subfacility. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
at the request of one or more of the Borrowers and for the account of the
Borrowers, an Issuing Bank will issue on the terms and conditions hereinafter
set forth (including notifying the Agent of the proposed issuance thereof),
standby letters of credit in a form and containing such terms and conditions and
for such purposes as are consistent with this Agreement and approved by the
Agent (all such letters of credit issued hereunder being collectively referred
to as "Letters of Credit"); provided, however, that each Letter of Credit
hereafter issued shall have a maximum maturity of twelve (12) months from the
date of issuance and shall in no event expire later than one Business Day prior
to the Termination Date; provided further, however, that in no event shall (i)
the aggregate undrawn face amount of the Letters of Credit issued pursuant to
this Section 2.4 exceed, at any one time, $2,000,000; or (ii) the sum of (x) the
outstanding aggregate principal amount of all Revolving Credit Loans made by all
Banks plus (y) the aggregate undrawn face amount of the Letters of Credit issued
under this Section 2.4 exceed, at any one time, the Revolving Credit Commitment.
Each Issuing Bank shall advise the Agent of the terms of a Letter of Credit on
the date of issuance thereof and shall promptly after issuing a Letter of Credit
furnish copies thereof to the Agent for distribution to the Banks.
(b) The Borrowers shall pay to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") for all Letters
of Credit equal to one percent (1.0%) per annum of the face amount of each
Letter of Credit and shall be payable quarterly in arrears on each December 31,
March 31, June 30 and September 30 following issuance of each Letter of Credit
and on the expiration date for each Letter of Credit. All Letter of Credit Fees
shall be computed on the basis of the actual number of days elapsed over a year
of 360 days. The Borrowers shall also pay to each Issuing Bank such Issuing
Bank's then in effect customary documentation fee payable with respect to each
Letter of Credit issued or renewed by it after the Closing Date as such Issuing
Bank may generally charge from time to time.
(c) Notwithstanding any other provisions of this
Agreement, unless other acceptable arrangements for the immediate reimbursement
by the Borrowers of amounts required to be advanced by an Issuing Bank pursuant
to a Letter of Credit have been made by the Borrowers and such Issuing Bank and
such reimbursement is made by the Borrowers, any and all amounts which an
Issuing Bank is required to advance pursuant to a Letter of Credit shall become,
at the time the amounts are advanced, Loans from the Banks made as a Base Rate
Borrowing. The Agent will notify the Banks of the amount required to be advanced
pursuant to the Letters of Credit. Before 10:00 A.M. (Pittsburgh time) on the
date of any advance the Agent
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is required to make pursuant to the Letters of Credit, each Bank shall make
available to the Agent such Bank's Commitment Percentage with respect to
Revolving Credit Loans of such advance in immediately available funds.
(d) The Borrowers agree to be bound by the terms of
each Issuing Bank's application and/or agreement for a Letter of Credit, any
other agreement entered into by such Issuing Bank in connection with such Letter
of Credit, and such Issuing Bank's written regulations and customary practices
relating to Letters of Credit, although such interpretation may be different
from the Borrowers' own. If in connection with any Letter of Credit any
collateral for the reimbursement obligations in respect of such Letter of Credit
is provided to an Issuing Bank, such Issuing Bank shall, to the extent
reimbursement of amounts advanced by such Issuing Bank pursuant to such Letter
of Credit is made pursuant to subsection 2.4(c) from the proceeds of Loans, hold
such collateral and exercise any rights in respect thereof for the pro-rata
benefit of the Banks.
(e) The Borrowers hereby indemnify and hold harmless
each Issuing Bank from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which such Issuing Bank may incur or
which may be claimed against such Issuing Bank by any person or entity
whatsoever by reason of or in connection with the execution and delivery or
transfer of, or payment or failure to pay under, any Letter of Credit; provided
the Borrowers shall not be required to indemnify such Issuing Bank for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by (i) the willful misconduct or negligence of such
Issuing Bank or (ii) such Issuing Bank's willful failure to pay under any Letter
of Credit after presentation to it by the beneficiary of a sight draft and
certificate strictly complying with the terms and conditions of such Letter of
Credit.
(f) As between the Borrowers and an Issuing Bank, the
Borrowers assume all risks of the acts or omissions of the beneficiary of a
Letter of Credit with respect to the use of such Letter of Credit. Neither an
Issuing Bank nor any of its officers or directors shall be liable or responsible
for: (i) the use which may be made of any Letter of Credit or for any acts or
omissions of the beneficiary in connection therewith; (ii) the validity or
genuineness of documents, or of any endorsement thereon, even if such documents
should in fact prove to be in any or all respects invalid, fraudulent or forged;
or (iii) any other circumstances whatsoever in making or failing to make payment
under a Letter of Credit; except only that the Borrowers shall have a claim
against an Issuing Bank, and such Issuing Bank shall be liable to the Borrowers,
to the extent, but only to the extent, of any direct, as opposed to
consequential, damages suffered by the Borrowers which the Borrowers prove were
caused by (y) such Issuing Bank's willful misconduct or gross negligence or (z)
such Issuing Bank's willful failure to pay under a Letter of Credit after the
presentation to it by the beneficiary of a draft and certificate strictly
complying with the terms and conditions of such Letter of Credit. In furtherance
and not in limitation of the foregoing, an Issuing Bank may accept documents
that appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; provided
that if an Issuing Bank shall receive written notification from both the
applicable beneficiary and the Borrowers that documents conforming to the terms
of a Letter of Credit to be presented to such Issuing Bank are not to be
honored, such Issuing Bank agrees that it will not honor such documents.
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(g) Upon the occurrence and during the continuance of
an Event of Default, and in connection with any termination of the loans or
commitments contemplated in this Agreement while any Letter of Credit remains
outstanding, the Borrowers will cause cash to be deposited and maintained in an
account with the Agent, as cash collateral, in an amount equal to one hundred
and five percent (105%) of the outstanding Letters of Credit, and the Borrowers
hereby irrevocably authorize the Agent, in its discretion, on the Borrowers'
behalf and in the Borrowers' name, to open such an account and to make and
maintain deposits therein, or in an account opened by the Borrowers, in the
amounts required to be made by the Borrowers, out of the proceeds of accounts
receivable or other collateral or out of any other funds of the Borrowers coming
into the Agent's possession at any time. The Agent will invest such cash
collateral (less applicable reserves) in such short-term money-market items as
to which the Agent and the Borrowers mutually agree and the net return on such
investments shall be credited to such account and constitute additional cash
collateral. The Borrowers may not withdraw amounts credited to any such account
except upon payment and performance in full of all obligations owed by the
Borrowers to any of the Banks, expiration or surrender of all Letters of Credit
and termination of this Agreement.
2.5 Fees. (a) The Borrowers agree to pay to each Bank, through
the Agent, on the last business day of each calendar month and on the date on
which the Commitment of such Bank in respect of the Revolving Credit Commitment
shall be terminated as provided herein, a Commitment Fee (a "Commitment Fee") at
a rate per annum equal to the Applicable Commitment Fee Percentage from time to
time in effect on the average daily unused amount of the Commitment of such Bank
in respect of the Revolving Credit Commitment (giving effect to any reductions
therein), less the aggregate undrawn face amount of the Letters of Credit then
outstanding, during the preceding month (or shorter period commencing with the
date hereof or ending with the Termination Date or any date on which the
Commitment of such Bank in respect of the Revolving Credit Commitment shall be
terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed over a year of 360 days. The Commitment Fee due to each
Bank shall commence to accrue on the date hereof, and shall cease to accrue on
the earlier of the Termination Date and the termination of the Commitment of
such Bank in respect of the Revolving Credit Commitment as provided herein.
(b) The Borrowers agree to pay to the Agent and PNC
Capital Markets, Inc. for their respective accounts administrative, arrangement
and other fees at the times and in the amounts as are set forth in the Fee
Letter (collectively, the "Administrative Fees").
(c) All Fees shall be paid on the dates due, in
immediately available funds, to the Agent for distribution, if and as
appropriate, among the Banks. Once paid, none of the Fees shall be refundable
under any circumstances.
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2.6 Notes; Repayment of Loans. (a) The Revolving Credit Loans
made by each Bank shall be evidenced by a single Revolving Credit Note duly
executed on behalf of the Borrowers, dated the Closing Date, in substantially
the form attached hereto as Exhibit B-1 with the blanks appropriately filled,
payable to such Bank in a principal amount equal to such Bank's pro rata share
of the Revolving Credit Commitment. The Term Loan A made by each Bank shall be
evidenced by a single Term Loan A Note, duly executed on behalf of the
Borrowers, dated the Closing Date, in substantially the form attached hereto as
Exhibit B-2 with the blanks appropriately filled, payable to such Bank in a
principal amount equal to such Bank's Term Loan A Commitment. The Term Loan B
made by each Bank shall be evidenced by a single Term Loan B Note, duly executed
on behalf of the Borrowers, dated the Closing Date, in substantially the form
attached hereto as Exhibit B-3 with the blanks appropriately filled, payable to
such Bank in a principal amount equal to such Bank's Term Loan B Commitment. The
Term Loan C made by each Bank shall be evidenced by a single Term Loan C Note,
duly executed on behalf of the Borrowers, dated the Closing Date, in
substantially the form attached hereto as Exhibit B-4 with the blanks
appropriately filled, payable to such Bank in a principal amount equal to such
Bank's Term Loan C Commitment.
(b) Each Note shall bear interest from the date
thereof on the outstanding principal balance thereof as set forth in Section
2.7. The outstanding principal balance of each Revolving Credit Loan, as
evidenced by the relevant Revolving Credit Note, shall be payable on the
Termination Date. The outstanding principal balance of each Term Loan A and Term
Loan B, as evidenced by the relevant Term Loan A Note or Term Loan B Note, shall
be payable in quarterly installments on each February 28, May 31, August 31 and
November 30 (as applicable) in the amounts and years set forth below; provided
that, the final maturity of Term Loan A shall be November 30, 2004 and the final
maturity of Term Loan B shall be May 31, 2006:
Term Loan A Term Loan B
----------- -----------
2000 $ 437,500 0
2001 $ 437,500 0
2002 $ 700,000 0
2003 $ 875,000 0
2004 $1,175,000 0
2005 0 $1,375,000
2006 0 $1,500,000*
- ---------------
* Only payments on February 28 and May 31, 2006.
The outstanding principal balance of each Term Loan C, as evidenced by the
relevant Term Loan C Note, shall be payable in full on the date ninety (90) days
after the Closing Date.
(c) Each Bank shall, and is hereby authorized by the
Borrowers to, endorse on the schedule attached to the relevant Note held by such
Bank (or on a continuation of
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such schedule attached to each such Note and made a part thereof), or otherwise
to record in such Bank's internal records, an appropriate notation evidencing
the date and amount of each Loan of such Bank, each payment or prepayment of
principal of any Loan, and the other information provided for on such schedule;
provided, however, that the failure of any Bank to make such a notation or any
error therein shall not in any manner affect the obligation of the Borrowers to
repay the Loans made by such Bank in accordance with the terms of the relevant
Note.
2.7 Interest on Loans. (a) Subject to the provisions of
Section 2.8, each Base Rate Loan shall bear interest (computed on the basis of
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be) at a rate per annum equal to the Base Rate plus the Applicable Margin
for that Type of Base Rate Loan.
(b) Subject to the provisions of Section 2.8, each
Eurodollar Loan shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) at a rate per annum equal to the
Eurodollar Rate in effect for such Loan plus the Applicable Margin for that Type
of Eurodollar Loan.
(c) Interest on each Loan shall be payable on each
Interest Payment Date applicable to such Loan; provided that, interest accruing
on overdue amounts pursuant to Section 2.8 shall be payable on demand as
provided in the Notes. The Eurodollar Rate and the Base Rate shall be determined
by the Agent, and such determination shall be conclusive absent error.
2.8 Default Rate; Additional Interest; Alternate Rate of
Interest. (a) To the extent not contrary to any Requirement of Law, upon the
occurrence and during the continuation of an Event of Default, (i) any
principal, past due interest, fee or other amount outstanding hereunder other
than Eurodollar Loans shall bear interest for each day thereafter until paid in
full (after as well as before judgment) at a rate per annum which shall be equal
to two percent (2%) above the Base Rate plus the Applicable Margin in effect at
such time for Base Rate Loans, and (ii) Eurodollar Loans shall bear interest at
a rate per annum which is equal to two percent (2%) in excess of the Eurodollar
Rate plus the Applicable Margin in effect at such time for Eurodollar Loans. The
Borrowers acknowledge that such increased interest rate reflects, among other
things, the fact that such loans or other amounts have become a substantially
greater risk given their default status and that the Banks are entitled to
additional compensation for such risk.
(b) In the event, and on each occasion, that the
Agent shall have determined (which determination absent manifest error shall be
conclusive and binding upon the Borrowers) that, by reason of circumstances
affecting the eurodollar market generally, dollar deposits in the principal
amount of such Eurodollar Loan are not generally available in the London
Interbank Market, or that reasonable means do not exist for ascertaining the
Eurodollar Base Rate, (i) the Agent shall, as soon as practicable thereafter,
give written, or telephonic notice of such determination to the Borrowers and
the Banks, (ii) any request by the Borrowers for a Eurodollar Loan or for
conversion to or maintenance of a Eurodollar Loan pursuant to the terms of this
Agreement shall be deemed a request for a Base Rate Loan, and (iii) the interest
rate for
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all Loans then bearing interest at the Eurodollar Rate shall be converted on the
first Business Day of the next calendar month to Base Rate Loans. After such
notice shall have been given and until the circumstances giving rise to such
notice no longer exist, each request for a Eurodollar Loan shall be deemed to be
a request for a Base Rate Loan. Each determination by the Agent hereunder shall
be conclusive absent manifest error.
2.9 Termination, Reduction, Extension of Commitments;
Additional Banks. (a) The Revolving Credit Commitment shall be automatically
terminated on the Termination Date.
(b) Subject to the last sentence of this paragraph,
upon at least three Business Days' prior irrevocable written or facsimile notice
to the Agent, the Borrowers may at any time in whole permanently terminate, or
from time to time permanently reduce, the Revolving Credit Commitment. Each
partial reduction of the Revolving Credit Commitment shall be in a minimum
principal amount of $1,000,000 or in whole multiples of $500,000 in excess
thereof, and no such termination or reduction shall be made which would reduce
the Revolving Credit Commitment to an amount less than the aggregate outstanding
principal amount of the Revolving Credit Loans and the aggregate undrawn face
amount of the Letters of Credit then outstanding.
(c) Each reduction in the Revolving Credit Commitment
hereunder shall be made ratably among the Banks in accordance with their
respective Commitment Percentages with respect to Revolving Credit Loans. The
Borrowers shall pay to the Agent for the account of the relevant Banks, on the
date of each termination or reduction, the Commitment Fees on the amount of the
Revolving Credit Commitment so terminated or reduced accrued to the date of such
termination or reduction. In connection with any reduction of the Revolving
Credit Commitment, the Borrowers shall make any prepayment required under
subsection 2.10(b).
(d) During the period beginning one hundred eighty
(180) days and ending ninety (90) days prior to the Termination Date, the
Borrowers may deliver to the Agent (which shall promptly transmit to each Bank)
a notice requesting that the Revolving Credit Commitment be extended to the
first anniversary of the Termination Date then in effect. Within forty-five days
after its receipt of any such notice, each Bank shall notify the Agent of its
willingness or unwillingness so to extend its Commitments in respect of the
Revolving Credit Commitment. Any Bank that shall fail so to notify the Agent
within such period shall be deemed to have declined to extend its Commitments in
respect of the Revolving Credit Commitment. If each (but only if each) Bank
agrees to extend its Commitments in respect of the Revolving Credit Commitment,
the Agent shall so notify the Borrowers and each Bank, whereupon (i) the
respective Commitments of the Banks in respect of the Revolving Credit
Commitment shall be extended to the first anniversary of the Termination Date
then in effect and (ii) the term "Termination Date" shall thereafter mean such
first anniversary. Any such extension shall be evidenced by a written agreement
among the Agent, the Banks and the Borrowers, such agreement to be in form and
substance acceptable to the Agent, the Banks and the Borrowers. In
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the event that one or more Banks (each a "Non-Electing Bank") shall have
declined or been deemed to have declined to extend its or their Commitments in
respect of the Revolving Credit Commitment and Banks holding a majority in
amount of the Revolving Credit Commitment shall have notified the Agent of their
desire to extend their Commitments in respect of the Revolving Credit
Commitment, the Borrowers shall have the right, but not the obligation, at their
own expense, upon notice to each such Non-Electing Bank and the Agent, to
replace all (but not less than all) such Non-Electing Banks (in accordance with
and subject to the restrictions contained in Section 9.6) at any time before the
thirtieth (30th) day prior to the Termination Date with one or more assignees
(each a "Replacement Bank") willing to purchase the Non-Electing Banks'
interests hereunder and to agree to extend its or their Commitments in respect
of the Revolving Credit Commitment in accordance with the notice referred to in
the first sentence of this clause (g). In such event, each Non-Electing Bank
shall promptly upon request transfer and assign without recourse (in accordance
with and subject to the restrictions contained in Section 9.6) all its
interests, rights and obligations under this Agreement to the applicable
Replacement Bank; provided, however, that (i) no such assignment shall conflict
with any law or any rule, regulation or order of any Governmental Authority,
(ii) the applicable Replacement Bank shall pay to the applicable Non-Electing
Bank in immediately available funds on the date of such assignment the principal
of and interest accrued to the date of payment on the Revolving Credit Loans
made by such Non-Electing Bank hereunder and all other amounts accrued for such
Non-Electing Bank's account or owed to it hereunder (including Commitment Fees
and any unpaid costs or expenses), and (iii) a Non-Electing Bank shall not be
required to sell its interests hereunder unless the Borrowers have arranged for
one or more Replacement Banks to acquire the interests of all other Non-Electing
Banks. If, as a result of the foregoing, each Bank (including Replacement Banks,
but excluding Non-Electing Banks whose interests have been purchased as provided
above) has agreed to extend its Commitment in respect of the Revolving Credit
Commitment, the Revolving Credit Commitment shall be extended as provided in
clause (i) of the fourth sentence of this paragraph and the term Termination
Date shall have the meaning set forth in clause (ii) in such fourth sentence of
this clause (d).
(e) Any bank or financial institution becoming a
party to this Agreement in compliance with the provisions of subsection 2.9(d)
hereof shall execute and deliver to the Agent and the Banks and the Borrowers a
joinder and assumption agreement in form and substance satisfactory to the
Agent. Upon execution and delivery of such joinder such additional bank or
financial institution shall be a party hereto and one of the Banks hereunder for
all purposes, all as of the date of such joinder. Simultaneously therewith the
Borrowers shall execute and deliver to such additional Bank a Revolving Credit
Note to the order of such additional Bank in amounts equal to the Commitment
assumed by such additional Bank in respect of the Revolving Credit Commitment.
2.10 Optional and Mandatory Prepayments of Loans. (a) The
Borrowers shall have the right at any time and from time to time to prepay any
Borrowing, in whole or in part, without premium or penalty (but in any event
subject to Section 2.14), upon prior written, facsimile or telephonic notice to
the Agent given no later than 10:30 a.m., Pittsburgh time, one Business Day
before any proposed prepayment; provided, however, that each such partial
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prepayment shall be in the principal amount of at least $500,000 or in whole
multiples of $100,000 in excess thereof.
(b) Excess Cash Flow. On or prior to April 10th of
each year, commencing on April 10, 2001, the Borrowers shall pay to the Agent an
amount equal to 50% of Excess Cash Flow for the Fiscal Year ended on the
preceding December 31, unless the Leverage Ratio with respect to such Fiscal
Year is less than 1.5 to 1.0. Any payments pursuant to this subsection shall be
applied to the repayment of the Term Loans in the inverse order of maturity,
first to Term Loan B and then to Term Loan A.
(c) Assets Sales. Simultaneously with any Asset Sale
made by a Borrower after the date hereof, the Borrowers shall pay to the Agent
an amount equal to the Net Sale Proceeds of such Asset Sale; provided that, if
at the time and as a result of an Asset Sale no Default or Event of Default
exists, no payment shall be required pursuant to this clause (c) to the extent
that (i) the Net Sale Proceeds do not exceed $100,000 for such Asset Sale or
$500,000 for all such Asset Sales in the aggregate, or (ii) to the extent the
Net Sale Proceeds exceed such $100,000 limit, if the Borrowers intend in good
faith to apply such Net Sale Proceeds to the acquisition of substitute assets
within ninety (90) days after such Asset Sale, which substitute assets are to be
pledged to the Agent as security for the Obligations pursuant to (and as defined
in) the Security Agreement; provided further, that such retained Net Sale
Proceeds shall be paid to the Agent at the end of such 90-day period to the
extent that the Borrowers have not utilized such retained Net Sale Proceeds to
purchase substitute assets that are so pledged to the Agent. Any payments
pursuant to this subsection shall be applied to the Term Loans in the inverse
order of maturity, first to Term Loan B and then to Term Loan A.
(d) Secondary Offerings. Simultaneously with any
Secondary Offering, the Borrowers shall pay to the Agent an amount equal to the
aggregate proceeds of such Secondary Offering, less reasonable fees, expenses
and other charges directly related thereto ("Net Offering Proceeds"); provided,
that the Borrowers shall not be required to pay to the Agent 25% of all Net
Offering Proceeds obtained after $10,000,000 of Net Offering Proceeds have been
paid to the Agent in the aggregate. Any payments pursuant to this subsection
shall be applied to the Term Loans in the inverse order of maturity, first to
Term Loan B and then to Term Loan A.
(e) On the date of any termination or reduction of
the Total Commitment pursuant to Section 2.9, the Borrowers shall pay or prepay
so much of the Borrowings as shall be necessary in order that the sum of the
aggregate principal amount of the Revolving Credit Loans outstanding and the
aggregate undrawn face amount of the Letters of Credit then outstanding will not
exceed the Revolving Credit Commitment after giving effect to such termination
or reduction.
(f) Each notice of prepayment shall specify the
prepayment date and the principal amount of each Borrowing to be prepaid, shall
be irrevocable and shall commit the Borrowers to prepay such Borrowing (or
portion thereof) by the amount stated therein. All
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prepayments under this Section on other than Base Rate Borrowings shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of prepayment.
2.11 Illegality. Notwithstanding any other provision herein,
if any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans
as contemplated by this Agreement, (a) the commitment of such Bank hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert or
refinance Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and
(b) such Bank's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs on
a day which is not the last day of the then current Interest Period with respect
thereto, the Borrowers shall pay to such Bank such amounts, if any, as may be
required pursuant to Section 2.14.
2.12 Requirements of Law. (a) In the event that any change in
any Requirement of Law or in the interpretation, or application thereof or
compliance by any Bank with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Bank to any tax of
any kind whatsoever with respect to this Agreement, any Note or any
Eurodollar Loan made by it, or change the basis of taxation of payments
to such Bank in respect thereof (except for taxes covered by Section
2.13 and changes in the rate of tax on the overall net income, gross
receipts or revenue of such Bank);
(ii) shall impose, modify or hold applicable
any reserve, special deposit or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances,
loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Bank which is not otherwise included in
the determination of the interest rate on such Eurodollar Loan
hereunder; or
(iii) shall impose on such Bank any other
condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof then, in any such case, the Borrowers shall as
promptly as practicable pay such Bank, upon its demand, any additional amounts
necessary to compensate such Bank for such increased cost or reduced amount
receivable. If any Bank becomes entitled to claim any additional amounts
pursuant to this subsection, it shall as promptly as practicable notify the
Borrowers, through the Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Bank, through the Agent, to the Borrowers shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination
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of this Agreement and the payment of the Notes and all other amounts payable
hereunder. If any amount is refunded to such Bank, such Bank will reimburse
Borrowers for amounts paid in respect of the refunded amount.
(b) In the event that any Bank shall have determined
that any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application 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) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Bank's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Bank
or such corporation could have achieved but for such change or compliance
(taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, after submission as promptly as practicable by such Bank
to the Borrowers (with a copy to the Agent) of a written request therefor, the
Borrowers shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such reduction.
(c) Each Bank agrees that it will use reasonable
efforts in order to avoid or to minimize, as the case may be, the payment by the
Borrowers of any additional amount under subsections 2.12(a) and (b); provided,
however, that no Bank shall be obligated to incur any expense, cost or other
amount in connection with utilizing such reasonable efforts.
2.13 Taxes. (a) All payments made by the Borrowers under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Agent and each Bank, net
income taxes and franchise or gross receipts taxes (imposed in lieu of net
income taxes) imposed on the Agent or such Bank, as the case may be, as a result
of a present or former connection between the jurisdiction of the government or
taxing authority imposing such tax and the Agent or such Bank or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). Except as provided in Section 2.13(c) and the
penultimate sentence of this Section 2.13(a), if any Taxes are required to be
withheld from any amounts payable to the Agent or any Bank hereunder or under
the Notes, the amounts so payable to the Agent or such Bank shall be increased
to the extent necessary to yield to the Agent or such Bank (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by the Borrowers, as promptly as possible thereafter the Borrowers shall
send to the Agent for its own account or for the account of such Bank, as the
case may be, a certified copy of an original official receipt received by the
Borrowers showing payment thereof. If the Borrowers fail to pay any Taxes when
due to the appropriate taxing authority or fail to remit to the Agent the
required receipts or other required documentary evidence, the Borrowers shall
indemnify the Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Agent or any Bank as
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a result of any such failure. If as a result of a payment by the Borrowers of
Taxes pursuant to this subsection a Bank receives a tax benefit or tax savings
such as by receiving a credit against, refund of, or reduction in Taxes which
such Bank would not have received but for the payment by the Borrowers of Taxes
pursuant to this subsection, then such Bank shall promptly pay to the Borrowers
the amount of such credit, refund, reduction or any other similar item. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable hereunder.
(b) Each Bank that is not incorporated under the laws
of the United States of America or a state thereof agrees that it will deliver
to the Borrowers and the Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Bank also agrees to deliver to the Borrowers and the
Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other manner of certification, as the case may be,
on or before the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrowers, and such extensions or renewals
thereof as may reasonably be requested by the Borrowers or the Agent, unless in
any such case an event (including, without limitation, any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank so advises the Borrowers and the Agent. Such Bank shall
certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it
is entitled to an exemption from United States backup withholding tax. Each Bank
shall deliver to the Borrowers and the Agent, with respect to Taxes imposed by
any Governmental Authority other than the United States of America, similar
forms, if available (or the information that would be contained in similar forms
if such forms were available), to the forms which are required to be provided
under this subsection with respect to Taxes of the United States of America.
(c) The Borrowers shall not be required to pay any
additional amounts to the Agent or any Bank in respect of payments of United
States withholding tax or other Taxes made by the Borrowers which are consistent
with the forms and information delivered to the Borrowers and the Agent or if
the payment of such amounts would not have arisen but for a failure by the Agent
or such Bank to comply with the requirements of subsection 2.13(b) or the Agent
or such Bank did not timely deliver to the Borrowers the forms listed or
described in subsection 2.13(b) or did not take such other steps as reasonably
may be available to it under applicable tax laws and any applicable tax treaty
or convention to obtain an exemption from, or reduction (to the lowest
applicable rate) of, such United States withholding tax and other Taxes or, if
such steps were taken, the information was not timely and duly delivered to
Borrowers.
2.14 Indemnity. The Borrowers agree to indemnify each Bank and
to hold each Bank harmless from any loss or expense which such Bank may sustain
or incur as a consequence
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of (a) default by the Borrowers in payment when due of the principal amount of
or interest on any Eurodollar Loan, (b) default by the Borrowers in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrowers have given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by the Borrowers in making any
prepayment after the Borrowers have given a notice thereof in accordance with
the provisions of this Agreement or (d) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto, including, without limitation, in each case, any such loss or expense
arising from the reemployment of funds obtained by it or from fees payable to
terminate the deposits from which such funds were obtained. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
2.15 Pro Rata Treatment, etc. Except as required under Section
2.11, each Borrowing, each payment or prepayment of principal of any Borrowing,
each payment of interest on the Loans, each payment of Letter of Credit Fees,
each reduction of the Revolving Credit Commitment, each refinancing of any
Borrowing with a Borrowing of any Type and each conversion of Loans, shall be
made pro rata among the Banks in accordance with their respective applicable
Commitment Percentages. Except as required under Section 2.11, each payment of
the Commitment Fee shall be made pro rata among the Banks in accordance with
their respective Commitment Percentages with respect to Revolving Credit Loans.
Each Bank agrees that in computing such Bank's portion of any Borrowing to be
made hereunder, the Agent may, in its discretion, round each Bank's percentage
of such Borrowing to the next higher or lower whole dollar amount.
2.16 Payments. (a) The Borrowers shall make each payment
(including principal of or interest on any Loan or any Fees or other amounts)
hereunder not later than 12:00 (noon), Pittsburgh time, on the date when due in
Dollars to the Agent at its offices at 249 Fifth Street, Pittsburgh,
Pennsylvania, or at such other place as may be designated by the Agent, in
immediately available funds.
(b) Except as otherwise provided herein, whenever any
payment (including principal of or interest on any Loan or any Fees or other
amounts) hereunder shall become due, or otherwise would occur, on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
2.17 Borrowers' Representative. Each of the Borrowers hereby
appoints the Parent Company as its non-exclusive representative for providing
notices and reports to and otherwise communicating with the Agent and the Banks
under this Agreement or the other Loan Documents, including without limitation
making requests for Loans and Letters of Credit hereunder, and providing
information on behalf of any one or more of the Borrowers and for receiving
communications and notices from the Agent or the Banks. (In such capacity, the
Parent Company is herein referred to as the "Borrowers' Representative"). The
Agent and the Banks shall be entitled to rely exclusively on the Borrowers'
Representative's authority so to act in each
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instance without inquiry or investigation, and each of the Borrowers hereby
agrees to indemnify and hold harmless the Agent and the Banks for any losses,
costs, delays, errors, claims, penalties or charges arising from or out of the
Borrowers' Representative's actions pursuant to this Section 2.17 and the Agent
and the Banks reliance thereon and hereon. Notice from the Borrowers'
Representative shall be deemed to be notice from all Borrowers and notice to the
Borrowers' Representative shall be deemed to be notice to all Borrowers. Nothing
in this Section 2.17 shall vitiate or be held contrary to the Borrowers'
representations and covenants regarding the Borrowings or the net worth or
solvency of the Borrowers made herein or in any of the Loan Documents.
2.18 Conversion and Continuation Options. Except as otherwise
provided herein, the Borrowers shall have the right at any time upon prior
irrevocable notice to the Agent (i) not later than 10:30 a.m., Pittsburgh time,
on the Business Day of conversion, to convert any Eurodollar Loan to a Base Rate
Loan, (ii) not later than 10:30 a.m., Pittsburgh time, three Business Days prior
to conversion or continuation, (y) to convert any Base Rate Loan into a
Eurodollar Loan, or (z) to continue any Eurodollar Loan as a Eurodollar Loan for
any additional Interest Period and (iii) not later than 10:30 a.m., Pittsburgh
time, three Business Days prior to conversion, to convert the Interest Period
with respect to any Eurodollar Loan to another permissible Interest Period,
subject in each case to the following:
(a) a Eurodollar Loan may not be converted at a time
other than the last day of the Interest Period applicable thereto;
(b) any portion of a Loan maturing or required to be
repaid in less than one month may not be converted into or continued as a
Eurodollar Loan;
(c) no Eurodollar Loan may be continued as such and
no Base Rate Loan may be converted to a Eurodollar Loan when any Default or
Event of Default has occurred and is continuing;
(d) any portion of a Eurodollar Loan that cannot be
converted into or continued as a Eurodollar Loan by reason of paragraph 2.18(b)
or 2.18(c) automatically shall be converted at the end of the Interest Period in
effect for such Loan to a Base Rate Loan;
(e) if by the third Business Day prior to the last
day of any Interest Period for Eurodollar Loans the Borrowers have failed to
give notice of conversion or continuation as described in this subsection, the
Agent shall give notice thereof to the Banks and such Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period; and
(f) Each request by the Borrowers to convert or
continue a Loan shall constitute a representation and warranty that each of the
representations and warranties made by the Borrowers herein is true and correct
in all material respects on and as of such date as if made on and as of such
date.
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Accrued interest on a Loan (or portion thereof) being converted shall be paid by
the Borrowers at the time of conversion.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, and to make
the Loans, the Borrowers hereby represent and warrant to the Agent and each Bank
that:
3.1 Financial Condition. (a) The audited consolidated balance
sheets of CECO and its Subsidiaries (other than the K&B Entities) as at December
31, 1998 and the condensed balance sheets of CECO and its Subsidiaries (other
than the K&B Entities) as at September 30, 1999 and the related consolidated or
condensed statements of operations and of cash flows for the periods ended on
such dates, copies of which have heretofore been furnished to each Bank, present
fairly the consolidated or condensed financial condition of CECO and its
consolidated Subsidiaries as at such date, and the consolidated or condensed
results of their operations and their consolidated or condensed cash flows for
the period then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved. None of the Borrowers nor any of
such Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material Contingent Obligation, liability for taxes, or any long-term
lease or unusual forward or long-term commitment, including, without limitation,
any interest rate or foreign currency swap or exchange transaction, which is
required by GAAP to be but is not reflected in the foregoing statements or in
the notes thereto.
(b) The balance sheet and statement of operations of
CECO and its Subsidiaries, including the K&B Entities, on a pro forma basis as
at September 30, 1999, and for the twelve month period then ended, copies of
which have heretofore been furnished to each Bank, fairly represent the pro
forma consolidated condensed financial condition and results of operations of
such entities.
(c) (i) As of the Closing Date and after giving
effect to this Agreement and any Loans to be made on the Closing Date, the
Borrowers, taken as a whole, are Solvent.
(ii) The Borrowers do not intend to incur debts
beyond their ability to pay such debts as they mature, taking into account the
timing of and amounts of cash to be received by them and the timing of the
amounts of cash to be payable on or in respect of their Debt.
3.2 No Adverse Change. Since September 30, 1999, there has
been no Material Adverse Effect and there has been no development or event nor
any prospective development or event which has had or could reasonably be
expected individually or in the aggregate to have a Material Adverse Effect.
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3.3 Existence; Compliance with Law. Except as set forth on
Schedule 3.3 hereto, each of the Borrowers (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate or other organizational power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign entity and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, and (d) is in compliance
with all Requirements of Law.
3.4 Power; Authorization; Enforceable Obligations. Each of the
Borrowers has the corporate power, authority, and legal right, to make, deliver
and perform this Agreement, the Notes and the other Loan Documents to which it
is a party and to borrow hereunder and has taken all necessary corporate action
to authorize the borrowings on the terms and conditions of this Agreement and
the Notes and to authorize the execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents to which it is a party. No
consent or authorization of, filing with or other act by or in respect of, any
Governmental Authority or any other Person (including stockholders and creditors
of the Borrowers) is required in connection with the borrowings hereunder or
with the execution, delivery, performance, validity or enforceability of this
Agreement, the Notes or the other Loan Documents. This Agreement has been, and
each Note and other Loan Document will be, duly executed and delivered on behalf
of the Borrowers. This Agreement constitutes, and each Note and other Loan
Document when executed and delivered will constitute, a legal, valid and binding
obligation of the Borrowers enforceable against the Borrowers in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
3.5 No Legal Bar. The execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents by the Borrowers, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of the Borrowers or of any of the
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. Except as set forth on Schedule
3.6, no litigation, investigation or proceeding of or, before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrowers,
threatened against the Borrowers or against any of the respective properties or
revenues or against any Plan (a) with respect to this Agreement, the Notes or
the other Loan Documents or any of the transactions contemplated hereby, or (b)
as to which there is a reasonable likelihood of an adverse determination and
which, if adversely determined, would have a Material Adverse Effect.
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3.7 No Default. None of the Borrowers is in default under or
with respect to any of its Contractual Obligations in any respect which could
have a Material Adverse Effect. No Event of Default has occurred and is
continuing.
3.8 Taxes. Each of the Borrowers has filed or caused to be
filed all tax returns which, to the knowledge of the Borrowers, are required to
be filed (or has obtained authorized extensions for such filings) and has paid
all taxes shown to be due and payable on said returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority (other than
any the amount or validity of which are currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Borrowers, as the case may be); no
tax Lien has been filed against any of the Borrowers, and, to the knowledge of
the Borrowers, no claim is being asserted, with respect to any such tax, fee or
other charges.
3.9 Federal Regulations. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U or for any
purpose which violates the provisions of Regulation U. If requested by any Bank
or the Agent, the Borrowers will furnish to the Agent and each Bank a statement
to the foregoing effect in conformity with the requirements of Federal Reserve
Form U-l referred to in said Regulation U. No part of the proceeds of the loans
hereunder will be used for any purpose which violates, or which is inconsistent
with, the provisions of Regulation X.
3.10 ERISA. (a) Each Plan has complied in all respects with
the applicable provisions of ERISA and the Code. No prohibited transaction or
accumulated funding deficiency (each as defined in subsection 7(h)) or
Reportable Event has occurred with respect to any Single Employer Plan.
(b) Except as provided on Schedule 3.10, the present
value of all accrued benefits under each Single Employer Plan maintained by the
Borrowers or a Commonly Controlled Entity (based on those assumptions used to
fund the Plans), as calculated on a termination basis, did not, as of the last
annual valuation date, exceed the value of the assets of the Plans allocable to
such benefits.
(c) Neither any of the Borrowers nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrowers nor any Commonly Controlled Entity
would become subject under ERISA to any liability if any of the Borrowers or
such Commonly Controlled Entity were to withdraw completely from any
Multiemployer Plan as of the valuation date most closely preceding the date this
representation is made or deemed made, in each case except as is not reasonably
likely to have Material Adverse Effect. Such Multiemployer Plans are neither in
Reorganization as defined in Section 4241 of ERISA nor Insolvent.
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(d) The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrowers and each Commonly
Controlled Entity for post-retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits, except as such amounts are reflected in
accordance with GAAP on the financial statements of the Borrowers delivered to
the Banks, or as otherwise is not reasonably likely to have a Material Adverse
Effect.
3.11 Investment Company Act; Public Utility Holding Company
Act. None of the Borrowers is (a) an "investment company", or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (c) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money.
3.12 Purpose of Loans; Letters of Credit. The proceeds of the
Loans shall be used by the Borrowers for the K&B Acquisition, the
recapitalization of the Borrowers, and the Borrowers' general business purposes.
The Letters of Credit shall be standby letters of credit required in the
ordinary course of the Borrowers' business.
3.13 Environmental Matters. To the best knowledge of the
Borrowers, each of the representations and warranties set forth in paragraphs
(a) through (e) of this subsection is true and correct with respect to each
parcel of real property owned, leased or operated by any of the Borrowers (the
"Properties"):
(a) Except for matters set forth in an environmental
report prepared by the Agent, for which matters the Borrowers have taken, or
provided the Agent with a written plan with respect to, all necessary actions to
resolve all such matters in a manner satisfactory to the Agent, the Properties
do not contain, and have not previously contained, in, on, or under, including,
without limitation, the soil and groundwater thereunder, any Materials of
Environmental Concern in concentrations which violate Environmental Laws.
(b) The Properties and all operations and facilities
at the Properties are in compliance with Environmental Laws, and there is no
Materials of Environmental Concern contamination or violation of any
Environmental Law which would interfere with the continued operation of any of
the Properties or impair the fair saleable value of any thereof.
(c) None of the Borrowers has received any written
complaint, notice of violation, alleged violation, investigation or advisory
action or of potential liability or of potential responsibility regarding a
violation of Environmental Law or permit compliance with regard to the
Properties, nor are the Borrowers aware that any Governmental Authority is
contemplating delivering to any of the Borrowers any such notice.
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(d) Materials of Environmental Concern have not been
generated, treated, stored, disposed of, at, on or under any of the Properties,
nor have any Materials of Environmental Concern been transferred from the
Properties to any other location except in either case in the ordinary course of
business of the Borrowers and in compliance with all Environmental Laws.
(e) There are no governmental, administrative actions
or judicial proceedings pending or contemplated under any Environmental Laws to
which the Borrowers or any of its Subsidiaries is or will be named as a party
with respect to the Properties, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to any of the Properties.
(f) To the best knowledge of each Borrower after
reasonable inquiry, there has been no release or threat of release of Materials
of Environmental Concern at or from the Properties, or arising from or related
to the operation of such Borrower in connection with the Properties or otherwise
in connection with the business operated by such Borrower in violation of or in
amounts or in a manner that could reasonably be expected to give rise to
liability under any Environmental Law.
3.14 Ownership of the Borrowers. As of the Closing Date the
record ownership of each class and series of stock of each of the Borrowers and
USFM is as set forth on Schedule 3.14.
3.15 Patents, Trademarks, etc. Each of the Borrowers has
obtained and holds in full force and effects all patents, trademarks,
servicemarks, trade names, copyrights or licenses therefor and other such
rights, free from burdensome restrictions, which are necessary for the operation
of its business as presently conducted. To the Borrowers' best knowledge, no
material product, process, method, substance, part or other material presently
sold by or employed by any of the Borrowers in connection with such business
infringes any patent, trademark, service mark, trade name, copyright, license or
other right owned by any other Person so as to have a Material Adverse Effect.
There is not pending or, to Borrowers' knowledge, threatened any claim or
litigation against or affecting any of the Borrowers contesting its right to
sell or use any such product, process, method, substance, part or other
material.
3.16 Ownership of Property. Schedule 3.16 sets forth, as of
the Closing Date, all the real property owned or leased by any of the Borrowers
and identifies the street address, the current owner (and current record owner,
if different) and whether such property is leased or owned. The Borrowers have
good and marketable fee simple title to or valid leasehold interests in all real
property owned or leased by the Borrowers, and good title to all of their
personal property subject to no Lien of any kind except Liens permitted hereby.
The Borrowers enjoy peaceful and undisturbed possession under all of their
respective leases.
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3.17 Licenses, etc. Each of the Borrowers has obtained and
holds in full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights,
consents and approvals which are necessary for the operation of its business as
presently conducted.
3.18 No Burdensome Restrictions. None of the Borrowers is a
party to any agreement or instrument or subject to any other Contractual
Obligation or any charter or corporate restriction or any provision of any
applicable law, rule or regulation which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
3.19 Labor Matters. Except as set forth on Schedule 3.19, (a)
as of the Closing Date, there are no collective bargaining agreements or
Multiemployer Plans covering the employees of the Borrowers, and (b) none of
such Persons has suffered any strikes, walkouts, work stoppages or other
material labor difficulty within the last five years and to the best knowledge
of such Persons, there are none now threatened.
3.20 Partnerships. As of the date hereof and as of the Closing
Date, except as disclosed on Schedule 3.20, none of the Borrowers is a partner
in any partnership or in any joint venture.
3.21 No Material Misstatements. To the best of the Borrowers'
knowledge, no information, report, financial statement, exhibit or schedule
furnished by or on behalf of any of the Borrowers or the K&B Entities to the
Agent or any Bank in connection with the negotiation of this Agreement or any
Note or other Loan Document or included therein contains any misstatement of
fact, or omitted or omits to state any fact necessary to make the statements
therein not misleading, where such misstatement or omission would in Borrowers'
judgment be material to the interests of the Banks with respect to the
Borrowers' performance of their obligations hereunder. Prior to the date hereof,
the Borrowers have disclosed to the Agent in writing any and all facts which
materially and adversely affect (to the extent the Borrowers can as of the date
hereof reasonably foresee), the business, operations or financial condition of
the Borrowers taken as a whole, and the ability of the Borrowers to perform its
or their obligations under this Agreement, the Notes, the other Loan Documents
and the Acquisition Documents.
3.22 Affiliated Business Enterprises. The Borrowers and USFM
intend to operate as affiliated business enterprises. Although separate
entities, the Borrowers operate under a common business plan. Each of the
Borrowers and USFM will benefit from the financing arrangement established by
this Agreement. Each Borrower acknowledges that, but for the agreement by each
of the other Borrowers to execute and deliver this Agreement and the other Loan
Documents to which it is a party, none of the Borrowers would have qualified
separately for the total amount of the credit facilities established hereby.
3.23 Acquisition Documents. Each of the representations and
warranties contained in the Acquisition Documents are true and correct in all
material respects as of the date hereof (except to the extent the Acquisition
Documents specifically provide that any of them are
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made only as of a different date) and each of the parties to the Acquisition
Documents has satisfied all conditions to the other parties' obligations under
such Acquisition Documents.
3.24 Year 2000 Compliance. The Borrowers have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed a program to address on a timely basis, the risk that certain
computer applications used by the Borrowers may be unable to recognize and
perform properly date-sensitive functions involving dates prior to, on and after
December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not
result in any Material Adverse Effect.
All of the foregoing representations and warranties shall
survive the execution and delivery of the Notes and the making by the Banks of
the Loans hereunder.
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SECTION 4. CONDITIONS PRECEDENT; CLOSING
4.1 Conditions to Closing. The agreement of each Bank to enter
into this Agreement and make its initial Loan or, in the case of the Issuing
Bank, issue any Letter of Credit hereunder is subject to the satisfaction,
immediately prior to or concurrently with such Loans, of the following
conditions precedent:
(a) Loan Documents. The Agent shall have received (i)
this Agreement and each of the other Loan Documents, executed and delivered by a
duly authorized officer of each of the Borrowers and USFM, as applicable, with a
counterpart for each Bank and (ii) for the account of each Bank, Notes
conforming to the requirements hereof and executed by a duly authorized officer
of each of the Borrowers.
(b) Corporate Proceedings of the Borrowers. The Agent
shall have received a copy of the resolutions or other corporate proceedings or
action, in form and substance satisfactory to the Agent, taken on behalf of each
of the Borrowers authorizing (i) the execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents to which it is a party, and
(ii) the borrowings contemplated hereunder, certified by a Responsible Officer
of each of the Borrowers as of the Closing Date, which certificate shall state
that such resolutions, or other proceedings or action thereby certified have not
been amended, modified, revoked or rescinded and shall be in form and substance
satisfactory to the Agent.
(c) Representations and Warranties True; No Default.
The representations and warranties of each Borrower contained in Section 3
hereof shall be true and accurate on and as of the Closing Date in all material
respects with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
relate solely to an earlier date or time, which representations and warranties
shall be true and correct on and as of the specific dates or times referred to
therein), and each Borrower shall have, and shall have caused USFM to have,
performed and complied with all covenants and conditions hereof applicable to
it; and no Event of Default or Default under this Agreement shall have occurred
and be continuing or shall exist.
(d) Corporate Documents. The Agent shall have
received, with a counterpart for each Bank, true and complete copies of (i) the
articles of incorporation, bylaws, or other organizational documents of each
Borrower, certified as of the Closing Date as complete and correct copies
thereof by a Responsible Officer of each Borrower; and (ii) good standing
certificates issued by the Secretaries of State (or the equivalent thereof) of
each state in which such Borrower has been formed or is required to be qualified
to transact business no earlier than thirty days prior to the Closing Date.
(e) Incumbency. The Agent shall have received a
written certificate dated the Closing Date by a Responsible Officer of each
Borrower as to the names and signatures of the officers of such Borrower
authorized to sign this Agreement and the other Loan
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Documents. The Agent may conclusively rely on such certificate until it shall
receive a further certificate by a Responsible Officer of such Borrower amending
such prior certificate.
(f) Fees. The Borrowers shall have paid or caused to
be paid to the Agent (i) those fees required by the Fee Letter and (ii) all
other fees and expenses due and payable hereunder on or before the Closing Date
(if then invoiced), including without limitation the reasonable fees and
expenses of counsel to the Agent.
(g) Legal Opinions. The Agent shall have received,
with a counterpart for each Bank, the executed legal opinion of counsel to the
Borrowers, USFM and the Guarantor, addressed to the Agent and the Banks and
satisfactory in form and substance to the Agent and its counsel covering such
matters incident to the transactions contemplated by this Agreement and the
other Loan Documents as the Agent may reasonably require. The Borrowers hereby
direct such counsel to deliver such opinion, upon which the Banks and the Agent
may rely.
(h) No Material Adverse Change. There shall be no
material adverse change in the business, operations, Property, prospects or
financial or other condition of the Borrowers taken as a whole nor any material
change in the management of the Borrowers or an event which would cause or
constitute a Material Adverse Effect; and there shall be delivered to the Agent
for the benefit of each Bank a certificate dated the Closing Date and signed on
behalf of the Borrowers' Representative by a Responsible Officer to each such
effect and covering the matters described in paragraph (c) above.
(i) No Litigation. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain or prohibit, or to obtain damages in respect of this Agreement or the
consummation of the transactions contemplated hereby or which, in the Agent's
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement.
(j) Evidence of Insurance. The Borrowers shall have
provided to each of the Banks copies of the evidence of insurance required by
subsection 5.5(b).
(k) Existing Indebtedness, Liens. The indebtedness
owed by one or more of the Borrowers to PNC under that certain letter agreement
dated March 16, 1999, among PNC and certain of the Borrowers, shall have been
repaid in full or arrangements satisfactory to the Agent shall exist for the
repayment thereof from the proceeds of the initial Loans hereunder. All Liens
with respect to property of the Borrowers relating to such indebtedness and all
credit support therefor shall have been released and satisfactory evidence of
the foregoing shall have been delivered to the Agent.
(l) Additional Investment. A minimum investment of
$5,000,000 shall be made in the Parent Company on terms and conditions
satisfactory to the Agent,
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including, if such investment is a debt investment, being subordinated on terms
satisfactory to the Banks, to the obligations owed to the Agent and the Banks
under Loan Documents.
(m) K&B Acquisition; Bonus Pool Payments. The K&B
Acquisition shall have been completed and copies of all Acquisition Documents
and any documents and employment or other agreements relating to the Bonus Pool
Payments shall have been delivered to the Agent. All Bonus Pool Payments shall
be subordinated on terms satisfactory to the Banks, to the obligations owed to
the Agent and the Banks under the Loan Documents.
(n) Additional Documents. The Agent shall have
received such additional documents, landlord agreements and waivers,
certificates and information as the Agent may require pursuant to the hereof or
as the Agent may otherwise reasonably request.
4.2 Conditions to Each Loan. The agreement of each Bank to
make any Loan requested to be made by it on any date (including, without
limitation, the Term Loans and the first Revolving Credit Loan hereunder) or an
Issuing Bank to issue a Letter of Credit is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrowers herein or which are
contained in any certificate, document or financial or other statement furnished
at any time under or in connection herewith or therewith shall be true and
correct in all material respects on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving effect to the Loans
requested to be made or the Letter of Credit is to be issued on such date.
(c) No Contravention of Law. The making of the Loans
or the issuance of the Letter of Credit shall not contravene any Requirement of
Law applicable to the Borrowers or any of the Banks.
Each borrowing by the Borrowers hereunder or request for the issuance of a
Letter of Credit shall constitute a representation and warranty by the Borrowers
as of the date of such Loan or issuance of such Letter of Credit that the
conditions contained in this Section 4.2 have been satisfied.
4.3 Closing. The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Ballard Spahr Andrews &
Ingersoll, LLP, 1735 Market Street, Philadelphia, PA 19103, commencing at 10:00
A.M., Philadelphia time, on December 6, 1999 or such other place or date as to
which the Agent, the Banks and the Borrowers shall agree. The date on which the
Closing shall be completed is referred to herein as the "Closing Date".
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SECTION 5. AFFIRMATIVE COVENANTS
The Borrowers hereby agree that, so long as any Commitments
remain in effect, any Note remains outstanding and unpaid, any Letter of Credit
remains outstanding or any other amount is owing to any Bank or the Agent
hereunder, each of the Borrowers shall:
5.1 Financial Statements. Furnish to each Bank:
(a) as soon as available, but in any event not later than
90 days after the close of each fiscal year of CECO, a copy of the annual audit
report for such year for CECO, including therein consolidated and consolidating
balance sheets of CECO as at the end of such fiscal year, and related statements
of income, shareholders' equity and cash flow of CECO for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all in reasonable detail, prepared in accordance with
GAAP applied on a basis consistently maintained throughout the period involved
and with the prior year with such changes therein as shall be approved by CECO's
independent certified public accountants, such consolidated and consolidating
financial statements to be certified by independent certified public accountants
selected by CECO and reasonably acceptable to the Banks, without any exception
or qualification arising out of the restricted or limited nature of the
examination made by such accountants;
(b) as soon as available, but in any event not later than
30 days after the end of each calendar month, and no later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of
CECO, unaudited consolidated and consolidating financial statements of CECO,
including therein (i) balance sheets of CECO as at the end of such period, (ii)
the related statements of income of CECO, and (iii) the related statements of
cash flow and shareholders' equity of CECO all for the period from the beginning
of such fiscal year to the end of such period, setting forth in each case in
comparative form the corresponding figures for the like period of the preceding
fiscal year; all in reasonable detail, prepared in accordance with GAAP applied
on a basis consistently maintained throughout the period involved and with prior
periods and certified on behalf of CECO and the Borrowers' Representative by a
Responsible Officer;
(c) as soon as available, but in any event no later than
15 days after the end of each calendar month, a Borrowing Base Certificate in
the form of Exhibit D attached hereto;
(d) as soon as available, but in any event not later than
15 days after the end of each of each monthly period of each fiscal year of the
Borrowers, accounts receivable agings of the Borrowers in reasonable detail
satisfactory to the Agent, and certified on behalf of the Borrowers'
Representative by a Responsible Officer.
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5.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsections 5.1(a) and (b), (i) a certificate on
behalf of the Borrowers' Representative executed by a Responsible Officer,
showing in detail the calculations supporting such statements in respect of
Section 6.1 ; and (ii) a certificate (the "Applicable Margin Certificate") of
the Borrowers' Representative, executed on its behalf by a Responsible Officer,
(A) showing in detail the calculation of the Leverage Ratio as at the last day
of the preceding fiscal quarter and (B) stating that, to the best of his or her
knowledge, each of the Borrowers and CECO during such period has kept, observed,
performed and fulfilled each and every covenant and condition contained in this
Agreement and in the Notes and the other Loan Documents applicable to it and
that he or she obtained no knowledge of any Default or Event of Default except
as specifically indicated;
(b) within 30 days after request therefor by the Agent,
such detailed financial projections, forecasts and budgets as the Banks or the
Agent may from time to time (but not more frequently than once in respect of
each fiscal year) reasonably request;
(c) any reports, including management letters submitted
to any of the Borrowers by independent accountants in connection with any
annual, interim or special audit;
(d) any reports, notices or proxy statements generally
distributed by CECO or any of the Borrowers to its stockholders on a date no
later than the date supplied to the stockholders; and
(e) promptly, such additional financial and other
information as the Banks or the Agent may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except when the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the applicable Borrower; provided that, the foregoing exception
shall not apply to, and the Borrowers shall pay, any contested liability on or
prior to ten (10) days after the commencement of proceedings to foreclose any
Lien which may have attached as security therefor.
5.4 Conduct of Business and Maintenance of Existence. Subject
to Section 6.4 hereof, continue to engage in business of the same general type
as now conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges, trademarks, trade names, licenses, franchises and other
authorizations necessary or desirable in the normal conduct of its business;
comply with all Contractual Obligations and material Requirements of Law;
provided, that the Borrowers shall
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cause USFM to not engage in any business after the date hereof, other than to
transfer certain of its assets to any of the Borrowers and otherwise wind up its
business.
5.5 Maintenance of Property; Insurance. (a) Maintain in good
repair, working order and condition (ordinary wear and tear excepted) in
accordance with the general practice of other businesses of similar character
and size, all of those properties material or necessary to its business, and
from time to time make or cause to be made all appropriate repairs, renewals or
replacements thereof.
(b) Insure its properties and assets against loss or
damage by fire and such other insurable hazards as such assets are commonly
insured (including fire, extended coverage, property damage, worker's
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially sound
insurers, including self-insurance to the extent customary. The Borrowers shall
deliver (i) on the Closing Date and annually thereafter an original certificate
of insurance signed by the Borrowers' independent insurance broker describing
and certifying as to the existence of the insurance on the Borrowers' properties
and assets required to be maintained by this Agreement and (ii) at the request
of the Agent from time to time a summary schedule indicating all insurance then
in force with respect to the Borrowers. Each insurance policy shall provide for
at least thirty (30) days' prior written notice to the Agent of any termination
of or proposed cancellation or nonrenewal of such policy, and name the Agent as
additional insured and loss payee.
5.6 Inspection of Property; Books and Records; Discussions.
(a) Permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect during normal business hours any
of its properties and to examine and make excerpts from its books and records
and discuss its business affairs, finances and accounts (including those of its
Affiliates) with its officers, all in such detail and at such times and as often
as any of the Banks may reasonably request, provided that each Bank shall
provide the Borrowers and the Agent with reasonable notice prior to any visit or
inspection. In the event Required Banks desire to conduct an audit of the
Borrowers (to which the Borrowers hereby consent), such Banks shall make a
reasonable effort to conduct such audit contemporaneously with any audit to be
performed by the Agent.
(b) Maintain and keep proper books of record and
account which enable the Borrowers to issue financial statements in accordance
with GAAP and as otherwise required by applicable Requirements of Law, and in
which full, true and correct entries shall be made in all material respects of
all its dealings and business and financial affairs.
(c) Permit (i) auditors chosen by the Agent to visit
and inspect any of its properties to conduct a collateral audit of the inventory
and other assets of the Borrowers, in such detail as the Agent may reasonably
request, during normal business hours within ninety (90) days after the Closing
Date (the "Initial Audit"), (ii) an additional collateral audit to be conducted
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after the Initial Audit and prior to December 31, 2000, by an auditor chosen by
the Agent, and (iii) an annual collateral audit by an auditor chosen by the
Agent in each calendar year thereafter. All of the collateral audits provided
for hereunder shall be at the sole cost and expense of the Borrowers.
5.7 Notices. Promptly, upon any of the Borrowers becoming
aware, give notice to the Agent and each Bank of:
(a) the occurrence of any Default or Event of
Default;
(b) any (i) default or event of default under any
Contractual Obligation of any of the Borrowers or (ii) litigation, investigation
or proceeding which may exist at any time between any of the Borrowers and any
Governmental Authority, which in either case, if not cured or if adversely
determined, as the case may be, could have a Material Adverse Effect;
(c) any litigation or proceeding which, if adversely
determined, could have a Material Adverse Effect;
(d) the following events, as soon as possible and in
any event within 15 days after any of the Borrowers knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any Single
Employer Plan, or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or
the taking of any other action by the PBGC or any of the Borrowers or any
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any Single
Employer Plan in a distress termination under Section 4041(c) of ERISA or
Multiemployer Plan, in each case, except as is not reasonably likely to have a
Material Adverse Effect;
(e) the occurrence or existence of a material default
by any party, including a Borrower, to any material contract to which a Borrower
is a party, or the actual or threatened termination, revocation or non-renewal
of any such material contract;
(f) any correspondence or notices from any
Governmental Authority that regulates the operations of a Borrower relating to
an actual or threatened change or development that is reasonably likely to have
a Material Adverse Effect;
(g) entry of any order, judgment, decree or decision
issued by any court, arbitrator or Governmental Authority in any proceeding to
which a Borrower is a party which is reasonably likely to have a Material
Adverse Effect;
(h) any notice from a Governmental Authority received
by a Borrower of such Governmental Authority's intention to audit any Federal,
state, local or foreign tax return (except for notices of sales, excise, use and
property tax audits, which the Borrowers shall
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provide to the Agent upon request) of such Borrower, together with a copy of any
such notice as well as any subsequent notice with respect thereto from any such
Governmental Authority;
(i) any lapse, termination, non-renewal or reduction
in coverage of any insurance coverage required to be maintained by the Borrowers
pursuant to any Loan Document; and
(j) an event which has had a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
the Borrowers' Representative, executed on its behalf by a Responsible Officer,
setting forth details of the occurrence referred to therein and stating what
action the Borrowers propose to take with respect thereto.
5.8 Environmental Laws. (a) Comply with, and require
compliance by all tenants and to the extent possible, all subtenants, if any,
with, all Environmental Laws and obtain and comply with and maintain, and
require that all tenants and to the extent possible, all subtenants obtain and
comply with and maintain, any and all licenses, approvals, registrations or
permits required by Environmental Laws except to the extent that failure to so
comply or obtain or maintain such documents would not have a Material Adverse
Effect.
(b) Except as set forth in Schedule 3.13, comply with
all lawful and binding orders and directives of all Governmental Authorities
respecting Environmental Laws except to the extent that failure to so comply
would not have a Material Adverse Effect.
(c) Defend, indemnify and hold harmless the Agent and
the Banks, and their respective employees, agents, officers and directors, from
and against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the violation
of or noncompliance with any Environmental Laws applicable to the real property
owned or operated by the Borrowers, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
attorneys' and consultants' fees, investigation and laboratory fees, court costs
and litigation expenses, except to the extent that any of the foregoing arise
out of the negligence or willful misconduct of any of the foregoing enumerated
parties.
5.9 Ownership of Borrowers; Joinder of Subsidiaries. (a)
Except as set forth on Schedule 3.14, each Borrower (other than the Parent
Company) shall remain a Wholly-Owned Subsidiary of the Parent Company.
(b) If any Borrower or USFM hereafter (i) acquires
(directly or indirectly) a Subsidiary, or (ii) transfers in a single transaction
or series of transactions to any Subsidiary, now existing or hereafter acquired
or created, assets (real or personal, tangible or intangible, including, without
limitation, shares of stock or indebtedness of any other Subsidiary and
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leasehold interests), whether by capital contribution, loan, advance,
investment, sale, lease, assignment, transfer, merger, consolidation or other
disposition, the Borrowers will (x) cause such Subsidiary to become a Borrower
or a party to a Guaranty, (y) pledge all of the Capital Stock of such Subsidiary
to the Agent, and (z) cause such Subsidiary to pledge all of its assets to the
Agent, in each case, promptly after the transfer or acquisition, by execution of
a writing satisfactory to the Agent. Nothing in this Section is intended to
permit any acquisition or transfer not otherwise permitted by this Agreement.
5.10 Management Changes. Notify the Agent in writing within
fifteen (15) days after any change of any of the following officers: (a) with
respect to CECO, the Parent Company, CECO Filters, Inc. and The Kirk & Blum
Manufacturing Company, the chief executive officer, chief operating officer,
chief financial officer or president; and (b) with respect to any other
Borrower, the president. In the event that any executive officer of any Borrower
or CECO after the Closing Date shall cease to be an executive officer of any of
the Borrowers or CECO, the Borrowers shall cause a qualified replacement officer
to promptly be appointed to fill such position such that no material adverse
effect shall occur with respect to any of the Borrowers.
5.11 Maintenance of Intellectual Property, Permits, Etc.
Except where the failure to do so could not reasonably be expected to have a
Material Adverse Effect, maintain in full force and effect all intellectual
property and all licenses, franchises, permits and other authorizations
necessary for the ownership and operation of their respective properties and
business.
5.12 Plans and Benefit Arrangements. Comply and cause each
Commonly Controlled Entity to comply, with ERISA, the Code and all other
applicable Requirements of Law which are applicable to Plans, except where the
failure to do so, alone or in conjunction with any other failure, could not
reasonably be expected to have a Material Adverse Effect.
5.13 Interest Rate Protection. Within 90 days after the
Closing Date, enter into with one or more banks, the unsecured long-term debt
obligations of which are rated "A3" or higher by Moody's or "A-" by S&P, and
issued by a bank having capital, surplus and undivided profits aggregating at
least $250,000,000, such interest rate protection contracts (collectively, the
"Interest Rate Protection Agreements") as are necessary to cause an amount not
less than 50% of the Borrowers' then outstanding Term Loan A and Term Loan B
hereunder to bear interest either at a fixed rate or be subject to contracts
which shall provide for a protected fixed rate acceptable to the Agent. Such
contracts shall conform to ISDA standards, shall be subject to intercreditor and
subordination provisions as may be acceptable to the Agent and shall otherwise
be acceptable to the Agent as to structure, notional amount (subject to the 50%
standard set forth herein) and shall extend for a term of at least three years
(except that no such contracts shall be required to extend beyond the
Termination Date).
5.14 Further Assurances; Power of Attorney. At any time and
from time to time, upon the Agent's reasonable request, make, execute and
deliver, and use its best efforts to cause any other Person to make, execute and
deliver, to the Agent, and where appropriate cause
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to be recorded or filed, and from time to time thereafter to be re-recorded and
refiled at such time and in such offices and places as shall be deemed desirable
by the Agent any and all such further certificates and other documents and
instruments as the Agent may reasonably consider necessary or desirable in order
to effectuate, complete, perfect, continue or preserve the obligations under
this Agreement and the other Loan Documents and the Liens created to secure such
obligations. Each Borrower hereby appoints the Agent, and any of its officers,
directors, employees and authorized agents, with full power of substitution,
upon any failure by such Borrower, to take or cause to be taken any action
described in the preceding sentence and to make, execute, record, file,
re-record or refile any and each such security document, instrument, certificate
and document for and in the name of such Borrower; provided, that the Agent
shall not take any action pursuant to such power unless an Event of Default
shall have occurred and be continuing. The power of attorney granted pursuant to
this subsection is coupled with an interest and shall be irrevocable until the
Notes are paid in full, no other amount is owed to the Agent or any Bank
hereunder or under the other Loan Documents and the Commitments are terminated.
SECTION 6. NEGATIVE COVENANTS
The Borrowers hereby agree that, so long as any of the
Commitments remain in effect, any Note remains outstanding and unpaid, any
Letter of Credit remains outstanding (which is not subject to a cash collateral
arrangement satisfying the provisions of Section 2.4(g)) or any other amount is
owing to any Bank or the Agent hereunder, none of the Borrowers shall, and the
Borrowers shall cause USFM not to, directly or indirectly:
6.1 Financial Covenants.
(a) Leverage Ratio. Permit the Leverage Ratio, as of the
end of any fiscal quarter ending during the periods specified below, for the
prior four consecutive fiscal quarters, to equal or exceed the amount set forth
opposite such period:
- --------------------------------------------------------------------------------
Leverage Ratio
Last Day of Fiscal Quarter During Period To Be Less Than
- --------------------------------------------------------------------------------
December 31, 2000 through June 29, 2001 3.75 to 1
- --------------------------------------------------------------------------------
June 30, 2001 through December 30, 2001 3.50 to 1
- --------------------------------------------------------------------------------
December 31, 2001 through December 30, 2002 3.00 to 1
- --------------------------------------------------------------------------------
December 31, 2002 through December 30, 2003 2.50 to 1
- --------------------------------------------------------------------------------
December 31, 2003 through December 30, 2004 2.25 to 1
- --------------------------------------------------------------------------------
December 31, 2004 through Termination Date 2.00 to 1
- --------------------------------------------------------------------------------
(b) Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio, (i) as of the end of each of the fiscal quarters ending December
31, 2000, March 31, 2001,
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June 30, 2001 and September 30, 2001, in each case for the prior four
consecutive fiscal quarters, to be less than 1.15, and (ii) as of the end of any
fiscal quarter thereafter for the prior four consecutive fiscal quarters, to be
less than 1.20 to 1.
(c) Interest Coverage Ratio. Permit the Interest Coverage
Ratio for the period (i) beginning January 1, 2000 and ending June 30, 2000 to
be less than 1.50 to 1, or (ii) beginning January 1, 2000 and ending September
30, 2000 to be less than 2.00 to 1. Permit the Interest Coverage Ratio, as of
the end of any fiscal quarter ending during the periods specified below, for the
prior four consecutive fiscal quarters, to equal or exceed the amount set forth
opposite such period:
- --------------------------------------------------------------------------------
Interest Coverage Ratio
Last Day of Fiscal Quarter During Period To Be Less Than
- --------------------------------------------------------------------------------
December 31, 2000 through December 30, 2001 2.50 to 1
- --------------------------------------------------------------------------------
December 31, 2001 through December 30, 2002 3.25 to 1
- --------------------------------------------------------------------------------
December 31, 2002 through December 30, 2003 3.75 to 1
- --------------------------------------------------------------------------------
December 31, 2003 through Termination Date 4.00 to 1
- --------------------------------------------------------------------------------
(d) Capital Expenditures. Permit the amount of aggregate
capital expenditures of the Borrowers and CECO to exceed $900,000 in any fiscal
year.
(e) EBITDA. Permit the EBITDA (i) of CECO Filters, Inc.
for the fiscal period beginning October 1, 1999 and ending December 31, 1999,
prior to any management fees paid to CECO for such period to be less than
$562,500, or (ii) of CECO, for the following fiscal periods, to be less than the
amount set forth opposite such period:
- --------------------------------------------------------------------------------
Period EBITDA Not to be Less Than
- --------------------------------------------------------------------------------
January 1, 2000 through March 31, 2000 $1,050,000
- --------------------------------------------------------------------------------
January 1, 2000 through June 30, 2000 $2,750,000
- --------------------------------------------------------------------------------
January 1, 2000 through September 30, 2000 $5,100,000
- --------------------------------------------------------------------------------
6.2 Limitation on Debt. At any time incur, create, assume, or
suffer to exist any Debt except:
(i) amounts outstanding hereunder as Loans;
(ii) Indebtedness of one Borrower to another Borrower;
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(iii) Debt existing as of the date hereof described on
Schedule 6.2 (including any extensions or renewals or refinancings
thereof provided there is no increase in the amount thereof or other
significant change in the terms thereof);
(iv) Debt under Interest Rate Protection Agreements;
(v) Debt incurred (i) on or prior to the date hereof and
set forth on Schedule 6.2 and (ii) after the date hereof, for the
purchase of capital assets for which a lien on such assets is granted
to the creditor; provided that the aggregate amount of such Debt
outstanding at any time and not set forth on Schedule 6.2 shall not
exceed $500,000;
(vi) Debt owed to CECO on the Closing Date in respect of
amounts owed by CECO to various creditors and subject to a
Subordination Agreement among such creditors, CECO and the Agent; and
(vii) Subordinated Debt.
6.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, including, without
limitation, the stock of each Borrower and USFM, whether now owned or hereafter
acquired, except for Liens with respect to USFM to the extent such Liens do not
have a material adverse effect on the Borrowers and USFM, taken as a whole, and
except for:
(a) The following, (i) if the validity or amount thereof
is being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed and
continue to be stayed or (ii) if a final judgment is entered and such judgment
is discharged within thirty (30) days of entry, and in either case they do not
materially impair the ability of the Borrowers to perform their obligations
hereunder or under the other Loan Documents:
(A) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, provided that the
Borrowers maintain such reserves or other appropriate provisions as
shall be required by GAAP and pay all such taxes, assessments or
charges forthwith upon the commencement of proceedings to foreclose any
such Lien;
(B) Claims, Liens or encumbrances upon, and defects of
title to, real or personal property including any attachment of
personal or real property or other legal process prior to adjudication
of a dispute on the merits; and
(C) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual Liens;
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(b) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation;
(c) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business of the Borrowers or USFM;
(d) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not interfere with the
ordinary conduct of the business of any of the Borrowers;
(e) Liens which were in existence on the date hereof and
shown on Schedule 6.3 and extensions or replacements thereof;
(f) Liens on assets of corporations which become Borrowers
after the date of this Agreement, provided that such Liens existed at the time
the respective corporations became Borrowers and were not created in
anticipation thereof and liens on assets acquired by Borrowers in acquisitions
permitted by Section 6.6 (which liens were in existence at the time of such
acquisitions);
(g) Liens upon real property, which property was acquired
after the Closing Date by the Borrowers, each of which Liens existed on such
property before the time of its acquisition or was created to finance, refinance
or refund the cost (including the cost of construction) of the respective
property; provided, however, that no such Lien shall extend to or cover any
accounts receivable or inventory under any circumstances or any property of the
Borrowers other than the respective property so acquired and improvements
thereon, and the principal amount of indebtedness secured by any such Lien shall
not exceed the fair market value of the respective property at the time it was
acquired;
(h) Capital Leases as and to the extent permitted under
this Agreement;
(i) Liens in favor of the Agent or any Bank; and
(j) Purchase money security interests on equipment
purchased in the ordinary course of business securing Debt permitted by Section
6.2.
6.4 Limitations on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets except:
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(a) any Borrower may merge with any other Borrower;
(b) any Borrower may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
one or more of the Borrowers; and
(c) a merger in connection with a Permitted Acquisition
permitted under Section 6.6, in which the surviving entity is a Borrower.
provided that, immediately after each such transaction and after giving effect
thereto, the Borrowers are in compliance with this Agreement and no Default or
Event of Default shall be in existence or result from such transaction.
6.5 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, accounts receivable and leasehold interests),
whether now owned or hereafter acquired, except:
(i) obsolete or worn out property disposed of in the
ordinary course of business;
(ii) the sale of inventory or other assets, or the
licensing of intellectual property, in each case in the ordinary course of
business;
(iii) any sale, transfer or lease of assets by any
Borrower or USFM to any Borrower; and
(iv) any Asset Sale for which the Net Sale Proceeds are
applied in accordance with Section 2.10.
6.6 Limitations on Acquisitions. Purchase, hold or acquire
beneficially any stock, other securities or evidences of indebtedness of, or
make or permit any investment or acquire any interest whatsoever in, any other
Person, except for Permitted Acquisitions and shares of common stock of The
Factory Power Company held by such Borrower on the Closing Date.
6.7 Limitation on Distributions and Investments. (a) At any
time make (or incur any liability to make) or pay any Distribution in respect of
the Borrowers (other than a Distribution payable to another Borrower or a Bonus
Pool Payment); provided, that the Borrowers shall be permitted to pay CECO for
operating expenses pursuant to a management agreement delivered to the Agent, an
amount not exceeding $600,000 in the aggregate in any fiscal year.
(b) Make any Investments other than Permitted Investments.
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Notwithstanding anything to the contrary contained herein, no Distributions or
CECO Debt Repayments may be made by any Borrower if a Default or Event of
Default shall have occurred and be continuing or shall occur as a result
thereof.
6.8 Transactions with Affiliates. Except for CECO Debt
Repayments or otherwise as expressly permitted in this Agreement or any other
Loan Document, directly or indirectly enter into any transaction or arrangement
whatsoever or make any payment to or otherwise deal with any Affiliate, except,
as to all of the foregoing in the ordinary course of and pursuant to the
reasonable requirements of the Borrowers' business and upon fair and reasonable
terms no less favorable to the Borrowers than would be obtained in a comparable
arm's length transaction with a Person not an Affiliate of the Borrowers.
6.9 Sale and Leaseback. Enter into any arrangement with any
Person providing for the leasing by any of the Borrowers of real or personal
property which has been or is to be sold or transferred by such Borrower to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such property or rental obligations of such
Borrower.
6.10 Continuation of or Change in Business. Engage in any
business either directly or through any Subsidiary except for businesses in
which any of the Borrowers is engaged on the date of this Agreement and any
business activities directly related to such existing business and the Borrowers
shall cause USFM to not engage in any business other than as permitted herein.
6.11 Limitation on Negative Pledge. Enter into any agreement
with any Person other than the Agent and the Banks which prohibits or limits the
ability of any Borrower or USFM to create, incur, assume or suffer to exist any
Lien upon any of its properties, assets or revenues, whether now owned or
hereafter acquired.
6.12 Changes in Organizational Documents. Amend in any respect
its certificate of incorporation (including any provisions or resolutions
relating to capital stock), by-laws or other organizational documents without
providing at least thirty (30) calendar days' prior written notice to the Agent.
SECTION 7. EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events shall
occur and be continuing:
(a) The Borrowers shall fail to pay any principal of any
Note when due in accordance with the terms thereof or hereof; or the Borrowers
shall fail to pay any interest on any Note, or any other amount payable
hereunder, within five (5) days after notice of such failure is given by the
Agent; or
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(b) Any representation or warranty made or deemed made by
the Borrowers herein or which is contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement shall prove to have been incorrect in any material respect on or
as of the date made or deemed made; or
(c) The Borrowers shall default in the observance or
performance of any agreement contained in Section 6 or CECO shall default in the
observance or performance of any agreement contained in Section 8 of the
Guaranty; or
(d) The Borrowers or CECO shall default in the observance
or performance of any other agreement contained in this Agreement (other than as
provided in paragraphs (a) through (c) of this Section 7.1) or any other Loan
Document, and such default shall continue unremedied for a period of thirty (30)
days; or
(e) One or more judgments or decrees shall be entered
against (i) any of the Borrowers involving in the aggregate a liability (not
paid or fully covered by insurance) of $500,000 or more, or (ii) USFM which
would have a Material Adverse Effect, and all such judgments or decrees shall
not have been vacated, discharged, settled, satisfied or paid, or stayed or
bonded pending appeal, within sixty (60) days from the entry thereof; or
(f) Any of the Borrowers or USFM shall (i) default in the
payment of any amount due under any Debt of any one or more of the Borrowers in
excess of $500,000 in the aggregate (other than the Notes), beyond the period of
grace, if any, provided in the instrument or agreement under which such Debt was
created; or (ii) default in the observance or performance of any other agreement
contained in any such Debt or in any instrument or agreement evidencing,
securing or relating thereto beyond any applicable notice and grace period, or
any other event shall occur the effect of which default or other event is to
cause, or to permit the holder or holders or beneficiary or beneficiaries of
such Debt (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Debt to become due and payable prior
to its stated maturity or any such Debt is declared to be due and payable prior
to its stated maturity unless such default, event or declaration referred to in
this subparagraph (ii) is waived or cured to the satisfaction of such other
party as demonstrated to the satisfaction of the Agent by the Borrowers prior to
the Agent taking any action under Section 7.2 in respect of such occurrence; or
(g) (i) Any of the Borrowers shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or any of the Borrowers
shall make a general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any of the Borrowers any case, proceeding or other
action of a nature
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referred to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of sixty (60) days; or (iii) there shall
be commenced against any of the Borrowers any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process on a claim against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within sixty (60) days
from the entry thereof; or (iv) any of the Borrowers shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any of the
Borrowers shall generally not, or shall be unable to, or shall admit in writing
its inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable opinion of the Required Banks,
likely to result in the termination by action of the PBGC or any court of such
Plan for purposes of Title IV of ERISA, or (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA; and in each case in clauses (i)
through (iv) above, such event or condition, together with all other such events
or conditions, if any would have a Material Adverse Effect; or
(i) Any change in control of the Borrowers or USFM shall
occur (as used herein, the term "change in control" means either (A) any change
in ownership of any class of stock or capital stock generally of the Borrowers
or USFM which would result in a change or transfer in the power to control the
election of a majority of the board of directors or in other indicia of majority
voting control to persons or entities other than those persons who have such
majority voting control on the Closing Date or (B) a decrease in such persons'
right to vote at shareholders' meetings to an aggregate level less than 51%); or
(j) Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same or
such party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged and thereby deprive or deny the
Banks and the Agent the intended benefits thereof or they shall thereby cease
substantially to have the rights, titles, interests, remedies, powers or
privileges intended to be created thereby; or
(k) A notice of lien or assessment in excess of $500,000
is filed of record with respect to all or any part of the Borrowers' assets
having a value of at least that amount by the United States, or any department,
agency or instrumentality thereof, or by any state, county, municipal, or other
governmental agency, including, without limitation, the PBGC,
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becomes payable and the same is not paid, vacated, bonded or stayed pending
appeal within thirty (30) days after the same becomes payable; or
(l) The Parent Company on a consolidated basis ceases to
be Solvent; or
(m) A Material Adverse Effect shall have occurred and be
continuing; or
(n) Except as otherwise permitted in this Agreement, any
of the Borrowers ceases to conduct its business as contemplated or any such
Borrower is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business and such injunction,
restraint or other preventive order is not dismissed within thirty (60) days
after the entry thereof.
7.2 Remedies. (a) If an Event of Default specified under
subsections 7.1 (a) through (f) or (h) through (n) shall occur and be
continuing, the Banks shall be under no further obligation to make Loans
hereunder and no Issuing Bank shall be under any further obligation to issue
Letters of Credit hereunder, and the Agent upon the request of the Required
Banks shall (i) by written notice to the Borrowers, terminate the Revolving
Credit Commitment and/or declare the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other Debt
of the Borrowers to the Banks hereunder and thereunder to be forthwith due and
payable, and the same shall thereupon become and be immediately due and payable
to the Agent for the benefit of each Bank without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived, and
(ii) require the Borrowers to, and the Borrowers shall thereupon, deposit in a
non-interest bearing account with the Agent, as cash collateral for its
obligations under the Loan Documents, an amount equal to the maximum amount
currently or at any time thereafter available to be drawn on all outstanding
Letters of Credit, and the Borrowers hereby pledge to the Agent and the Banks,
and grant to the Agent and the Banks a security interest in, all such cash as
security for such obligations.
(b) If an Event of Default specified under subsections
7.1(g) hereof shall occur, the Revolving Credit Commitment shall immediately
terminate and the Banks shall be under no further obligations to make Loans
hereunder and no Issuing Bank shall be under any further obligation to issue
Letters of Credit hereunder, and the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
obligations of the Borrowers to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived.
(c) If an Event of Default shall occur and be continuing,
any Bank to whom any obligation is owed by the Borrowers hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of Section 9.6 hereof and any branch, subsidiary
or Affiliate of such Bank or Participant shall have
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the right, in addition to all other rights and remedies available to it, without
notice to the Borrowers, to set-off against and apply to the then unpaid balance
of all the Loans and all other obligations of the Borrowers hereunder or under
any other Loan Document any debt owing to, and any other funds held in any
manner for the account of, any of the Borrowers by such Bank or participant or
by such branch, Subsidiary or Affiliate, including, without limitation, all
funds in all deposit accounts (whether time or demand, general or special,
provisionally credited or finally credited, or otherwise) now or hereafter
maintained by any of the Borrowers for its own account (but not including funds
held in custodian or trust accounts or other accounts established solely for the
benefit of parties other than the Borrowers) with such Bank or participant or
such branch, Subsidiary or Affiliate. Such right shall exist whether or not any
Bank or the Agent shall have made any demand under this Agreement or any other
Loan Document, whether or not such debt owing to or funds held for the account
of any Borrower is or are matured or unmatured and regardless of the existence
or adequacy of any collateral, guaranty or any other security, right or remedy
available to any Bank or the Agent.
(d) Notwithstanding any provision herein to the contrary
or in the other Loan Documents, any proceeds received by the Agent from any
payment made by the Borrowers or any of them under this Agreement or the other
Loan Documents after the Revolving Credit Commitment has been terminated, or
received by the Agent from the foreclosure, sale, lease, collection upon,
realization of or other disposition of any collateral which may have been
provided to the Agent or an Issuing Bank for the obligations of one or more of
the Borrowers hereunder after the Revolving Credit Commitment has been
terminated (including without limitation insurance proceeds), shall be applied
by the Agent as follows, unless otherwise agreed by all the Banks:
(i) first, to reimburse the Agent for out-of-pocket
costs, expenses and disbursements, including without limitation reasonable
attorneys' fees and legal expenses, incurred by the Agent in connection with
collection of any obligations of the Borrowers under any of the Loan Documents;
(ii) second, to accrued and unpaid interest on the
Loans and the obligations of the Borrower under the Interest Rate Protection
Agreements to the extent provided by one or more Banks (ratably according to
their respective amounts then outstanding);
(iii) third, (A) to the principal amount of the Loans
(including any Loans made to reimburse any draws under Letters of Credit) then
outstanding, (B) to the principal or similar amount then due under the Interest
Rate Protection Agreements to the extent provided by one or more Banks, and (C)
by deposit in a cash collateral account maintained by the Agent, to satisfy the
L/C Coverage Requirement with respect to all outstanding Letters of Credit
(ratably according to the respective amounts then outstanding);
(iv) fourth, to fees payable under this Agreement, any
Interest Rate Protection Agreements (to the extent provided by one or more
Banks) or any of the other Loan Documents (ratably according to the respective
amounts then outstanding);
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(v) fifth, to the repayment of all other indebtedness
then due and unpaid of the Borrowers to the Banks incurred under this Agreement,
any Interest Rate Protection Agreements (to the extent provided by one or more
Banks) or any of the other Loan Documents, whether of principal, interest, fees,
expenses or otherwise (ratably according to the respective amounts then
outstanding); and
(vi) the balance, if any, as required by law.
(e) Each Bank agrees that (i) if at any time it shall
receive the proceeds of any collateral or any proceeds thereof or (ii) if after
the Revolving Credit Commitment has been terminated it shall receive any payment
on account of the Loans or any other amounts owing hereunder, under the other
Loan Documents, or under an Interest Rate Protection Agreement (in either case
other than through application by the Agent in accordance with subsection
7.2(d)), it shall promptly turn the same over to the Agent for application in
accordance with the terms of subsection 7.2(d).
(f) In addition to the other rights and remedies contained
in this Agreement or in the other Loan Documents, the Loans shall, at the
Required Banks' option, bear the interest rates provided in Section 2.8 hereof.
(g) In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents, the Agent
shall have all of the rights and remedies under applicable Law, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required Banks
shall, exercise all post-default rights granted to them and the Banks under the
Loan Documents or applicable Law.
SECTION 8. THE AGENT
8.1 Appointment. Each Bank hereby irrevocably designates and
appoints PNC as the Agent of such Bank under this Agreement. Each such Bank
irrevocably authorizes the Agent, as the agent for such Bank to take such action
on its behalf under the provisions of this Agreement and to exercise such powers
and perform such duties as are expressly delegated to the Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agent. The Agent agrees to act as the Agent on behalf of the Banks to the extent
provided in this Agreement.
8.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to engage and pay for
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the advice and services of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible to the Banks for the negligence or
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable to any of the Banks for any action lawfully taken or omitted to be
taken by them or such Person under or in connection with this Agreement (except
for their or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrowers or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, the Notes or the
other Loan Documents or for any failure of the Borrowers to perform their
obligations hereunder or thereunder. The Agent shall not be under any obligation
to any Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or the
other Loan Documents, or to inspect the properties, books or records of the
Borrowers.
8.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrowers), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement unless it shall first receive such
advice or concurrence of the Required Banks as they deem appropriate or it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, the
Notes and the other Loan Documents in accordance with a request of the Required
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Banks and all future holders of the Notes.
8.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless it has received notice from a Bank or the Borrowers referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give notice thereof to the Banks. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Banks; provided that unless and until the
Agent shall have received such directions,
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the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks.
8.6 Non-Reliance on Agent and Other Banks. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrowers, shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers. Except for notices, reports and other documents expressly required to
be furnished to the Banks by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrowers which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
8.7 Indemnification. The Banks agree to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrowers and without
limiting the obligation of the Borrowers to do so), ratably according to their
respective Commitment Percentage, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement, the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Bank shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this Section 8.7 shall survive the payment of the Notes and all
other amounts payable hereunder.
8.8 Agent in its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrowers as though it was not the Agent hereunder.
With respect to its Loans made or renewed by it and
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any Note issued to it, the Agent shall have the same rights and powers under
this Agreement as any Bank and may exercise the same as though it were not the
Agent, and the terms "Bank" and "Banks" shall include the Agent in its
individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon sixty
(60) days' notice to the Banks and the Borrowers. If such Agent shall resign as
Agent under this Agreement, then the Required Banks shall appoint from among the
Banks a successor agent for the Banks, which appointment shall be subject to the
approval of the Borrowers (which approval shall not be unreasonably withheld),
whereupon such successor agent shall succeed to the rights, powers and duties of
an Agent, and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement or any holders of the
Notes. After any retiring Agent's resignation as Agent, the provisions of this
Section 8.9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
8.10 Beneficiaries. Except as expressly provided herein, the
provisions of this Section 8 are solely for the benefit of the Agent and the
Banks, and the Borrowers shall not have any rights to rely on or enforce any of
the provisions hereof. In performing its functions and duties under this
Agreement the Agent shall act solely as agent of the Banks and does not assume
and shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for the Borrowers.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any Note
or any other Loan Document, nor any terms hereof of thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the written consent of the Required Banks, the Agent and the
Borrowers may, from time to time, enter into written amendments, supplements or
modifications hereto and to the Notes and the other Loan Documents for the
purpose of adding any provisions to this Agreement or the Notes or the other
Loan Documents or changing in any manner the rights of the Banks or of the
Borrowers hereunder or thereunder or waiving, on such terms and conditions as
the Agent may specify in such instrument, any of the requirements of this
Agreement or the Notes or the other Loan Documents or any Default or Event of
Default and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall directly or indirectly (a) reduce
the amount or extend the maturity of any Note or any installment thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
fee payable to any Bank hereunder, or change the duration or amount of any
Bank's Commitments, in each case without the consent of the Bank affected
thereby or (b) amend, modify or waive any provision of this Section 9.1 or
reduce the percentages specified in the definition of Required Banks or consent
to the assignment or transfer by the Borrowers of any of their rights and
obligations under this Agreement, the Notes and the other Loan Documents, or
release any security interest in or lien on
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any of the collateral securing, or release any guaranty of, any of the
obligations under the Loan Documents, except as otherwise permitted in the Loan
Documents, in each case without the written consent of all the Banks, or (c)
amend, modify or waive any provision of Section 8 without the written consent of
the then Agent, or (d) amend, modify or waive any provision of Section 2.5
without the written consent of any Issuing Bank affected thereby. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Banks and shall be binding upon the Borrowers, the Banks, the Agent
and all future holders of the Notes. In the case of any waiver, the Borrowers,
the Banks and the Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three days after being
deposited in the mail, postage prepaid, or, in the case of facsimile notice,
when sent during normal business hours with electronic confirmation or otherwise
when received, addressed as follows in the case of the Borrowers, and the Agent,
and as set forth in Schedule I in the case of the other parties hereto, or to
such other address as may be hereafter notified by the respective parties hereto
and any future holders of the Notes:
The Borrowers: c/o CECO Group, Inc.
3120 Forrer Street
Cincinnati, Ohio 45209
Attention: Richard J. Blum
Telecopy: (513) 458-2622
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and CECO Environmental, Corp.
505 University Avenue, Suite 1400
Toronto, Canada M5G 1 X3
Attention: Phillip DeZwirek
Telecopy: (416) 593-4658
With a copy to: Sugar, Friedberg & Felsenthal
30 North LaSalle Street, #2600
Chicago, Illinois 60602
Attention: Leslie J. Weiss, Esq.
Telecopy: (312) 372-7951
(provided that failure to send a
copy of any notice to said counsel
shall in no way affect, limit or
invalidate any notice sent to the
Borrowers or the exercise of any of
the Banks' or the Agent's rights or
remedies pursuant to a notice sent
to the Borrowers.)
The Agent: PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: John Siegrist
Telecopy: (215) 585-4143
and
PNC Bank, National Association
249 Fifth Street
Pittsburgh, PA 15222-2707
Attention: Arlene Ohler
Telecopy: (412) 762-8672
With a copy to: Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Attention: Carl H. Fridy, Esq.
Telecopy: (215) 864-8999
provided that any notice, request or demand to or upon the Agent or the Banks
pursuant to Sections 2.1, 2.9 or 2.10 shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy,
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power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Notes and the other Loan
Documents.
9.5 Payment of Expenses and Taxes. The Borrowers agree (a) to
pay or reimburse the Agent for all of its out-of-pocket costs and expenses
incurred in connection with any amendment, supplement or modification to this
Agreement, the Notes, the other Loan Documents, the Letters of Credit and any
other documents prepared in connection therewith, including, without limitation,
the reasonable fees and disbursements of counsel to the Agent (which counsel may
or may not include employees of the Agent), (b) to pay or reimburse each Bank
and the Agent for all of their costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents, the Letters of Credit and any such other documents, including,
without limitation, reasonable fees and disbursements of counsel to the Agent
(which counsel may or may not include employees of the Agent) and to the several
Banks, and (c) to pay, indemnify, and hold each Bank and the Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
similar taxes, if any (other than Taxes expressly excluded from the definition
of Taxes in Section 2.13 and Taxes for which the Borrowers have no liability
under subsection 2.13(c)) which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the Notes, the
other Loan Documents, and any such other documents, and (d) to pay, indemnify,
and hold each Bank and the Agent harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, and, incident to a Default or Event of
Default, the performance and administration, of this Agreement, the Notes, the
other Loan Documents, the Letters of Credit and any such other documents or the
transactions contemplated hereby or thereby or any action taken or omitted under
or in connection with any of the foregoing (all the foregoing, collectively, the
"indemnified liabilities"), provided, that the Borrowers shall have no
obligation hereunder to the Agent or any Bank with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of the Agent
or any such Bank. The Borrowers shall be given notice of any claim for
indemnified liabilities and shall be afforded a reasonable opportunity to
participate in the defense, compromise or settlement thereof. The agreements in
this subsection shall survive repayment of the Notes and all other amounts
payable hereunder.
9.6 Successors and Assigns. (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns
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of such party, and all covenants, promises and agreements by or on behalf of the
Borrowers, the Agent or the Banks that are contained in this Agreement shall
bind and inure to the benefit of their respective successors and assigns. The
Borrowers may not assign or transfer any of their rights or obligations under
this Agreement or the other Loan Documents without the prior written consent of
each Bank.
(b) Each Bank may, in accordance with applicable law,
assign all or a portion of its interests, rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its
Commitments and the Loans at the time owing to it and the Notes held by it);
provided, however, that (i) each such assignment shall be to a Bank or Affiliate
thereof, or, with the consent of the Agent and, prior to the occurrence of an
Event of Default, of the Borrowers (which consent shall not be unreasonably
withheld or delayed) to one or more banks or other financial institutions, (ii)
so long as the Revolving Credit Commitment is in effect, the amount of each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Agent) shall not be less than $5,000,000,
and (iii) the parties to each such assignment shall execute and deliver to the
Agent an Assignment and Acceptance, together with the Note or Notes subject to
such assignment and a processing and recordation fee of $3,500.00 (except in the
case of an assignment by any Bank to one of its Affiliates). Upon acceptance and
recording pursuant to paragraph (d) of this Section 9.6, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Bank under this Agreement and (B) the assigning Bank thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank's rights
and obligations under this Agreement, such Bank shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14
and 9.5 (to the extent that such Bank's entitlement to such benefits arose out
of such Bank's position as a Bank prior to the applicable assignment), as well
as to any Commitment Fees accrued for its account and not yet paid).
Notwithstanding any provision of this subsection 9.6, after the Revolving Credit
Commitment has been terminated, any Bank may assign all or any portion of its
interests, rights and obligations under this Agreement and the other Loan
Documents to any Person (whether or not an entity described in clause (i)
above); provided, however, that any assignment of a Bank's obligations with
respect to Letters of Credit may not be so assigned without the consent of the
Issuing Bank, such consent not to be unreasonably withheld.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Bank thereunder and the assignee thereunder shall be
deemed to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Bank warrants that it is the legal and beneficial
owner of the interest being assigned thereby, free and clear of any adverse
claim, and that its Commitments and the outstanding balances of its Loans, in
each case without giving effect to assignments thereof which have not become
effective, are as set forth in such Assignment and Acceptance, (ii) except as
set forth in (i) above, such assigning Bank makes
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no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Loan Documents, or any other instrument or document furnished pursuant hereto or
thereto, or the financial condition of the Borrowers or the performance or
observance by the Borrowers of any of their obligations under this Agreement or
any other instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.1 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(d) The Agent shall maintain at its offices in
Pennsylvania a copy of each Assignment and Acceptance and the names and
addresses of the Banks, and the Commitments of, and principal amount of the
Loans owing to, each Bank pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
error and the Borrowers, the Agent and the Banks may treat each person whose
name is recorded in the Register pursuant to the terms hereof as a Bank
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrowers and any Bank, at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and an assignee together with the Note
or Notes subject to such assignment, the processing and recordation fee referred
to in paragraph (b) above, the Agent shall (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Banks. Within five Business Days after
receipt of notice, the Borrowers, at their own expense, shall execute and
deliver to the Agent, in exchange for each surrendered original Note, (x) a new
Note to the order of such assignee in an amount equal to the portion of the
applicable Commitments assumed by it pursuant to such Assignment and Acceptance
and, (y) if the assigning Bank has retained a Commitment, a new Note to the
order of such assigning Bank in a principal amount equal to the applicable
Commitments retained by it. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes; such
new Notes shall be dated the date of the surrendered Notes which they replace
and shall otherwise be in substantially the form
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of Exhibit B-1, B-2, B-3 or B-4 hereto, as applicable. Canceled Notes shall be
returned to the Borrowers.
(f) Each Bank may, without the consent of the Borrowers or
the Agent, sell participations to one or more banks or other entities (each a
"Participant") in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitments and the Loans owing to
it and the Notes held by it); provided, however, that (i) such Bank's
obligations under this Agreement shall remain unchanged, (ii) such Bank shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Bank shall remain the holder of any such Note for
all purposes under this Agreement, (iv) the Borrowers, the Agent and the other
Banks shall continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Agreement, (v) in any
proceeding under the Bankruptcy Code such Bank shall be, to the extent permitted
by law, the sole representative with respect to the obligations held in the name
of such Bank whether for its own account or for the account of any Participant
and (vi) such Bank shall retain the sole right to enforce the obligations of the
Borrowers relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement or the Note or Notes held by such Bank
other than any such amendment, modification or waiver with respect to any Loan
or Commitment in which such Participant has an interest and which is described
in subsection 9.1(a) hereof.
(g) If amounts outstanding under this Agreement and the
Notes are due or unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each Participant shall
be deemed to have the right of set-off in respect of its participating interest
in amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement or any Note, provided that in purchasing such participation such
Participant shall be deemed to have agreed to share with the Banks the proceeds
thereof as provided in Section 9.8. The Borrowers also agree that each
Participant shall be entitled to the benefits of Sections 2.13, 2.14, 2.15 and
9.5 with respect to its participation in the Commitments and the Loans
outstanding from time to time; provided, that no Participant shall be entitled
to receive any greater amount pursuant to such Sections than the Bank selling
the participation would have been entitled to receive in respect of the amount
of the participation transferred by such Bank to such Participant had no such
transfer occurred.
(h) If any Participant is organized under the laws of any
jurisdiction other than the United States or any state thereof, the Bank selling
the participation, concurrently with the sale of a participating interest to
such Participant, shall cause such Participant (i) to represent to the Bank
selling the participation (for the benefit of such Bank, the other Banks, the
Agent and the Borrowers) that under applicable law and treaties no taxes will be
required to be withheld by the Agent, the Borrowers or the Bank selling the
participation with respect to any payments to be made to such Participant in
respect of its participation in the Loans and (ii) to agree (for the benefit of
such Bank, the other Banks, the Agent and Borrowers) that it will deliver the
tax forms and other documents required to be delivered pursuant to Section 2.13
and comply
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from time to time with all applicable U.S. laws and regulations with respect to
withholding tax exemptions.
(i) Any Bank may at any time assign all or any portion of
its rights under this Agreement and the Notes issued to it to a Federal Reserve
Bank; provided that no such assignment shall release a Bank from any of its
obligations hereunder.
9.7 Confidentiality. The Banks agree that they will maintain
all information and financial statements provided to them or otherwise obtained
by them with respect to the Borrowers and their Subsidiaries confidential and
that they will not disclose the same or use it for any purposes; provided that
nothing herein shall prevent any Bank from disclosing any such information (a)
to the Agent or any other Bank, (b) to any prospective assignee or participant
in connection with any assignment or participation of Loans permitted by this
Agreement, (c) to its employees, directors, agents, attorneys, accountants and
other professional advisers, provided that any such person is advised by such
Bank that such information is subject to the confidentiality limitations of this
Section, (d) upon the request or demand of any Governmental Authority having
jurisdiction over such Bank, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, provided that Borrowers have (unless prohibited by the terms
of any such order or requirement) been advised at least ten (10) days (or if
such is not possible or practicable, such lesser number of days as is possible
or practicable under the circumstances) prior to such disclosure of the
existence of such order or requirement, (f) which has been publicly disclosed
other than in breach of this Agreement, or (g) in connection with the exercise
of any remedy hereunder or under the Notes.
9.8 Adjustments; Set-off. (a) If any Bank (a "benefitted
Bank") shall at any time receive any payment of all or part of its Loans, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in subsection 7(g), or otherwise), in a greater
proportion than any such payment to or collateral received by any other Bank, if
any, in respect of such other Bank's Loans, or interest thereon, being paid in
respect of Loans being repaid simultaneously therewith or Loans required hereby
to be paid proportionately such benefitted Bank shall purchase for cash from the
other Banks such portion of each such other Bank's Loan, or shall provide such
other Banks with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefitted Bank to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Banks;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Bank, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrowers agree that each Bank so purchasing
a portion of another Bank's Loan may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as fully as
if such Bank were the direct holder of such portion.
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<PAGE>
(b) In addition to any rights and remedies of the Banks
provided by law, upon the occurrence of an Event of Default, each Bank shall
have the right, without prior notice to the Borrowers, any such notice being
expressly waived by the Borrowers to the extent permitted by applicable law,
upon any amount becoming due and payable by the Borrowers hereunder or under the
Notes (whether at the stated maturity, by acceleration or otherwise) to set-off
and appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Bank to or for the credit or the account of the Borrowers. Each
Bank agrees promptly to notify the Borrowers and the Agent after any such
set-off and application made by such Bank, that the failure to give such notice
shall not affect the validity of such set-off and application.
9.9 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrowers and each of the Banks.
9.10 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.11 Integration. This Agreement represents the agreement of
the Borrowers, the Agent and the Banks with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Agent or any Bank relative to subject matter hereof not expressly set
forth or referred to herein or in the Notes or the other Loan Documents. To the
extent that any of the terms of the Credit Agreement and any other Loan Document
are inconsistent, the terms of the Credit Agreement shall control.
9.12 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS HAVE BEEN EXECUTED IN THE COMMONWEALTH OF PENNSYLVANIA AND SAID
DOCUMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, THE
NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA.
9.13 Submission To Jurisdiction; Waivers. Each of the
Borrowers hereby irrevocably and unconditionally:
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(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement, the Notes or the other Loan
Documents, or for recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
Commonwealth of Pennsylvania, the courts of the United States of America for the
Eastern District of Pennsylvania, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to such
Borrower at the address set forth in Section 9.2 for the Borrowers or at such
other address of which the Agent shall have been notified pursuant thereto; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
9.14 Acknowledgments. Each of the Borrowers hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, the Notes and the other Loan
Documents;
(b) neither the Agent nor any Bank has any fiduciary
relationship to such Borrower, and the relationship between the Agent and the
Banks, on one hand, and such Borrower, on the other hand, is solely that of
debtor and creditor; and
(c) no joint venture exists among the Banks or among the
Borrowers and the Banks.
9.15 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR THE OTHER
LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
9.16 Borrowers' Obligations. (a) All obligations of the
Borrowers hereunder and under the other Loan Documents are joint and several.
(b) The Borrowers are interdependent for their
operational and financial needs, and they and the Banks intend that each
Borrower be jointly and severally liable for each
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<PAGE>
monetary obligation, warranty and covenant obligation arising under this
Agreement. The delivery of funds to any Borrower under this Agreement shall
constitute valuable consideration and reasonably equivalent value to all
Borrowers for the purpose of binding them and their assets on a joint and
several basis for the obligations of the Borrowers hereunder. The Agent may
enforce this Agreement against any Borrower without first making demand upon or
instituting collection proceedings against any other Borrower.
(c) The unconditional liability of each Borrower for all
of the obligations of the Borrowers hereunder shall not be impaired by any event
whatsoever, including, but not limited to, the merger, consolidation,
dissolution, cessation of business or liquidation of any Borrower; the financial
decline or bankruptcy of any Borrower; the failure of any other party to
guarantee the obligations of the Borrowers hereunder or to provide collateral
therefor; the Banks' compromise or settlement with or without release of any
Borrower; the Agent's release of any collateral for the obligations of the
Borrowers hereunder, with or without notice to the Borrowers; the Agent's or
Banks' failure to file suit against any Borrower (regardless of whether such
Borrower is becoming insolvent, is believed to be about to leave the state or
jurisdiction or any other circumstance); the Agent's or Banks' failure to give
any Borrower notice of default; the unenforceability of the obligations of the
Borrowers hereunder against any Borrower due to bankruptcy discharge,
counterclaim or for any other reason; the Agent's or Banks' acceleration of the
obligations of the Borrowers hereunder at any time; the extension, modification
or renewal of the obligations of the Borrowers hereunder or any Loan Document;
the Agent's or Banks' failure to undertake or exercise diligence in collection
efforts against any party or property; the termination of any relationship of
any Borrower with any other Borrower, including, but not limited to, any
relationship of commerce or ownership; any Borrower's change of name or use of
any name other than the name used to identify such Borrower in this Agreement;
or any Borrower's use of the credit extended for any purpose whatsoever.
(d) The Borrowers' respective rights of contribution,
reimbursement, subrogation and any other rights among themselves are not
impaired by this Agreement, except that each Borrower agrees not to seek payment
directly or indirectly from another Borrower through a claim of indemnity,
contribution, or otherwise with respect to the obligations of the Borrowers
hereunder, until such obligations have been repaid in full, all Letters of
Credit shall have been terminated or expired and the Commitments have
terminated.
(e) In any action or proceeding involving any state
corporate law or any state or Federal bankruptcy, insolvency, reorganization or
other law affecting the rights of creditors generally, if the obligations
hereunder of any Borrower would otherwise be held or be determined to be void,
invalid or unenforceable on account of the amount of the obligations of the
Borrowers hereunder, then, notwithstanding any other provision hereof to the
contrary, the amount of such liability shall, without any further action by such
Borrower, any Bank, the Agent or any other Person, be automatically limited and
reduced to the highest amount which is valid and enforceable and not
subordinated to the claims of other creditors determined in such action or
proceeding.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
CECO GROUP, INC.
By: ___________________________
Name:
Title:
CECO FILTERS, INC.
By: ____________________________
Name:
Title:
AIR PURATOR CORPORATION
By: _____________________________
Name:
Title:
NEW BUSCH CO., INC.
By: ______________________________
Name:
Title:
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<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
By: _______________________________
Name:
Title:
KBD/TECHNIC, INC.
By: _______________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Agent and as a Bank
By:_____________________________
Title: Vice President
FIFTH THIRD BANK,
as a Bank
By:_____________________________
Title:
BANK ONE, NA,
as a Bank
By:_____________________________
Title:
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<PAGE>
Annex I
Applicable Margins and Fees
Initial Applicable Margin
- --------------------------------------------------------------------------------
Loans Applicable Margin for Applicable Margin for Base
Eurodollar Loans Rate Loans
- --------------------------------------------------------------------------------
Revolving Loans 3.00% 1.50%
- --------------------------------------------------------------------------------
Term Loan A 3.00% 1.50%
- --------------------------------------------------------------------------------
Term Loan B 3.50% 2.00%
- --------------------------------------------------------------------------------
Term Loan C 3.00% 1.50%
- --------------------------------------------------------------------------------
Ongoing Margins
R = Revolving Credit Loans
A = Term A Loans
B = Term B Loans
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<TABLE>
<CAPTION>
===========================================================================================================================
Compliance Levels
===========================================================================================================================
Basis for I II III IV
Determination
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leverage Ratio < 2.25 to 1 > 2.25 to 1 but > 2.75 to 1 but > 3.25 to 1
- -
< 2.75 to 1 < 3.25 to 1
- -
===========================================================================================================================
Applicable Margin R, A - 0.75% R, A - 1.00% R, A - 1.25% R, A - 1.50%
for Base Rate Loans B - 1.50% B - 1.50% B - 1.75% B - 2.00%
===========================================================================================================================
Applicable Margin R, A - 2.25% R, A - 2.50% R, A - 2.75% R, A - 3.00%
for Eurodollar Loans B - 3.00% B - 3.00% B - 3.25% B - 3.50%
===========================================================================================================================
Applicable 0.375% 0.40% 0.45% 0.50%
Commitment Fee
Percentage
===========================================================================================================================
</TABLE>
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<PAGE>
Schedule I
Bank and Commitment Information
<TABLE>
<CAPTION>
Commitments
Bank Revolving Credit Term Loan A Term Loan B Term Loan C
- ---- ---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
PNC Bank, $3,333,334.00 $4,833,334.00 $2,833,334.00 $666,667.00
National Association
Fifth Third Bank $3,333,333.00 $4,833,333.00 $2,833,333.00 $666,666.00
Bank One, NA $3,333,333.00 $4,833,333.00 $2,833,333.00 $666,666.00
</TABLE>
81
<PAGE>
EXHIBIT 10.9
NEITHER THIS NOTE NOR ANY SECURITIES WHICH MAY BE ISSUED UPON THE EXERCISE OF
THE WARRANTS HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR OTHERWISE QUALIFIED UNDER ANY STATE SECURITIES LAW.
NEITHER THIS NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND REGISTRATION
OR OTHER QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS OF THE SUBORDINATION AGREEMENT (AS DEFINED
HEREIN IN SECTION 8) IN FAVOR OF PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR
CERTAIN BANKS. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN
INSTRUMENT, NO PAYMENT ON ACCOUNT OF ANY OBLIGATION ARISING FROM OR IN
CONNECTION WITH THE WITHIN INSTRUMENT OR ANY RELATED AGREEMENT (WHETHER OF
PRINCIPAL, INTEREST OR OTHERWISE) SHALL BE MADE, PAID, RECEIVED OR ACCEPTED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE SUBORDINATION AGREEMENT.
CECO Environmental Corp.
PROMISSORY NOTE
$4,000,000 December 7, 1999
WHEREAS, Green Diamond Oil Corp., an Ontario corporation ("Green
Diamond") has prior to this date advanced $300,000 (the "Initial Advance") to
CECO Environmental Corp.
WHEREAS, Green Diamond has agreed to advance an additional sum in the
amount of $3,700,000 pursuant to the terms of this Promissory Note and Green
Diamond and CECO Environmental Corp. desire that the Initial Advance also be
governed by the terms of this Promissory Note.
FOR VALUE RECEIVED, the undersigned, CECO Environmental Corp.
(the "Company"), a New York corporation, hereby promises to pay to the order of
Green Diamond or registered assigns ("Holder"), the principal sum of FOUR
MILLION DOLLARS ($4,000,000) on the Maturity Date, as defined in Section 1
below. This Note is part of a series of Notes of like tenor and effect to this
Note in the aggregate principal amount of $5,000,000 to be issued in connection
with a mezzanine financing by the Company (the "1999 Subordinated Notes").
1
<PAGE>
1. Maturity. This Note shall be due and payable upon the earlier to
occur of the following events (the "Maturity Date"): (i) six and one-half (6
1/2) years from the date hereof; (ii) six (6) months after repayment of the
Superior Debt (as defined in Section 8 below); or (iii) the closing (any such
closing referred to as the "Closing") of a Sale Transaction. For purposes of
this Note, a Sale Transaction shall mean (i) a merger, consolidation, corporate
reorganization, or sale of shares of stock of the Company as a result of which
there is a change in control and/or the shareholders of the Company on the date
hereof ("Current Shareholders") own 50% or less of the outstanding shares of the
Company on a fully-diluted basis immediately after the transaction and,
including as outstanding for purposes of such calculation, any warrants, options
or other instruments convertible or exchangeable into equity securities of the
Company issued to persons other than the Current Shareholders in connection with
the transaction or (ii) the sale of (A) fifty percent or more of the assets of
the Company or (B) any subsidiary, division or line of business of the Company
for total consideration in excess of $5 million.
2. Interest. Interest shall accrue on the unpaid principal balance
hereof and on any interest payment that is not made when due at the simple
compounded rate of twelve percent (12%) per annum from the date hereof. Accrued
Interest shall be due and payable on June 30 and December 31 of each year
commencing June 30, 2000 and on the Maturity Date. Notwithstanding the
foregoing, interest due under this note on June 30, 2000 and December 31, 2000,
will be paid in accordance with the terms of the Subordination Agreement. It
shall not be a default hereunder and interest will not accrue on any portion of
such interest payments deferred pursuant to the Subordination Agreement
("Deferred Interest") so long as the Deferred Interest is paid at the time and
in the manner allowed by the Subordination Agreement. In the Event of Default
(as defined herein), interest shall accrue on all unpaid amounts due hereunder
including without limitation, interest, at the rate of fifteen percent (15%) per
annum. If a judgment is entered against the Company on this Note, the amount of
the judgment so entered shall bear interest at the highest rate authorized by
law as of the date of the entry of the judgment.
3. Payments. Payments of both principal and interest shall be made at
the principal executive office of the Company, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
So long as no Event of Default has occurred in this Note, all
payments hereunder shall first be applied to interest, then to principal. Upon
the occurrence of an Event of Default in this Note, all payments hereunder shall
first be applied to costs pursuant to Section 13.5, then to interest and the
remainder to principal.
4. Registration, Transfer and Exchange of Notes. The Company will keep
at its principal office a register in which it will provide for the registration
of and transfer of this Note, at its own expense (excluding transfer taxes). If
any Note is surrendered at said office or at the place of payment named in the
Note for registration of transfer or exchange (accompanied in the case of
registration of transfer or exchange by a written instrument of transfer in form
satisfactory to the Company duly executed by or on behalf of the holder), the
Company, at its expense, will deliver in exchange one or more new Notes in
denominations of $10,000 or larger multiples of $1,000, as requested by the
holder for the aggregate unpaid principal amount. Any Note or Notes issued in a
transfer or exchange shall carry the same rights to increase Notes surrendered.
The Holder agrees that prior to making any sale, transfer, pledge, assignment,
hypothecation, or other disposition (each, a "Transfer") of the Note, the Holder
shall give written notice to the Company describing the manner in which any such
proposed Transfer is to be made and providing such additional information and
documentation regarding the Transfer as the Company reasonably requests. If the
Company so requests, the Holder shall at his expense provide the Company with an
opinion of counsel (which counsel must be reasonably satisfactory to the
Company, to the holder, in form and substance satisfactory to the Company) that
the proposed Transfer complies with applicable federal and state securities
laws. The Company shall have no obligation to Transfer any Notes unless the
holder thereof has complied with the foregoing provisions, and any such
attempted Transfer shall be null and void.
2
<PAGE>
5. Registered Owner. Prior to due presentation for registration of
transfer, the Company may treat the person in whose name any Note is registered
as the owner and holder of such Note for the purpose of receiving payment of
principal of, and interest on, such Note and for all other purposes.
6. Prepayment.
6.1 Optional Prepayment. The Company, at its option and
without any premium, may prepay in whole or in part the principal
amount of this Note at 100% of the face value of the Note at any time;
provided, however, that if the Company intends to prepay any one or
more of the 1999 Subordinated Notes in part, it shall prepay the same
percentage of each outstanding 1999 Subordinated Note. The Company
shall, at the time of any such prepayment, pay to the holder of this
Note all interest accrued and unpaid to the Prepayment Date (defined
below). Notwithstanding the foregoing, once a notice of the Closing of
a Sale Transaction pursuant to Section 13.4 has been sent to the
Holder, the Company may not prepay this Note prior to the Closing of a
Sale Transaction, or until the Sale Transaction has been formally
abandoned.
6.2 Notice of Prepayment. At least five (5) but not more than
fifteen (15) days prior to the date fixed for any prepayment, written
notice shall be given to the holder of the Notes of the election of the
Company to prepay all or a specified portion of the principal amount of
the Note (the "Prepayment Notice.") The Prepayment Notice shall specify
the date upon ("Prepayment Date") and the place at which, payment may
be obtained and shall call upon the Holder to surrender the Note to the
Company in the manner and at the place designated. On the Prepayment
Date, the Holder shall surrender this Note to the Company in the manner
and at the place designated in the Prepayment Notice, and thereupon
prepayment shall be made to Holder and this Note shall be cancelled. In
the event that less than all of the principal amount of this Note is
prepaid, upon surrender of this Note to the Company, the Company shall
execute and deliver to Holder a new Note or Notes in principal amount
equal to the unpaid principal amount of this Note.
6.3 Cessation of Rights. From and after the Prepayment Date,
unless there has been a default under the Prepayment Notice, all
interest on the redeemed principal amount shall cease to accrue and all
rights of Holder as a Holder of this Note shall cease with respect to
the principal amount prepaid and, with respect to such amount, this
Note thereafter shall not be deemed to be outstanding for any purpose
whatsoever. By acceptance of this Note, Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time
by the Company in order to implement the foregoing provisions of this
Section.
3
<PAGE>
7. Warrant Coverage. Holder shall receive, on the date hereof, ten-year
warrants (the "Warrants) to purchase 800,000 shares of common stock of the
Company ("Common Stock"). The exercise price of the Warrants shall be $2.25 per
share of Common Stock of the Company ("Exercise Price") and shall become
exercisable six months after the date hereof. The Warrants shall contain the
terms and shall be in the form attached hereto, as Exhibit A.
The holders of the Warrant shall have registration rights in accordance
with the terms as set forth in the a Warrant Agreement in the form attached as
Exhibit B.
8. Subordination. The indebtedness evidenced by this Note shall at all
times be wholly subordinate and junior in right of payment to all obligations of
the Company under or in connection with the Credit Agreement of even date
herewith ("Superior Debt") among the Company as guarantor, the borrowers CECO
Group Inc., CECO Filters, Inc., Air Purator Corporation, New Bush Co., Inc.,
U.S. Facilities Management, Inc., The Kirk & Blum Manufacturing Company, and
kbd/Technic, Inc., and the lenders PNC Bank, National Association and various
other financial institutions, upon the terms and conditions contained in the
Subordination Agreement between Green Diamond Oil Corp., Harvey Sandler, ICS
Trustee Services, Ltd., and PNC Bank, National Association and various other
financial institutions of even date herewith (the "Subordination Agreement").
9. Repayment of Notes. In the event the Company completes an equity
financing or offering or a series of equity financing or offerings for a total
consideration in excess of $10,000,000, then twenty-five percent (25%) of all
such consideration in excess of $10,000,000 shall be used immediately, upon
receipt by the Company, to pre-pay the 1999 Subordinated Notes, provided such
prepayment shall be made proportionately among the 1999 Subordinated Notes until
the 1999 Subordinated Notes are paid in full.
10. Covenants of the Company. The Company covenants and agrees that it
shall not, without the prior written approval of the Holders of a majority of
the aggregate principal amount outstanding of the 1999 Subordinated Notes
("Majority Holders"):
10.1 Obtain or incur any indebtedness or other monetary
obligations that are senior to or on parity with the Notes, other than
the Superior Debt.
10.2 Allow, suffer or cause to exist any lien, claim, security
interest or encumbrance on the Company's property or assets, other than
with respect to the Superior Debt and purchase money indebtedness
incurred in the ordinary course of business.
10.3 Enter into any arrangement or agreement involving the
merger or consolidation of the Company.
10.4 Use the proceeds from the sale of the 1999 Subordinated
Notes other than in the ordinary course of its business for general
corporate purposes including lending monies to any of its subsidiaries.
The Company also covenants and agrees that it shall operate its
business in the ordinary course.
4
<PAGE>
11. Events of Default.
11.1 Occurrences of Events of Default. Each of the following
events shall constitute an "Event of Default" for purposes of this
Note:
(a) if the Company fails to pay any amount payable,
under this Note when due;
(b) if the Company breaches any of its
representations, warranties or covenants set forth in this
Note or the Warrant Agreement;
(c) the commencement of an involuntary case against
the Company or its subsidiary or any of its subsidiaries under
any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or the appointing of a receiver,
liquidator, assignee, custodian, trustee or similar official
of the Company or for any substantial part of the Company or
one of its subsidiary's property, or ordering the winding-up
or liquidation of the Company or one of its subsidiary's
affairs;
(d) if the Company or any of its subsidiaries shall
commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or similar official of the
Company or its subsidiary or for any substantial part of the
Company or one of its subsidiary's property, or shall make any
general assignment for the benefit of creditors, or shall take
any corporate action in furtherance of any of the foregoing;
or
(e) if the Company's business shall fail, as
determined in good faith by the Majority Holders and evidenced
by the Company's inability to pay its ongoing debts as such
debts become due.
11.2 Acceleration Upon Event of Default. If any Event of
Default shall have occurred and be continuing, for any reason
whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or
otherwise), the unpaid principal amount of, and the accrued interest
on, the Notes shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company.
12. Investment Representations of the Holder. With respect to the
purchase of this Note, the Common Stock issuable upon the exercise of the
Warrants (collectively, the "Securities"), the Holder hereby represents and
warrants to the Company as follows:
5
<PAGE>
12.1 Experience. The Holder has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests.
12.2 Investment. The Holder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution
thereof. The Holder understands that the Securities have not been, and
will not be, registered under the Securities Act of 1933, as amended
("Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of
which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Holder's representations as
expressed herein. The holder is an "accredited investor" within the
meaning of Regulation D, Section 501(a), promulgated by the Securities
and Exchange Commission.
12.3 Rule 144. The Holder acknowledges that the Securities
must be held indefinitely unless subsequently registered under the
Securities Act, or unless an exemption from such registration is
available. The Holder understands that at this time the Company is not
under any obligation to register any of the Securities. The Holder is
aware of the provisions of Rule 144 promulgated under the Securities
Act that permit limited resale of securities purchased in a private
placement subject to satisfaction of certain conditions.
12.4 No Public Market. The Holder understands that no public
market now exists for any of the Securities issued by the Company and
that the Company has made no assurances that a public market will ever
exist for the Securities.
12.5 Access to Data. The Holder has had an opportunity to
discuss the Company's business, management and financial affairs with
the Company's management and has also had an opportunity to ask
questions of the Company's officers, which questions were answered to
its satisfaction.
13. Miscellaneous.
13.1 Invalidity of Any Provision. If any provision or part of
any provision of this Note shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Note and
this Note shall be construed as if such invalid, illegal or
unenforceable provisions or part hereof had never been contained
herein, but only to the extent of its invalidity, illegality or
unenforceability.
13.2 Governing Law. The Note shall be governed in all respects
by the laws of the State of New York, excluding its conflict of laws.
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13.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have
been duly given (i) on the date of delivery if delivered personally,
(ii) one (1) business day after transmission by facsimile transmission
with a written confirmation copy sent by first class mail, or (iii)
five (5) days after mailing if mailed by first class mail, to the
following addresses:
If to the Company: CECO Environmental Corp.
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1X3
CANADA
Attention: Phillip DeZwirek
And if to the Holder, to the address or facsimile number of
Holder as set forth on the Company's records, or such other address as
the Holder has provided to the Company by notice duly given.
13.4 Notice of a Sale Transaction. The Company shall give all
Holders of Notes notice of the Closing of a Sale Transaction at least
thirty (30) days prior to such Closing.
13.5 Collection. If the indebtedness represented by the Note
or any part thereof is collected at law or in equity or in bankruptcy,
receivership or other judicial proceedings or if the Note is placed in
the hands of attorneys for collection after the occurrence of an Event
of Default, the Company agrees to pay, in addition to the outstanding
principal and accrued interest payable hereon, reasonable attorneys'
fees and costs incurred by the Holder, or on behalf of the Holder by a
representative of the Holder.
13.6 Successors and Assigns. The rights and obligations of the
Company and the Holder shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.
13.7 Waivers. The Company and any endorsers, sureties,
guarantors, and all others who are, or may become liable for the
payment hereof severally: (a) waive presentment for payment, demand,
notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the
payment of this Note, (b) consent to all extensions of time, renewals,
postponements of time of payment of this Note or other modifications
hereof from time to time prior to or after the maturity date hereof,
whether by acceleration or in due course, without notice, consent or
consideration to any of the foregoing, (c) agree to any substitution,
exchange, addition, or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any
party or person primarily or secondarily liable hereon, (d) agree that
Holder shall not be required first to institute any suit, or to exhaust
its remedies against the Company or any other person or party to become
liable hereunder or against the security in order to enforce the
payment of this Note and (e) agree that, notwithstanding the occurrence
of any of the foregoing (except by the express written release by
Holder of any such person), the Company shall be and remain, directly
and primarily liable for all sums due under this Note.
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13.8 Time. Time is of the essence in this Note.
13.9 Captions. The captions of sections of this Note are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this
Note.
13.10 Number and Gender. Whenever used in this Note, the
singular number shall include the plural, and the masculine shall
include the feminine and the neuter, and vice versa.
13.11 Remedies. All remedies of the Holder shall be cumulative
and concurrent and may be pursued singly, successively, or together at
the sole discretion of the Holder and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of the
Holder, including specifically any failure to exercise any right,
remedy or recourse shall be effective unless it is set forth in a
written document executed by the Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one
event shall not be construed as continuing as a bar to or as a waiver
or release of any subsequent right, remedy, or recourse as to any
subsequent event.
13.12 No Waiver by Holder. The acceptance by Holder of any
payment under this Note which is less than the amount then due or the
acceptance of any amount after the due date thereof, shall not be
deemed a waiver of any right or remedy available to Holder nor nullify
the prior exercise of any such right or remedy by Holder. None of the
terms or provisions of this Promissory Note may be waived, altered,
modified or amended except by a written document executed by Holder and
then only to the extent specifically recited therein. No course of
dealing or conduct shall be effective waive, alter, modify or amend any
of the terms or provisions hereof. The failure or delay to exercise any
right or remedy available to Holder shall not constitute a waiver of
the right of the Holder to exercise the same or any other right or
remedy available to Holder at that time or at any subsequent time.
13.13 Submission to Jurisdiction. BORROWER, AND ANY ENDORSERS,
SURETIES, GUARANTORS AND ALL OTHERS WHO ARE, OR WHO MAY BECOME, LIABLE
FOR THE PAYMENT HEREOF SEVERALLY, IRREVOCABLY AND UNCONDITIONALLY (A)
AGREE THAT ANY SUIT, ACTION, OR OTHER LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
DELIVERED PURSUANT TO, OR IN CONNECTION WITH THIS NOTE SHALL BE BROUGHT
AND MAINTAINED IN THE COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; (B) CONSENT TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING; AND (C) WAIVE ANY OBJECTION WHICH IT OR
THEY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION, OR
PROCEEDING IN ANY OF SUCH COURTS.
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13.14 Waiver of Trial by Jury. HOLDER AND BORROWER HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING
OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN
EVIDENCED BY THIS NOTE.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
-------------------------------
Phillip DeZwirek, President
9
<PAGE>
EXHIBIT 10.10
NEITHER THIS NOTE NOR ANY SECURITIES WHICH MAY BE ISSUED UPON THE EXERCISE OF
THE WARRANTS HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR OTHERWISE QUALIFIED UNDER ANY STATE SECURITIES LAW.
NEITHER THIS NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND REGISTRATION
OR OTHER QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS OF THE SUBORDINATION AGREEMENT (AS DEFINED
HEREIN IN SECTION 8) IN FAVOR OF PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR
CERTAIN BANKS. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN
INSTRUMENT, NO PAYMENT ON ACCOUNT OF ANY OBLIGATION ARISING FROM OR IN
CONNECTION WITH THE WITHIN INSTRUMENT OR ANY RELATED AGREEMENT (WHETHER OF
PRINCIPAL, INTEREST OR OTHERWISE) SHALL BE MADE, PAID, RECEIVED OR ACCEPTED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE SUBORDINATION AGREEMENT.
CECO Environmental Corp.
PROMISSORY NOTE
$500,000 December 7, 1999
FOR VALUE RECEIVED, the undersigned, CECO Environmental Corp. (the
"Company"), a New York corporation, hereby promises to pay to the order of
Harvey Sandler or registered assigns ("Holder"), the principal sum of FIVE
HUNDRED THOUSAND DOLLARS ($500,000.00) on the Maturity Date, as defined in
Section 1 below. This Note is part of a series of Notes of like tenor and effect
to this Note in the aggregate principal amount of $5,000,000 to be issued in
connection with a mezzanine financing by the Company (the "1999 Subordinated
Notes").
1. Maturity. This Note shall be due and payable upon the earlier to
occur of the following events (the "Maturity Date"): (i) six and one-half (6
1/2) years from the date hereof; (ii) six (6) months after repayment of the
Superior Debt (as defined in Section 8 below); or (iii) the closing (any such
closing referred to as the "Closing") of a Sale Transaction. For purposes of
this Note, a Sale Transaction shall mean (i) a merger, consolidation, corporate
reorganization, or sale of shares of stock of the Company as a result of which
there is a change in control and/or the shareholders of the Company on the date
hereof ("Current Shareholders") own 50% or less of the outstanding shares of the
Company on a fully-diluted basis immediately after the transaction and,
including as outstanding for purposes of such calculation, any warrants, options
or other instruments convertible or exchangeable into equity securities of the
Company issued to persons other than the Current Shareholders in connection with
the transaction or (ii) the sale of (A) fifty percent or more of the assets of
the Company or (B) any subsidiary, division or line of business of the Company
for total consideration in excess of $5 million.
1
<PAGE>
2. Interest. Interest shall accrue on the unpaid principal balance
hereof and on any interest payment that is not made when due at the simple
compounded rate of twelve percent (12%) per annum from the date hereof. Accrued
Interest shall be due and payable on June 30 and December 31 of each year
commencing June 30, 2000 and on the Maturity Date. Notwithstanding the
foregoing, interest due under this note on June 30, 2000 and December 31, 2000,
will be paid in accordance with the terms of the Subordination Agreement. It
shall not be a default hereunder and interest will not accrue on any portion of
such interest payments deferred pursuant to the Subordination Agreement
("Deferred Interest") so long as the Deferred Interest is paid at the time and
in the manner allowed by the Subordination Agreement. In the Event of Default
(as defined herein), interest shall accrue on all unpaid amounts due hereunder
including without limitation, interest, at the rate of fifteen percent (15%) per
annum. If a judgment is entered against the Company on this Note, the amount of
the judgment so entered shall bear interest at the highest rate authorized by
law as of the date of the entry of the judgment.
3. Payments. Payments of both principal and interest shall be made at
the principal executive office of the Company, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
So long as no Event of Default has occurred in this Note, all
payments hereunder shall first be applied to interest, then to principal. Upon
the occurrence of an Event of Default in this Note, all payments hereunder shall
first be applied to costs pursuant to Section 13.5, then to interest and the
remainder to principal.
4. Registration, Transfer and Exchange of Notes. The Company will keep
at its principal office a register in which it will provide for the registration
of and transfer of this Note, at its own expense (excluding transfer taxes). If
any Note is surrendered at said office or at the place of payment named in the
Note for registration of transfer or exchange (accompanied in the case of
registration of transfer or exchange by a written instrument of transfer in form
satisfactory to the Company duly executed by or on behalf of the holder), the
Company, at its expense, will deliver in exchange one or more new Notes in
denominations of $10,000 or larger multiples of $1,000, as requested by the
holder for the aggregate unpaid principal amount. Any Note or Notes issued in a
transfer or exchange shall carry the same rights to increase Notes surrendered.
The Holder agrees that prior to making any sale, transfer, pledge, assignment,
hypothecation, or other disposition (each, a "Transfer") of the Note, the Holder
shall give written notice to the Company describing the manner in which any such
proposed Transfer is to be made and providing such additional information and
documentation regarding the Transfer as the Company reasonably requests. If the
Company so requests, the Holder shall at his expense provide the Company with an
opinion of counsel (which counsel must be reasonably satisfactory to the
Company, to the holder, in form and substance satisfactory to the Company) that
the proposed Transfer complies with applicable federal and state securities
laws. The Company shall have no obligation to Transfer any Notes unless the
holder thereof has complied with the foregoing provisions, and any such
attempted Transfer shall be null and void.
2
<PAGE>
5. Registered Owner. Prior to due presentation for registration of
transfer, the Company may treat the person in whose name any Note is registered
as the owner and holder of such Note for the purpose of receiving payment of
principal of, and interest on, such Note and for all other purposes.
6. Prepayment.
6.1 Optional Prepayment. The Company, at its option and
without any premium, may prepay in whole or in part the principal
amount of this Note at 100% of the face value of the Note at any time;
provided, however, that if the Company intends to prepay any one or
more of the 1999 Subordinated Notes in part, it shall prepay the same
percentage of each outstanding 1999 Subordinated Note. The Company
shall, at the time of any such prepayment, pay to the holder of this
Note all interest accrued and unpaid to the Prepayment Date (defined
below). Notwithstanding the foregoing, once a notice of the Closing of
a Sale Transaction pursuant to Section 13.4 has been sent to the
Holder, the Company may not prepay this Note prior to the Closing of a
Sale Transaction, or until the Sale Transaction has been formally
abandoned.
6.2 Notice of Prepayment. At least five (5) but not more than
fifteen (15) days prior to the date fixed for any prepayment, written
notice shall be given to the holders of the 1999 Subordinated Notes of
the election of the Company to prepay all or a specified portion of the
principal amount of the Note (the "Prepayment Notice.") The Prepayment
Notice shall specify the date upon ("Prepayment Date") and the place at
which, payment may be obtained and shall call upon the Holder to
surrender this Note to the Company in the manner and at the place
designated. On the Prepayment Date, the Holder shall surrender this
Note to the Company in the manner and at the place designated in the
Prepayment Notice, and thereupon prepayment shall be made to Holder and
this Note shall be cancelled. In the event that less than all of the
principal amount of this Note is prepaid, upon surrender of this Note
to the Company, the Company shall execute and deliver to Holder a new
Note or Notes in principal amount equal to the unpaid principal amount
of this Note.
6.3 Cessation of Rights. From and after the Prepayment Date,
unless there has been a default under the Prepayment Notice, all
interest on the redeemed principal amount shall cease to accrue and all
rights of Holder as a Holder of this Note shall cease with respect to
the principal amount prepaid and, with respect to such amount, this
Note thereafter shall not be deemed to be outstanding for any purpose
whatsoever. By acceptance of this Note, Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time
by the Company in order to implement the foregoing provisions of this
Section.
7. Warrant Coverage. Holder shall receive, on the date hereof, ten-year
warrants (the "Warrants) to purchase 100,000 shares of common stock of the
Company ("Common Stock"). The exercise price of the Warrants shall be $2.25 per
share of Common Stock of the Company ("Exercise Price") and shall become
exercisable six months after the date hereof. The Warrants shall contain the
terms and shall be in the form attached hereto, as Exhibit A.
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<PAGE>
The holders of the Warrant shall have registration rights in accordance
with the terms as set forth in the a Warrant Agreement in the form attached as
Exhibit B.
8. Subordination. The indebtedness evidenced by this Note shall at all
times be wholly subordinate and junior in right of payment to all obligations of
the Company under or in connection with the Credit Agreement of even date
herewith ("Superior Debt") among the Company as guarantor, the borrowers CECO
Group Inc., CECO Filters, Inc., Air Purator Corporation, New Bush Co., Inc.,
U.S. Facilities Management, Inc., The Kirk & Blum Manufacturing Company, and
kbd/Technic, Inc., and the lenders PNC Bank, National Association and various
other financial institutions, upon the terms and conditions contained in the
Subordination Agreement between Green Diamond Oil Corp., Harvey Sandler, ICS
Trustee Services, Ltd., and PNC Bank, National Association and various other
financial institutions of even date herewith (the "Subordination Agreement").
9. Repayment of Notes. In the event the Company completes an equity
financing or offering or a series of equity financing or offerings for a total
consideration in excess of $10,000,000, then twenty-five percent (25%) of all
such consideration in excess of $10,000,000 shall be used immediately, upon
receipt by the Company, to pre-pay the 1999 Subordinated Notes, provided such
prepayment shall be made proportionately among the 1999 Subordinated Notes until
the 1999 Subordinated Notes are paid in full.
10. Covenants of the Company. The Company covenants and agrees that it
shall not, without the prior written approval of the Holders of a majority of
the aggregate principal amount outstanding of the 1999 Subordinated Notes
("Majority Holders"):
10.1 Obtain or incur any indebtedness or other monetary
obligations that are senior to or on parity with the Notes, other than
the Superior Debt.
10.2 Allow, suffer or cause to exist any lien, claim, security
interest or encumbrance on the Company's property or assets, other than
with respect to the Superior Debt and purchase money indebtedness
incurred in the ordinary course of business.
10.3 Enter into any arrangement or agreement involving the
merger or consolidation of the Company.
10.4 Use the proceeds from the sale of the 1999 Subordinated
Notes other than in the ordinary course of its business for general
corporate purposes including lending monies to any of its subsidiaries.
The Company also covenants and agrees that it shall operate its
business in the ordinary course.
4
<PAGE>
11. Events of Default.
11.1 Occurrences of Events of Default. Each of the following
events shall constitute an "Event of Default" for purposes of this
Note:
(a) if the Company fails to pay any amount payable,
under this Note when due;
(b) if the Company breaches any of its
representations, warranties or covenants set forth in this
Note or the Warrant Agreement;
(c) the commencement of an involuntary case against
the Company or its subsidiary or any of its subsidiaries under
any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or the appointing of a receiver,
liquidator, assignee, custodian, trustee or similar official
of the Company or for any substantial part of the Company or
one of its subsidiary's property, or ordering the winding-up
or liquidation of the Company or one of its subsidiary's
affairs;
(d) if the Company or any of its subsidiaries shall
commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or similar official of the
Company or its subsidiary or for any substantial part of the
Company or one of its subsidiary's property, or shall make any
general assignment for the benefit of creditors, or shall take
any corporate action in furtherance of any of the foregoing;
or
(e) if the Company's business shall fail, as
determined in good faith by the Majority Holders and evidenced
by the Company's inability to pay its ongoing debts as such
debts become due.
11.2 Acceleration Upon Event of Default. If any Event of
Default shall have occurred and be continuing, for any reason
whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or
otherwise), the unpaid principal amount of, and the accrued interest
on, the Notes shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company.
12. Investment Representations of the Holder. With respect to the
purchase of this Note, the Common Stock issuable upon the exercise of the
Warrants (collectively, the "Securities"), the Holder hereby represents and
warrants to the Company as follows:
12.1 Experience. The Holder has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests.
5
<PAGE>
12.2 Investment. The Holder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution
thereof. The Holder understands that the Securities have not been, and
will not be, registered under the Securities Act of 1933, as amended
("Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of
which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Holder's representations as
expressed herein. The holder is an "accredited investor" within the
meaning of Regulation D, Section 501(a), promulgated by the Securities
and Exchange Commission.
12.3 Rule 144. The Holder acknowledges that the Securities
must be held indefinitely unless subsequently registered under the
Securities Act, or unless an exemption from such registration is
available. The Holder understands that at this time the Company is not
under any obligation to register any of the Securities. The Holder is
aware of the provisions of Rule 144 promulgated under the Securities
Act that permit limited resale of securities purchased in a private
placement subject to satisfaction of certain conditions.
12.4 No Public Market. The Holder understands that no public
market now exists for any of the Securities issued by the Company and
that the Company has made no assurances that a public market will ever
exist for the Securities.
12.5 Access to Data. The Holder has had an opportunity to
discuss the Company's business, management and financial affairs with
the Company's management and has also had an opportunity to ask
questions of the Company's officers, which questions were answered to
its satisfaction.
13. Miscellaneous.
13.1 Invalidity of Any Provision. If any provision or part of
any provision of this Note shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Note and
this Note shall be construed as if such invalid, illegal or
unenforceable provisions or part hereof had never been contained
herein, but only to the extent of its invalidity, illegality or
unenforceability.
13.2 Governing Law. The Note shall be governed in all
respects by the laws of the State of New York, excluding its conflict
of laws.
6
<PAGE>
13.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have
been duly given (i) on the date of delivery if delivered personally,
(ii) one (1) business day after transmission by facsimile transmission
with a written confirmation copy sent by first class mail, or (iii)
five (5) days after mailing if mailed by first class mail, to the
following addresses:
If to the Company: CECO Environmental Corp.
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1X3
CANADA
Attention: Phillip DeZwirek
And if to the Holder, to the address or facsimile number of
Holder as set forth on the Company's records, or such other address as
the Holder has provided to the Company by notice duly given, with a
copy to Lawrence N. Rosen, Esq., Lawrence N. Rosen, P.A., 2925 Aventura
Boulevard, Suite 308, Aventura, Florida 33180.
13.4 Notice of a Sale Transaction. The Company shall give all
Holders of Notes notice of the Closing of a Sale Transaction at least
thirty (30) days prior to such Closing.
13.5 Collection. If the indebtedness represented by the Note
or any part thereof is collected at law or in equity or in bankruptcy,
receivership or other judicial proceedings or if the Note is placed in
the hands of attorneys for collection after the occurrence of an Event
of Default, the Company agrees to pay, in addition to the outstanding
principal and accrued interest payable hereon, reasonable attorneys'
fees and costs incurred by the Holder, or on behalf of the Holder by a
representative of the Holder.
13.6 Successors and Assigns. The rights and obligations of the
Company and the Holder shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.
13.7 Waivers. The Company and any endorsers, sureties,
guarantors, and all others who are, or may become liable for the
payment hereof severally: (a) waive presentment for payment, demand,
notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the
payment of this Note, (b) consent to all extensions of time, renewals,
postponements of time of payment of this Note or other modifications
hereof from time to time prior to or after the maturity date hereof,
whether by acceleration or in due course, without notice, consent or
consideration to any of the foregoing, (c) agree to any substitution,
exchange, addition, or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any
party or person primarily or secondarily liable hereon, (d) agree that
Holder shall not be required first to institute any suit, or to exhaust
its remedies against the Company or any other person or party to become
liable hereunder or against the security in order to enforce the
payment of this Note and (e) agree that, notwithstanding the occurrence
of any of the foregoing (except by the express written release by
Holder of any such person), the Company shall be and remain, directly
and primarily liable for all sums due under this Note.
13.8 Time. Time is of the essence in this Note.
7
<PAGE>
13.9 Captions. The captions of sections of this Note are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this
Note.
13.10 Number and Gender. Whenever used in this Note, the
singular number shall include the plural, and the masculine shall
include the feminine and the neuter, and vice versa.
13.11 Remedies. All remedies of the Holder shall be cumulative
and concurrent and may be pursued singly, successively, or together at
the sole discretion of the Holder and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of the
Holder, including specifically any failure to exercise any right,
remedy or recourse shall be effective unless it is set forth in a
written document executed by the Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one
event shall not be construed as continuing as a bar to or as a waiver
or release of any subsequent right, remedy, or recourse as to any
subsequent event.
13.12 No Waiver by Holder. The acceptance by Holder of any
payment under this Note which is less than the amount then due or the
acceptance of any amount after the due date thereof, shall not be
deemed a waiver of any right or remedy available to Holder nor nullify
the prior exercise of any such right or remedy by Holder. None of the
terms or provisions of this Promissory Note may be waived, altered,
modified or amended except by a written document executed by Holder and
then only to the extent specifically recited therein. No course of
dealing or conduct shall be effective waive, alter, modify or amend any
of the terms or provisions hereof. The failure or delay to exercise any
right or remedy available to Holder shall not constitute a waiver of
the right of the Holder to exercise the same or any other right or
remedy available to Holder at that time or at any subsequent time.
13.13 Submission to Jurisdiction. BORROWER, AND ANY ENDORSERS,
SURETIES, GUARANTORS AND ALL OTHERS WHO ARE, OR WHO MAY BECOME, LIABLE
FOR THE PAYMENT HEREOF SEVERALLY, IRREVOCABLY AND UNCONDITIONALLY (A)
AGREE THAT ANY SUIT, ACTION, OR OTHER LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
DELIVERED PURSUANT TO, OR IN CONNECTION WITH THIS NOTE SHALL BE BROUGHT
AND MAINTAINED IN THE COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; (B) CONSENT TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING; AND (C) WAIVE ANY OBJECTION WHICH IT OR
THEY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION, OR
PROCEEDING IN ANY OF SUCH COURTS.
8
<PAGE>
13.14 Waiver of Trial by Jury. HOLDER AND BORROWER HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING
OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN
EVIDENCED BY THIS NOTE.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
-----------------------------
Phillip DeZwirek, President
9
<PAGE>
EXHIBIT 10.11
NEITHER THIS NOTE NOR ANY SECURITIES WHICH MAY BE ISSUED UPON THE EXERCISE OF
THE WARRANTS HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR OTHERWISE QUALIFIED UNDER ANY STATE SECURITIES LAW.
NEITHER THIS NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND REGISTRATION
OR OTHER QUALIFICATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE TERMS OF THE SUBORDINATION AGREEMENT (AS DEFINED
HEREIN IN SECTION 8) IN FAVOR OF PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR
CERTAIN BANKS. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN
INSTRUMENT, NO PAYMENT ON ACCOUNT OF ANY OBLIGATION ARISING FROM OR IN
CONNECTION WITH THE WITHIN INSTRUMENT OR ANY RELATED AGREEMENT (WHETHER OF
PRINCIPAL, INTEREST OR OTHERWISE) SHALL BE MADE, PAID, RECEIVED OR ACCEPTED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE SUBORDINATION AGREEMENT.
CECO Environmental Corp.
PROMISSORY NOTE
$500,000 December 7, 1999
FOR VALUE RECEIVED, the undersigned, CECO Environmental Corp. (the
"Company"), a New York corporation, hereby promises to pay to the order of ICS
Trustee Services Ltd. or registered assigns ("Holder"), the principal sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) on the Maturity Date, as defined in
Section 1 below. This Note is part of a series of Notes of like tenor and effect
to this Note in the aggregate principal amount of $5,000,000 to be issued in
connection with a mezzanine financing by the Company (the "1999 Subordinated
Notes").
1. Maturity. This Note shall be due and payable upon the earlier to
occur of the following events (the "Maturity Date"): (i) six and one-half (6
1/2) years from the date hereof; (ii) six (6) months after repayment of the
Superior Debt (as defined in Section 8 below); or (iii) the closing (any such
closing referred to as the "Closing") of a Sale Transaction. For purposes of
this Note, a Sale Transaction shall mean (i) a merger, consolidation, corporate
reorganization, or sale of shares of stock of the Company as a result of which
there is a change in control and/or the shareholders of the Company on the date
hereof ("Current Shareholders") own 50% or less of the outstanding shares of the
Company on a fully-diluted basis immediately after the transaction and,
including as outstanding for purposes of such calculation, any warrants, options
or other instruments convertible or exchangeable into equity securities of the
Company issued to persons other than the Current Shareholders in connection with
the transaction or (ii) the sale of (A) fifty percent or more of the assets of
the Company or (B) any subsidiary, division or line of business of the Company
for total consideration in excess of $5 million.
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2. Interest. Interest shall accrue on the unpaid principal balance
hereof and on any interest payment that is not made when due at the simple
compounded rate of twelve percent (12%) per annum from the date hereof. Accrued
Interest shall be due and payable on June 30 and December 31 of each year
commencing June 30, 2000 and on the Maturity Date. Notwithstanding the
foregoing, interest due under this note on June 30, 2000 and December 31, 2000,
will be paid in accordance with the terms of the Subordination Agreement. It
shall not be a default hereunder and interest will not accrue on any portion of
such interest payments deferred pursuant to the Subordination Agreement
("Deferred Interest") so long as the Deferred Interest is paid at the time and
in the manner allowed by the Subordination Agreement. In the Event of Default
(as defined herein), interest shall accrue on all unpaid amounts due hereunder
including without limitation, interest, at the rate of fifteen percent (15%) per
annum. If a judgment is entered against the Company on this Note, the amount of
the judgment so entered shall bear interest at the highest rate authorized by
law as of the date of the entry of the judgment.
3. Payments. Payments of both principal and interest shall be made at
the principal executive office of the Company, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
So long as no Event of Default has occurred in this Note, all
payments hereunder shall first be applied to interest, then to principal. Upon
the occurrence of an Event of Default in this Note, all payments hereunder shall
first be applied to costs pursuant to Section 13.5, then to interest and the
remainder to principal.
4. Registration, Transfer and Exchange of Notes. The Company will keep
at its principal office a register in which it will provide for the registration
of and transfer of this Note, at its own expense (excluding transfer taxes). If
any Note is surrendered at said office or at the place of payment named in the
Note for registration of transfer or exchange (accompanied in the case of
registration of transfer or exchange by a written instrument of transfer in form
satisfactory to the Company duly executed by or on behalf of the holder), the
Company, at its expense, will deliver in exchange one or more new Notes in
denominations of $10,000 or larger multiples of $1,000, as requested by the
holder for the aggregate unpaid principal amount. Any Note or Notes issued in a
transfer or exchange shall carry the same rights to increase Notes surrendered.
The Holder agrees that prior to making any sale, transfer, pledge, assignment,
hypothecation, or other disposition (each, a "Transfer") of the Note, the Holder
shall give written notice to the Company describing the manner in which any such
proposed Transfer is to be made and providing such additional information and
documentation regarding the Transfer as the Company reasonably requests. If the
Company so requests, the Holder shall at his expense provide the Company with an
opinion of counsel (which counsel must be reasonably satisfactory to the
Company, to the holder, in form and substance satisfactory to the Company) that
the proposed Transfer complies with applicable federal and state securities
laws. The Company shall have no obligation to Transfer any Notes unless the
holder thereof has complied with the foregoing provisions, and any such
attempted Transfer shall be null and void.
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<PAGE>
5. Registered Owner. Prior to due presentation for registration of
transfer, the Company may treat the person in whose name any Note is registered
as the owner and holder of such Note for the purpose of receiving payment of
principal of, and interest on, such Note and for all other purposes.
6. Prepayment.
6.1 Optional Prepayment. The Company, at its option and
without any premium, may prepay in whole or in part the principal
amount of this Note at 100% of the face value of the Note at any time;
provided, however, that if the Company intends to prepay any one or
more of the 1999 Subordinated Notes in part, it shall prepay the same
percentage of each outstanding 1999 Subordinated Note. The Company
shall, at the time of any such prepayment, pay to the holder of this
Note all interest accrued and unpaid to the Prepayment Date (defined
below). Notwithstanding the foregoing, once a notice of the Closing of
a Sale Transaction pursuant to Section 13.4 has been sent to the
Holder, the Company may not prepay this Note prior to the Closing of a
Sale Transaction, or until the Sale Transaction has been formally
abandoned.
6.2 Notice of Prepayment. At least five (5) but not more than
fifteen (15) days prior to the date fixed for any prepayment, written
notice shall be given to the holder of the Notes of the election of the
Company to prepay all or a specified portion of the principal amount of
the Note (the "Prepayment Notice.") The Prepayment Notice shall specify
the date upon ("Prepayment Date") and the place at which, payment may
be obtained and shall call upon the Holder to surrender the Note to the
Company in the manner and at the place designated. On the Prepayment
Date, the Holder shall surrender this Note to the Company in the manner
and at the place designated in the Prepayment Notice, and thereupon
prepayment shall be made to Holder and this Note shall be cancelled. In
the event that less than all of the principal amount of this Note is
prepaid, upon surrender of this Note to the Company, the Company shall
execute and deliver to Holder a new Note or Notes in principal amount
equal to the unpaid principal amount of this Note.
6.3 Cessation of Rights. From and after the Prepayment Date,
unless there has been a default under the Prepayment Notice, all
interest on the redeemed principal amount shall cease to accrue and all
rights of Holder as a Holder of this Note shall cease with respect to
the principal amount prepaid and, with respect to such amount, this
Note thereafter shall not be deemed to be outstanding for any purpose
whatsoever. By acceptance of this Note, Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time
by the Company in order to implement the foregoing provisions of this
Section.
7. Warrant Coverage. Holder shall receive, on the date hereof, ten-year
warrants (the "Warrants) to purchase 100,000 shares of common stock of the
Company ("Common Stock"). The exercise price of the Warrants shall be $2.25 per
share of Common Stock of the Company ("Exercise Price") and shall become
exercisable six months after the date hereof. The Warrants shall contain the
terms and shall be in the form attached hereto, as Exhibit A.
The holders of the Warrant shall have registration rights in accordance
with the terms as set forth in the a Warrant Agreement in the form attached as
Exhibit B.
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<PAGE>
8. Subordination. The indebtedness evidenced by this Note shall at all
times be wholly subordinate and junior in right of payment to all obligations of
the Company under or in connection with the Credit Agreement of even date
herewith ("Superior Debt") among the Company as guarantor, the borrowers CECO
Group Inc., CECO Filters, Inc., Air Purator Corporation, New Bush Co., Inc.,
U.S. Facilities Management, Inc., The Kirk & Blum Manufacturing Company, and
kbd/Technic, Inc., and the lenders PNC Bank, National Association and various
other financial institutions, upon the terms and conditions contained in the
Subordination Agreement between Green Diamond Oil Corp., Harvey Sandler, ICS
Trustee Services, Ltd., and PNC Bank, National Association and various other
financial institutions of even date herewith (the "Subordination Agreement").
9. Repayment of Notes. In the event the Company completes an equity
financing or offering or a series of equity financing or offerings for a total
consideration in excess of $10,000,000, then twenty-five percent (25%) of all
such consideration in excess of $10,000,000 shall be used immediately, upon
receipt by the Company, to pre-pay the 1999 Subordinated Notes, provided such
prepayment shall be made proportionately among the 1999 Subordinated Notes until
the 1999 Subordinated Notes are paid in full.
10. Covenants of the Company. The Company covenants and agrees that it
shall not, without the prior written approval of the Holders of a majority of
the aggregate principal amount outstanding of the 1999 Subordinated Notes
("Majority Holders"):
10.1 Obtain or incur any indebtedness or other monetary
obligations that are senior to or on parity with the Notes, other than
the Superior Debt.
10.2 Allow, suffer or cause to exist any lien, claim, security
interest or encumbrance on the Company's property or assets, other than
with respect to the Superior Debt and purchase money indebtedness
incurred in the ordinary course of business.
10.3 Enter into any arrangement or agreement involving the
merger or consolidation of the Company.
10.4 Use the proceeds from the sale of the 1999 Subordinated
Notes other than in the ordinary course of its business for general
corporate purposes including lending monies to any of its subsidiaries.
The Company also covenants and agrees that it shall operate its
business in the ordinary course.
11. Events of Default.
11.1 Occurrences of Events of Default. Each of the following
events shall constitute an "Event of Default" for purposes of this
Note:
(a) if the Company fails to pay any amount payable,
under this Note when due;
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<PAGE>
(b) if the Company breaches any of its
representations, warranties or covenants set forth in this
Note or the Warrant Agreement;
(c) the commencement of an involuntary case against
the Company or its subsidiary or any of its subsidiaries under
any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or the appointing of a receiver,
liquidator, assignee, custodian, trustee or similar official
of the Company or for any substantial part of the Company or
one of its subsidiary's property, or ordering the winding-up
or liquidation of the Company or one of its subsidiary's
affairs;
(d) if the Company or any of its subsidiaries shall
commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or similar official of the
Company or its subsidiary or for any substantial part of the
Company or one of its subsidiary's property, or shall make any
general assignment for the benefit of creditors, or shall take
any corporate action in furtherance of any of the foregoing;
or
(e) if the Company's business shall fail, as
determined in good faith by the Majority Holders and evidenced
by the Company's inability to pay its ongoing debts as such
debts become due.
11.2 Acceleration Upon Event of Default. If any Event of
Default shall have occurred and be continuing, for any reason
whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or
otherwise), the unpaid principal amount of, and the accrued interest
on, the Notes shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company.
12. Investment Representations of the Holder. With respect to the
purchase of this Note, the Common Stock issuable upon the exercise of the
Warrants (collectively, the "Securities"), the Holder hereby represents and
warrants to the Company as follows:
12.1 Experience. The Holder has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests.
12.2 Investment. The Holder is acquiring the Securities for
investment for its own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution
thereof. The Holder understands that the Securities have not been, and
will not be, registered under the Securities Act of 1933, as amended
("Securities Act"), by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of
which depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Holder's representations as
expressed herein. The holder is an "accredited investor" within the
meaning of Regulation D, Section 501(a), promulgated by the Securities
and Exchange Commission.
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<PAGE>
12.3 Rule 144. The Holder acknowledges that the Securities
must be held indefinitely unless subsequently registered under the
Securities Act, or unless an exemption from such registration is
available. The Holder understands that at this time the Company is not
under any obligation to register any of the Securities. The Holder is
aware of the provisions of Rule 144 promulgated under the Securities
Act that permit limited resale of securities purchased in a private
placement subject to satisfaction of certain conditions.
12.4 No Public Market. The Holder understands that no public
market now exists for any of the Securities issued by the Company and
that the Company has made no assurances that a public market will ever
exist for the Securities.
12.5 Access to Data. The Holder has had an opportunity to
discuss the Company's business, management and financial affairs with
the Company's management and has also had an opportunity to ask
questions of the Company's officers, which questions were answered to
its satisfaction.
13. Miscellaneous.
13.1 Invalidity of Any Provision. If any provision or part of
any provision of this Note shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Note and
this Note shall be construed as if such invalid, illegal or
unenforceable provisions or part hereof had never been contained
herein, but only to the extent of its invalidity, illegality or
unenforceability.
13.2 Governing Law. The Note shall be governed in all
respects by the laws of the State of New York, excluding its conflict
of laws.
13.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have
been duly given (i) on the date of delivery if delivered personally,
(ii) one (1) business day after transmission by facsimile transmission
with a written confirmation copy sent by first class mail, or (iii)
five (5) days after mailing if mailed by first class mail, to the
following addresses:
If to the Company: CECO Environmental Corp.
505 University Avenue, Suite 1400
Toronto, Ontario M5G 1X3
CANADA
Attention: Phillip DeZwirek
And if to the Holder, to the address or facsimile number of
Holder as set forth on the Company's records, or such other address as
the Holder has provided to the Company by notice duly given.
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<PAGE>
13.4 Notice of a Sale Transaction. The Company shall give all
Holders of Notes notice of the Closing of a Sale Transaction at least
thirty (30) days prior to such Closing.
13.5 Collection. If the indebtedness represented by the Note
or any part thereof is collected at law or in equity or in bankruptcy,
receivership or other judicial proceedings or if the Note is placed in
the hands of attorneys for collection after the occurrence of an Event
of Default, the Company agrees to pay, in addition to the outstanding
principal and accrued interest payable hereon, reasonable attorneys'
fees and costs incurred by the Holder, or on behalf of the Holder by a
representative of the Holder.
13.6 Successors and Assigns. The rights and obligations of the
Company and the Holder shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the
parties.
13.7 Waivers. The Company and any endorsers, sureties,
guarantors, and all others who are, or may become liable for the
payment hereof severally: (a) waive presentment for payment, demand,
notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the
payment of this Note, (b) consent to all extensions of time, renewals,
postponements of time of payment of this Note or other modifications
hereof from time to time prior to or after the maturity date hereof,
whether by acceleration or in due course, without notice, consent or
consideration to any of the foregoing, (c) agree to any substitution,
exchange, addition, or release of any of the security for the
indebtedness evidenced by this Note or the addition or release of any
party or person primarily or secondarily liable hereon, (d) agree that
Holder shall not be required first to institute any suit, or to exhaust
its remedies against the Company or any other person or party to become
liable hereunder or against the security in order to enforce the
payment of this Note and (e) agree that, notwithstanding the occurrence
of any of the foregoing (except by the express written release by
Holder of any such person), the Company shall be and remain, directly
and primarily liable for all sums due under this Note.
13.8 Time. Time is of the essence in this Note.
13.9 Captions. The captions of sections of this Note are for
convenient reference only, and shall not affect the construction or
interpretation of any of the terms and provisions set forth in this
Note.
13.10 Number and Gender. Whenever used in this Note, the
singular number shall include the plural, and the masculine shall
include the feminine and the neuter, and vice versa.
13.11 Remedies. All remedies of the Holder shall be cumulative
and concurrent and may be pursued singly, successively, or together at
the sole discretion of the Holder and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of the
Holder, including specifically any failure to exercise any right,
remedy or recourse shall be effective unless it is set forth in a
written document executed by the Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one
event shall not be construed as continuing as a bar to or as a waiver
or release of any subsequent right, remedy, or recourse as to any
subsequent event.
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13.12 No Waiver by Holder. The acceptance by Holder of any
payment under this Note which is less than the amount then due or the
acceptance of any amount after the due date thereof, shall not be
deemed a waiver of any right or remedy available to Holder nor nullify
the prior exercise of any such right or remedy by Holder. None of the
terms or provisions of this Promissory Note may be waived, altered,
modified or amended except by a written document executed by Holder and
then only to the extent specifically recited therein. No course of
dealing or conduct shall be effective waive, alter, modify or amend any
of the terms or provisions hereof. The failure or delay to exercise any
right or remedy available to Holder shall not constitute a waiver of
the right of the Holder to exercise the same or any other right or
remedy available to Holder at that time or at any subsequent time.
13.13 Submission to Jurisdiction. BORROWER, AND ANY ENDORSERS,
SURETIES, GUARANTORS AND ALL OTHERS WHO ARE, OR WHO MAY BECOME, LIABLE
FOR THE PAYMENT HEREOF SEVERALLY, IRREVOCABLY AND UNCONDITIONALLY (A)
AGREE THAT ANY SUIT, ACTION, OR OTHER LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS NOTE OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
DELIVERED PURSUANT TO, OR IN CONNECTION WITH THIS NOTE SHALL BE BROUGHT
AND MAINTAINED IN THE COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK; (B) CONSENT TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING; AND (C) WAIVE ANY OBJECTION WHICH IT OR
THEY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION, OR
PROCEEDING IN ANY OF SUCH COURTS.
13.14 Waiver of Trial by Jury. HOLDER AND BORROWER HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING
OR COUNTERCLAIM BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER TO MAKE THE LOAN
EVIDENCED BY THIS NOTE.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
-----------------------------
Phillip DeZwirek, President
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EXHIBIT 10.12
-------------------------
CECO ENVIRONMENTAL CORP.
AND
GREEN DIAMOND OIL CORP.
AND
HARVEY SANDLER
AND
ICS TRUSTEE SERVICES LTD.
WARRANT AGREEMENT
Dated as of December 7, 1999
-------------------------
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WARRANT AGREEMENT (the "Agreement") dated as of December 7, 1999
between CECO Environmental Corp., a New York corporation (the "Company"), Green
Diamond Oil Corp. ("Green Diamond"), an Ontario corporation, Harvey Sandler
("Sandler"), and ICS Trustee Services Ltd. ("ICS") (Green Diamond, Sandler, and
ICS are hereinafter collectively referred to as a "Holder", "Holder(s)" or the
"Initial Holders").
W I T N E S S E T H :
WHEREAS, Green Diamond, Sandler, and ICS have aggregately loaned
$5,000,000 to the Company as evidenced by notes dated the date hereof, executed
by the Company in favor of Green Diamond, Sandler, and ICS (the "Notes"); and
WHEREAS, Green Diamond is owned 50% by Phillip DeZwirek and 50% by
Jason DeZwirek.
WHEREAS, in connection with the sale of the Notes, the Company desires
to grant to the Initial Holders, and the Initial Holders desire to accept from
the Company, warrant certificates ("Warrants") giving the Initial Holders the
right to purchase shares of the Company's Common Stock.
NOW, THEREFORE, in consideration of the premises, the payment by the
Initial Holders to the Company of an aggregate of ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant. The Initial Holders are hereby granted the right to purchase
from the Company (a "Warrant"), at any time from six months from the date
hereof, until 5:30 p.m., New York time, on December 5, 2010 (the "Expiration
Date"), at which time such Warrants shall expire, up to an aggregate of
1,000,000 shares (subject to adjustment as provided in Section 8 hereof) of
common stock, par value $.01 per share, of the Company and as further defined in
Section 11.3 hereof ("Common Stock") at an initial exercise price (subject to
adjustment as provided in Section 11 hereof) of $2.25 per share (the "Exercise
Price"). The Warrants shall be issued to the Initial Holders pro rata based upon
the initial face amount of the Notes purchased by each of the Initial Holders.
2. Warrant Certificates. Certificates evidencing the Warrants (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Registration of Warrant. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
4. Exercise of Warrant.
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4.1 Method of Exercise. Each of the Warrants are exercisable
to purchase one share of Common Stock at an initial exercise price equal to the
Exercise Price; provided, however, the Exercise Price and the number of shares
of Common Stock for which a Warrant may be exercised shall be the price and the
number of shares of Common Stock which shall result from time to time from any
and all adjustments in accordance with the provisions of Section 11 hereof. The
product of the number of Warrants exercised at any one time multiplied by the
Exercise Price shall be referred to as the "Purchase Price." Upon surrender of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price, by certified or official bank check
in United States Dollars for the shares of Common Stock purchased at the
Company's principal offices located at 505 University Avenue, Suite 1400,
Toronto, Ontario, Canada, the registered Holder of a Warrant Certificate shall
be entitled to receive a certificate or certificates for the shares of Common
Stock so purchased. The right to purchase the Common Stock represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of a purchase of less than all the shares of Common Stock purchasable under
any Warrant Certificate, the Company shall cancel said Warrant Certificate upon
the surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
5. Issuance of Certificates. Upon the exercise of one or more Warrants
and payment of the Purchase Price by a Holder, the issuance of certificates for
the number of shares of Common Stock in respect of which such Warrants are then
exercised shall be made forthwith (and in any event within five (5) business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Sections 7 and 9 hereof)
be issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock, or other securities, property or rights issued upon exercise of
the Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the then present President or any Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or any Assistant Secretary
of the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
6. Transfer of Warrant. Warrants shall be transferable only on the
books of the Company maintained at its principal office, where its principal
office may then be located, upon delivery thereof duly endorsed by the Holder or
by its duly authorized attorney or representative accompanied by proper evidence
of succession, assignment or authority to transfer. Upon any registration
transfer, the Company shall execute and deliver new Warrant Certificates to the
person entitled thereto.
7. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof.
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8. [Intentionally Omitted.]
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Warrant Certificate and each certificate representing the shares of Common
Stock, and any of the other securities issuable upon exercise of the Warrants
and the securities underlying the securities issuable upon exercise of the
Warrants (collectively, the "Warrant Shares") shall bear the following legend,
unless (i) such Warrants or Warrant Shares are distributed to the public or sold
for distribution to the public pursuant to this Section 9 or otherwise pursuant
to a registration statement filed under the Securities Act of 1933, as amended
(the "Act"), (ii) such Warrants or Warrant Shares are subject to a currently
effective registration statement under the Act; or (iii) the Company has
received an opinion of counsel, in form and substance reasonably satisfactory to
counsel for the Company, that such legend is unnecessary for any such
certificate:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER
SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE
WARRANT AGREEMENT REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing six
months from the date hereof, and expiring on the Expiration Date, the Company
proposes to register any of its securities, under the Act (other than in
connection with a merger or pursuant to Form S-4 or Form S-8) it will give
written notice by registered mail, at least thirty (30) days prior to the filing
of each such registration statement, to the Holders of the Warrants and/or the
Warrant Shares of its intention to do so. If any of the Holders of the Warrants
and/or Warrant Shares notify the Company within twenty (20) days after mailing
of any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Warrants and/or Warrant Shares the opportunity to have any such Warrant Shares
registered under such registration statement. In the event that the managing
underwriter for said offering advises the Company in writing that in the
underwriter's opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) first, the
securities the Company proposes to sell, (b) second, the securities held by the
entities that made the demand for registration, (c) third, the Warrants and/or
Warrant Shares requested to be included in such registration which in the
opinion of such underwriter can be sold, pro rata among the Holders of Warrants
and/or Warrant Shares on the basis of the number of Warrants and/or Warrant
Shares requested to be registered by such Holders, and (d) fourth, other
securities requested to be included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
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9.3 Demand Registration.
(a) At any time commencing six months from the date
hereof and expiring on the Expiration Date, the Holders of the Warrants and/or
Warrant Shares representing a "Majority" (as hereinafter defined) of the
Warrants and/or Warrant Shares shall have the right (which right is in addition
to the registration rights under Section 9.2 hereof), exercisable by written
notice to the Company (a "Demand Registration"), to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale by such Holders and any other Holders of the Warrants
and/or Warrant Shares who notify the Company within fifteen (15) days after the
Company mails notice of such request pursuant to Section 9.3(b) hereof
(collectively, the "Requesting Holders") of their respective Warrant Shares so
as to allow the unrestricted sale of all or part (as directed by the Holders) of
the Warrant Shares to the public from time to time until the earlier of the
following: (i) the Expiration Date, or (ii) the date on which all of the Warrant
Shares requested to be registered by the Requesting Holders have been sold (the
"Registration Period"). The Company must effect as many Demand Registrations
requested pursuant to this Section 9.3(a) to the extent such registrations may
be effected on Commission Form S-3 or any successor or similar short-form
registration statement ("Commission Form S-3"), but the Company shall not be
obligated to effect more than two (2) Demand Registrations hereunder on
Commission Form S-1 or any other Commission Form other than Commission Form S-3.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 9.3 by any Holder or
Holders representing a Majority of the Warrants and/or Warrant Shares to all
other registered Holders of the Warrants and the Warrant Shares within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under
Section 9.2 and subsection (a) of this Section 9.3, at any time commencing six
months from the date hereof and expiring on the Expiration Date, the Holders of
Warrants and/or Warrant Shares shall have the right on one occasion, exercisable
by written request to the Company, to have the Company prepare and file with the
Commission a registration statement so as to permit a public offering and sale
by such Holders of their respective Warrant Shares from time to time until the
first to occur of the following: (i) the expiration of this Agreement, or (ii)
all of the Warrant Shares requested to be registered by such Holders have been
sold; provided, however, that the provisions of Section 9.4(b) hereof shall not
apply to any such registration request and registration and all costs incident
thereto shall be at the expense of the Holder or Holders making such request.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested. The Company
shall also file such applications and other documents as may be necessary to
permit the sale of the Warrant Shares to the public during the Registration
Period in those states to which the Company and the holders of the Warrants
and/or Warrant Shares shall mutually agree.
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(b) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements filed pursuant
to Sections 9.2 and 9.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with the
registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which
may be required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holder(s) within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement.
(e) In order to provide for just and equitable
contribution under the Act in any case in which (i) any Holder of the Warrant
Shares or controlling person thereof makes a claim for indemnification but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9.4(d) hereof
provide for indemnification in such case or (ii) contribution under the Act may
be required on the part of any Holder of the Warrant Shares, or controlling
person thereof, then the Company, any such Holder of the Warrant Shares, or
controlling person thereof shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault 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 Company on the one hand, or a Holder of
Warrant Shares, or controlling person thereof on the other, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and such Holders of such
securities and such controlling persons agree that it would not be just and
equitable if contribution pursuant to this Section 9.4(e) were determined by pro
rata allocation or by any other method which does not take account of the
equitable considerations referred to in this Section 9.4(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
9.4(e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. 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.
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(f) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by, or on behalf of, such Holders, or
their successors or assigns, for specific inclusion in such registration
statement.
(g) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(h) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement (other than a registration statement on Form S-4 or S-8) to be or
remain effective during a one hundred and eighty (180) day period following the
effective date of a registration statement filed pursuant to Section 9.3 hereof,
without the prior written consent of the Holder(s) of the Warrants and Warrant
Shares representing a Majority of such securities or as otherwise required by
the terms of any existing registration rights granted prior to the date of this
Agreement by the Company to the holders of any of the Company's securities.
(i) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a "cold
comfort" letter dated the date of the closing under the underwriting agreement)
signed by the independent public accountants who have issued a report on the
Company's financial statements included in such registration statement, in each
case covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(j) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
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(k) The Company shall enter into an underwriting
agreement with the managing underwriters selected for such underwriting by
Holders holding a Majority of the Warrant Shares requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holder(s) shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Shares and may, at their
option, require that any or all of the representations, warranties and covenants
of the Company to or for the benefit of such underwriters shall also be made to
and for the benefit of such Holder(s). Such Holder(s) shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holder(s) and their intended
methods of distribution.
(l) For purposes of this Agreement, the term
"Majority" in reference to the Warrants or Warrant Shares, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Shares that
(i) are not held by the Company, or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act or
Rule 144 promulgated under the Act.
10. Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus
relating to the Warrant Shares covered by a registration statement is required
to be delivered under the Act, of the happening of any event with respect to
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities. The
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants or the securities underlying the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
11.1 Adjustment for Combinations or Consolidations of Common Stock. In
the event the Company at any time or from time to time after the date of the
issuance of the Warrants (the "Warrant Issue Date"), as the case may be, effects
a subdivision or combination of its outstanding Common Stock into a greater or
lesser number of shares, then the existing Exercise Price for the Warrants will
be decreased or increased proportionately.
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11.2 Adjustment for Dividends and Distributions of Common Stock and
Common Stock Equivalents. In the event the Company at any time or from time to
time after the Warrant Issue Date makes or issues, or fixes a record date for
the determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights (hereinafter referred to as "Common Stock Equivalents")
convertible into or entitling the holder thereof to receive additional shares of
Common Stock without payment of any consideration for such Common Stock
Equivalents or the additional shares of Common Stock, for the purpose of
protecting the Holders from any dilution in connection therewith, then and in
each such event the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such Common
Stock Equivalents will be deemed to be issued and outstanding as of the time of
such issuance or, in the event such a record date has been fixed, as of the
close of business on such record date. In each such event, the then existing
Exercise Price for the Warrants will be decreased as of the time of such
issuance or, in the event such a record date has been fixed, as of the close of
business on such record date, by multiplying the applicable Exercise Price by a
fraction:
(i) the numerator of which will be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(ii) the denominator of which will be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
that number of shares of Common Stock issuable in payment of such
dividend or distribution or upon conversion or exercise of such Common
Stock Equivalents; provided that if such record date has been fixed and
such dividend is not fully paid or if such distribution is not fully
made on the date fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, then the
Exercise Price for the Warrants will be recomputed accordingly as of
the close of business on such record date and thereafter the Exercise
Price for the Warrants will be adjusted pursuant to this Section 11.2
as of the time of actual payment of such dividends or distribution.
11.3 Recapitalization. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or consolidation transaction provided for elsewhere in this Section
11), provision shall be made so that the holders of Warrants shall thereafter be
entitled to receive upon exercise of such Warrants the number of shares of stock
or other securities or property of the Company or otherwise, to which a holder
of Common Stock issuable upon exercise thereof would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 11 with respect to the rights of
the holders of Warrants after the recapitalization to the end that the
provisions of this Section 11 (including adjustment of the Exercise Price then
in effect and the number of shares purchasable upon exercise of Warrants) shall
be applicable after that event as nearly equivalent as may be practicable.
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11.4 Adjustment for Sale of Shares.
(i) If at any time after the Warrant Issue Date, the Company
issues or sells any shares of its Common Stock, other than "Excluded
Shares" (as defined below), for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such
issue, then and in each such case, the Exercise Price will be reduced to
a price (calculated to the nearest cent) determined by multiplying the
Exercise Price by a fraction (1) the numerator of which will be the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock which the aggregate
consideration received by the Company for such issuance would purchase
at such Exercise Price, and (2) the denominator of which will be the
number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock issued pursuant to
such issuance; provided that such fraction will in no event be greater
than one (1), such that the Exercise Price will not be increased by the
adjustment provided in this clause (i).
For purposes of this Section 11: the shares of Common Stock initially
issuable upon exercise of the Warrants will be deemed to be outstanding on the
Warrant Issue Date; and the term "Excluded Shares" will mean (A) shares of
Common Stock issued on exercise of the Warrants; (B) shares of Common Stock
issued either directly or upon exercise of options or warrants to officers,
directors or employees of, or consultants, advisers and others who provide
services to, the Company and its subsidiaries (the "Compensatory Shares")
pursuant to any stock option or purchase plan or similar arrangement approved by
the Board of Directors and (C) shares of Common Stock or Preferred Stock issued
either directly or upon the exercise or conversion of options, warrants or
rights or other securities convertible into shares of Common Stock ("Strategic
Shares"), in connection with a transaction with a third party which is
determined to have as its primary purpose the formation of a strategic business
relationship, such determination being made in good faith by the Board of
Directors, provided that the number of Strategic Shares so issued does not
exceed, in the aggregate, 20% of the Fully-Diluted Outstanding Stock, or such
higher percentage of the Fully-Diluted Outstanding Stock as may be approved by
the unanimous written consent of all of the Directors of this Company. The term
"Fully-Diluted Outstanding Stock" means all of the outstanding shares of Common
Stock of the Company, including the total number of shares of Common Stock into
which all outstanding warrants, options, and rights are then exercisable and all
outstanding shares of convertible stock are then convertible. For the purpose of
making any adjustment in the Exercise Price as provided above, the consideration
received by the Company for any issue or sale of Common Stock will be computed:
(A) to the extent it consists of cash, as the amount
of cash received by the Company before deduction of any offering
expenses payable by the Company and any underwriting or similar
commissions, compensation, or concessions paid or allowed by the
Company in connection with such issue or sale;
(B) to the extent it consists of property other than
cash, at the fair market value of that property as determined in
good faith by the Company's Board of Directors; and
(C) if Common Stock is issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, as the portion of the
consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such
Common Stock.
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(ii) If the Company (1) grants any rights or options (other
than rights or options issued in connection with the Compensatory
Shares or Strategic Shares) to subscribe for, purchase, or otherwise
acquire shares of Common Stock, or (2) issues or sells any security
ultimately convertible into shares of Common Stock, then, in each such
case, the price per share of Common Stock issuable on the exercise of
the rights or options or the conversion of the securities will be
determined by dividing the total amount, if any, received or receivable
by the Company as consideration for the granting of the rights or
options or the issue or sale of the convertible securities, plus the
minimum aggregate amount of additional consideration payable to the
Company on exercise or conversion of the securities, by the maximum
number of shares of Common Stock issuable on the exercise or
conversion. Such granting or issuance or sale will be considered to be
an issuance or sale for cash of the maximum number of shares of Common
Stock issuable on exercise or conversion at the price per share
determined under this subsection, and the Exercise Price for the
Warrants will be adjusted as above provided to reflect (on the basis of
that determination) the issuance or sale. No further adjustment of the
Exercise Price will be made as a result of the actual issuance of
shares of Common Stock on the exercise of any such rights or options or
the conversion of any such convertible securities.
(iii) Upon the redemption or repurchase of any such securities
exercisable into Common Stock, or the expiration or termination of the
right to convert into, exchange for, or exercise with respect to,
Common Stock, the Exercise Price will be readjusted to such price as
would have been obtained had the adjustment made upon their issuance
been made upon the basis of the issuance of only the number of such
securities as were actually converted into, exchanged for, or exercised
with respect to, Common Stock. If the purchase price or conversion or
exchange rate provided for in any such security changes at any time,
then, upon such change becoming effective, the Exercise Price then in
effect will be readjusted forthwith to such price as would have been
obtained had the adjustment made upon the issuance of such securities
been made upon the basis of (1) the issuance of only the number of
shares of Common Stock theretofore actually delivered upon the
conversion, exchange or exercise of such securities, and the total
consideration received therefor, and (2) the granting or issuance, at
the time of such change, of any such securities then still outstanding
for the consideration, if any, received by the Company therefor and to
be received on the basis of such changed price or rate.
11.5 Successive Changes. The above provisions of this Section 11 shall
similarly apply to successive issuances, sales, dividends or other
distributions, subdivisions and combinations on or of the Common Stock after the
Warrant Issue Date.
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11.6 Excluded Events. Notwithstanding anything in this Section 11 to the
contrary, the Exercise Price shall not be adjusted by virtue of the Exercise of
Warrants into shares of Common Stock.
11.7 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to each Holder a supplemental warrant
agreement providing that (i) the Holder of each Warrant then outstanding shall
have the right thereafter (until the Expiration Date) to receive, upon exercise
of such Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger to which the Holder would
have been entitled if the Holder had exercised such Warrant immediately prior to
such consolidation, merger, sale or transfer, and (ii) the corporation resulting
from such merger or consolidation shall expressly assume the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 11. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
11.8 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price for the Warrants, pursuant to
this Section 11, the Company, at its expense upon request by any holder of
Warrants shall compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each such holder of Warrants a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. Such certificate
shall set forth (i) such adjustment and readjustment, (ii) the current Exercise
Price for the Warrants, at the time in effect, (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the Exercise of a Warrant, and (iv) if such adjustment is the
result of an issuance of Common Stock, the number of shares of Common Stock
issued and the consideration received therefor.
12. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable, without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company for a new
Warrant Certificate of like tenor and date representing in the aggregate the
Holder's right to purchase the same number of Warrant Shares in such
denominations as shall be designated in such Warrant Certificate at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
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13. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or other securities upon the exercise of the Warrants, nor shall it be required
to issue scrip or pay cash in lieu of fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
14. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof or the exercise or conversion of any
other exercisable or convertible securities underlying the Warrants. Every
transfer agent and warrant agent (collectively "Transfer Agent") for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares of Common Stock and other securities as shall
be requisite for such purpose. The Company will keep a copy of this Agreement on
file with every Transfer Agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants. The Company will supply
every such Transfer Agent with duly executed stock and other certificates, as
appropriate, for such purpose. The Company covenants and agrees that, upon each
exercise of the Warrants and payment of the Purchase Price, all shares of Common
Stock and other securities issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any stockholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock and other securities
issuable upon the exercise of the Warrants and the securities underlying the
securities issuable upon exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges or securities
associations on which the Common Stock issued to the public in connection
herewith may then be listed and/or quoted.
15. Representations and Warranties of the Company The Company hereby
represents and warrants, as follows:
(a) All corporate action on the part of the Company,
its officers, directors, and stockholders necessary for the sale and issuance of
the Warrants pursuant to this Agreement and the performance of the Company's
obligations hereunder including without limitation the consent of certain
shareholders of the Company (if necessary) has been taken. This Agreement is a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
affecting enforcement of creditors' rights, and except as limited by application
of legal principles affecting the availability of equitable remedies.
(b) The Common Stock and any other securities issued
to the Holders hereunder, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that such shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein, and as may be required by future changes in such laws.
13
<PAGE>
(c) No shareholder of the Company has any right of
first refusal or any preemptive rights in connection with the issuance of the
Common Stock by the Company pursuant to this Agreement.
(d) The execution, delivery, and performance by the
Company of this Agreement, and the issuance and sale of the Warrants pursuant
thereto, will not result in any such violation or be in conflict with or
constitute a default under any such term, or cause the acceleration of maturity
of any loan or material obligation to which the Company or the subsidiaries are
a party or by which any of them is bound or with respect to which any of them is
an obligor or guarantor, or result in the creation or imposition of any material
lien, claim, charge, restriction, equity or encumbrance of any kind whatsoever
upon, or, to the best knowledge of the Company after due inquiry, give to any
other person any interest or right (including any right of termination or
cancellation) in or with respect to any of the material properties, assets,
business or agreements of the Company or its subsidiaries. To the best knowledge
of the Company after due inquiry, no such term or condition materially adversely
affect the business, property, prospects, condition, affairs, or operations of
the Company and its subsidiaries.
(e) No consent, approval, or authorization of, or
designation, declaration, or filing with any governmental unit is required on
the part of the Company in connection with the valid execution and delivery of
this Agreement, or the offer, sale or issuance of the Notes or Warrants or the
obtaining of any consents, permits and waivers, or the consummation of any other
transaction contemplated hereby.
(f) The offer, sale and issuance of the Securities in
conformity with the terms of this Agreement will not violate the Securities Act.
(g) The net proceeds from the sale of the Warrants
shall be used for working capital purposes.
16. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holder(s) of the Warrants the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed;
14
<PAGE>
(d) then in any one or more of said events, the
Company shall give written notice to the registered Holders of the Warrants of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
16. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) if to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the Company, with a copy
(with respect to Sandler) to Lawrence N. Rosen, Esquire, Lawrence N. Rosen,
P.A., 2925 Aventura Boulevard, Suite 308, Aventura, Florida 33180; or
(b) if to the Company, to the address set forth in
Section 4 hereof or to such other address as the Company may designate by notice
to the Holders.
Each party hereto may from time to time change the address to
which notices are to be delivered or mailed hereunder by notice in accordance
with the foregoing to the other party.
17. Supplements; Amendments; Entire Agreement. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought. The Company and the Initial Holders may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
(other than the Initial Holders) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Initial Holders may
deem necessary or desirable and which the Company and the Initial Holders deem
shall not adversely affect the interests of the Holders of Warrant Certificates.
18. Successors. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holder(s) and
their respective heirs, personal representatives, successors and assigns
hereunder.
19. Survival of Representations and Warranties. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
15
<PAGE>
20. Governing Law; Submission to Jurisdiction.
(a) This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York for all purposes shall be construed in accordance with the
laws of said State without giving effect to the rules of said State governing
the conflicts of laws
(b) THE COMPANY, AND ANY ENDORSERS, SURETIES,
GUARANTORS AND ALL OTHERS WHO ARE, OR WHO MAY BECOME, LIABLE FOR THE PAYMENT
HEREOF SEVERALLY, IRREVOCABLY AND UNCONDITIONALLY (A) AGREE THAT ANY SUIT,
ACTION, OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT DELIVERED PURSUANT TO, OR IN
CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED IN THE COURTS IN
AND FOR NEW YORK COUNTY, NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK; (B) CONSENT TO THE JURISDICTION OF EACH SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING; AND (C) WAIVE ANY OBJECTION WHICH
IT OR THEY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION, OR
PROCEEDING IN ANY OF SUCH COURTS.
(c) THE COMPANY AND HOLDER HEREBY KNOWINGLY,
IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS
AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER
DOCUMENT EXECUTED IN CONNECTION THEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COMPANY AND HOLDER TO ENTER INTO
THIS AGREEMENT.
21. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
22. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
23. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Initial Holders and any other registered Holder(s) of the Warrant Certificates
or Warrant Shares any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company, the Initial Holders and any other registered Holder(s) of the Warrant
Certificates or Warrant Shares.
24. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
25. No Waiver. No waiver, amendment, release or modification of any
provision of this Agreement shall be established by conduct, custom or course of
dealing, and shall not be effective unless it is in writing and signed by the
party against whom it is asserted and any such written waiver shall only be
applicable to the specific instance to which it relates and shall not be deemed
to be continuing of further waiver. No delay or omission in the exercise of any
right, power or remedy accruing to either party upon any breach by the other
party under this Agreement shall impair such right or remedy or be construed as
a waiver of any such breach theretofore or thereafter occurring.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
--------------------------------
Name: Phillip DeZwirek
------------------------------
Title: President
-----------------------------
GREEN DIAMOND OIL CORP.
By: /s/ Phillip DeZwirek
--------------------------------
Name: Phillip DeZwirek
------------------------------
Title: President
-----------------------------
/s/ Harvey Sandler
-----------------------------------
HARVEY SANDLER
ICS TRUSTEE SERVICES LTD.
By: /s/ Eliza S. Y. Wu
--------------------------------
Name: Eliza S. Y. Wu
------------------------------
Title: Authorized Signing Officer
-----------------------------
17
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS OR OTHER SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, DECEMBER __, 2009
Warrant No.____
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered
assigns, is the registered holder of Warrants to purchase initially, at any time
from June __, 5:30 p.m., New York time, on December __, 2009 ("Expiration
Date"), up to shares, of fully-paid and non-assessable common stock, $.01 par
value ("Common Stock") of CECO Environmental Corp., a New York corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events, of $2.25 per share upon surrender of this Warrant Certificate and
payment of the Exercise Price at the principal executive office of the Company,
but subject to the conditions set forth herein. Payment of the Exercise Price
shall be made by certified or official bank check in United States dollars
payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter expire and shall be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
EXH A-1
<PAGE>
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the principal executive office of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any Warrant holder to any of
the rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________________ , 199__.
CECO ENVIRONMENTAL CORP.
By:__________________________
Name:________________________
Title:_______________________
EXH A-2
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1 OF THE
WARRANT AGREEMENT]
The undersigned hereby irrevocably elects to exercise the right,
represented by Warrant Certificate No._________, to purchase ________ shares of
Common Stock (as defined in the Warrant Agreement described below) and herewith
tenders in payment for such securities a certified or official bank check
payable in United States dollars to the order of CECO Environmental Corp., a New
York corporation (the "Company") in the amount of $________, all in accordance
with the terms of Section 4.1 of the Warrant Agreement dated as of
_______________ , 1999 between the Company, Green Diamond Oil Corp., Harvey
Sandler, and ICS Trustee Services Ltd. The undersigned requests that a
certificate for such securities be registered in the name of _____________,
whose address is ____________________ and that such certificate be delivered to
____________, whose address is ____________________, and if said number of
shares of Common Stock shall not be all the shares of Common Stock purchasable
hereunder, that a new Warrant Certificate for the balance of the shares of
Common Stock purchasable under the within Warrant Certificate be registered in
the name of the undersigned warrant holder or his assignee as below indicated
and delivered to the address stated below.
Dated: ____________________
Signature:____________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
Address: ___________________________________
___________________________________
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:__________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-3
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________ hereby sells, assigns and transfers unto [NAME
OF TRANSFEREE] Warrant Certificate No. ___, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
____________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, with full power of substitution.
Dated: ____________________
Signature:____________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
Address: ___________________________________
___________________________________
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:___________________________________________________________
(Signature must be guaranteed by a bank, savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-4
<PAGE>
EXHIBIT 10.13
KBD/TECHNIC, INC. VOTING TRUST
<PAGE>
KBD/TECHNIC, INC.
VOTING TRUST AGREEMENT
KBD/TECHNIC, INC. VOTING TRUST AGREEMENT made this 7th day of December,
1999, by and between CECO GROUP, INC., a Delaware Corporation (the
"Stockholder"), and Richard J. Blum ("Blum"), as Voting Trustee (hereinafter
referred to as the "Voting Trustee"):
W I T N E S S E T H:
WHEREAS, the Stockholder purchased all of the outstanding shares of
stock of kbd/Technic, Inc. ("Company");
WHEREAS, pursuant to Section 4733.16 of the Ohio Revised Code, no
corporation shall provide engineering or surveying services in the State of Ohio
unless more than fifty percent of the shareholders are professional engineers,
professional surveyors, architects or landscape architects;
WHEREAS, the Company may provide the services identified in Section
4733.16 of the Ohio Revised Code and therefore, the Corporation may not own
directly a majority of the shares of the Company;
WHEREAS, the Attorney General for the State of Ohio has determined that
Ohio Law does not prohibit the stock of a professional association from being
held in trust, for the benefit of non- professionals by an individual who is
duly licensed or otherwise legally authorized to render the professional
services for which the association was organized; and
WHEREAS, the Stockholder organized this Trust to hold the common stock
of the Company for the benefit of the Stockholder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions contained herein, the parties agree as follows:
<PAGE>
1. Commencement; Transfer of Stock to Voting Trustee.
(a) The Stockholder hereby enters into this Voting Trust
Agreement for the purposes set forth herein, and the Voting Trustee hereby
accepts the responsibilities of Voting Trustee hereunder and agrees to hold the
assets of the Voting Trust as provided herein;
(b) Simultaneously with the execution hereof, the Stockholder
shall cause all of the outstanding shares of common stock of the Company to be
issued to the Voting Trustee to be deposited with the Voting Trustee under the
terms of this Voting Trust Agreement.
(c) Should the Stockholder obtain or have the right to obtain
additional shares of stock of the Company during the term of the Voting Trust,
the Stockholder may at any time deposit additional certificates for such stock
with the Voting Trustee. No stock shall be deposited hereunder except stock
having general voting powers as provided in the Company's Certificate of
Incorporation.
(d) All stock certificates delivered to the Voting Trustee
under subparagraphs (a) or (b) of this Article 1 shall be duly endorsed, or
accompanied by such instruments of transfer, as to enable the Voting Trustee to
cause such stock certificates to be transferred into his name as such trustee.
(e) Any certificates for stock of the Company shall be
surrendered by the Voting Trustee to the Company and canceled, and the Company
shall issue to the Voting Trustee new stock certificates in the name of
"kbd/Technic, Inc. Voting Trust, under agreement dated December __, 1999,
Richard J. Blum, Voting Trustee."
(f) On receipt by the Voting Trustee of such stock
certificates in his name, the Voting Trustee shall thereupon issue and deliver
Voting Trust Certificates to the Stockholder in the form set forth in Article 5
hereof evidencing the number of shares so deposited (hereinafter referred to
collectively as the "Voting Trust Certificates").
2
<PAGE>
2. Term.
The Voting Trust shall be irrevocable and continue for a
period of nine (9) years and eleven (11) months from the date hereof, unless
terminated pursuant to Article 6 hereof or renewed as described in Article 6
hereof.
3. Transfer of Certificates.
(a) Subject to the terms of Article 16, the Voting Trust
Certificates shall be transferable by the registered owners thereof on the books
of the Voting Trustee at the Principal Office of the Voting Trustee (as
hereinafter defined in subparagraph (c) of Article 12 hereof) according to the
rules established for that purpose by the Voting Trustee; and the Voting Trustee
may treat the registered holders thereof as owners for all purposes whatsoever,
except that the Voting Trust shall not be required to deliver stock certificates
hereunder without the surrender of such Voting Trust Certificates. An assignee
of Voting Trust Certificates shall obtain the rights set forth in this Voting
Trust Agreement, and shall not otherwise be entitled to stock of the Company.
(b) If a Voting Trust Certificate is lost, stolen, mutilated
or destroyed, the Voting Trustee, in his discretion, may issue a duplicate of
such certificate upon receipt of: (i) evidence of such fact satisfactory to him;
(ii) indemnity satisfactory to him; (iii) the existing certificate, if
mutilated; and (iv) his reasonable expenses in connection with the issuance of a
new Voting Trust Certificate. The Voting Trustee shall not be required to
recognize any transfer of a Voting Trust Certificate not made in accordance with
the provisions hereof, unless the person claiming such ownership shall have
produced indicia of title satisfactory to the Voting Trustee, and shall in
addition deposit with the Voting Trustee indemnity satisfactory to him.
4. Voting Trustee.
(a) In the event of the death, resignation or Disability, of
the Voting Trustee, or if beneficial owners of a majority of the shares of the
Company represented by the then outstanding Voting Trust certificates shall send
the then serving Voting Trustee written notice that he is being replaced, which
notice may be sent in such owners' sole direction, with or without cause,
beneficial
3
<PAGE>
owners of a majority of the shares of the Company represented by the then
outstanding Voting Trust Certificates shall elect a successor Voting Trustee
provided, however, that such successor Voting Trustee shall be an engineer
licensed to practice in the State of Ohio. Any Voting Trustee may resign by
delivering sixty (60) days written notice to the Stockholder. For purposes of
this subparagraph (a), the term "Disability" means incapable of performing the
functions of a person's principal occupation, as determined by such person's
regular, licensed physician, if any, or if not, by any licensed physician.
(b) The Voting Trustee (and any successor Voting Trustee) may
act as a director or officer of the Company, and may contract with the Company,
or be pecuniarily interested in any transaction to which the Company may be a
party or in which it may in any way be interested, as fully as though he were
not a Voting Trustee.
5. Form of Voting Trust Certificates.
The Voting Certificates shall be in the following form:
No. _________________ _____________ Shares
Kbd/TECHNIC, INC.
AN INDIANA CORPORATION
VOTING TRUST CERTIFICATE FOR CAPITAL STOCK PURSUANT TO
KBD/TECHNIC, INC. VOTING TRUST
This certifies that _____________ or registered assigns is
entitled to all the benefits arising from the deposit with the
Voting Trustee under kbd/Technic, Inc. Voting Trust Agreement
hereinafter mentioned, of certificates for ___________ (___) shares
of the capital stock of kbd/Technic, Inc., an Indiana corporation
(hereinafter called the "Company"), as provided in such Voting Trust
Agreement and subject to the terms thereof.
This certificate is issued, received and held under, and the
rights of the owner hereof are subject to, the provisions of the
kbd/Technic, Inc. Voting Trust Agreement dated as of December __,
1999 among the Voting Trustee identified therein and the various
holders of similar certificates (copies of which Voting Trust
Agreement, and of every agreement amending or supplementing the
same, are on file in the Registered Office of the Company and in the
Principal Office of the Voting Trustee). The holder of
4
<PAGE>
this certificate, by acceptance hereof, assents to and agrees to be
bound as if such Voting Trust Agreement had been signed by him in
person.
Until the Voting Trustee shall have delivered the stock held
under such Voting Trust Agreement to the holders of the Voting Trust
Certificates, or to the Company, as specified in such Trust
Agreement, the Voting Trustee shall possess and shall be entitled to
exercise all rights and powers of an absolute owner of such stock,
including the right to vote thereon for every purpose, and to
execute consents in respect thereof for every purpose, it being
expressly stipulated that no voting right passes to the owner
hereof, or his assigns, under this certificate of any agreement,
expressed or implied.
The registered holder hereof, or assigns, is entitled to
receive payment equal to the amount of cash dividends, if any,
received by the Voting Trustee upon the number of shares of capital
stock of the Company in respect of which this certificate is issued.
Dividends received by the Voting Trustee in common or other stock of
the Company having general voting powers shall be retained by the
Voting Trustee and in lieu of such dividends the holder hereof shall
receive Voting Trust Certificates from the Voting Trustee in form
similar hereto.
In the event that any dividend or distribution, other than
cash dividends or stock of the Company having general voting powers,
is received by the Voting Trustee, the Voting Trustee shall
distribute the same to the registered holders of Voting Trust
Certificates promptly after such receipt, pursuant to the provisions
of Article 9 of such Voting Trust Agreement. Such distribution shall
be made to the certificate holder or holders ratably in accordance
with the number of shares represented by their respective Voting
Trust Certificates.
Stock certificates for the number of shares of capital stock
then represented by this certificate, or the net proceeds in cash or
property of such shares, shall be due and deliverable hereunder upon
the termination of such Voting Trust Agreement as provided therein.
Such Voting Trust Agreement shall continue in full force and
effect pursuant to the provisions of Article 2 of such Voting Trust
Agreement. Such Voting Trust Agreement may be renewed for successive
nine (9) year and eleven (11) month periods, as provided therein.
This certificate is transferable on the books of the Voting
Trustee at the Principal Office of the Voting Trustee by the holder
hereof, either in person or by attorney duly authorized, in
accordance with the rules established for that purpose by the Voting
Trustee and on surrender of this certificate properly endorsed.
Title to this certificate when duly endorsed shall, to the extent
permitted by law, be transferable with the same effect as in the
case of a negotiable instrument. Each holder hereof agrees that
delivery of this certificate, duly endorsed by any holder hereof,
shall vest title hereto and all rights hereunder in the transferee;
provided, however, that the Voting Trustee may treat the registered
holder hereof, or when presented duly endorsed in blank the bearer
hereof, as the absolute owner hereof, and of all rights and
interests represented hereby, for all purposes whatsoever, and the
5
<PAGE>
Voting Trustee shall not be bound or affected by any notice to the
contrary, or by any notice of any trust, whether express, implied or
constructive, or of any charge or equity respecting the title or
ownership of this certificate, or the share of stock represented
hereby; provided, however, that no delivery of stock certificates
hereunder, or the proceeds thereof, shall be made without surrender
hereof properly endorsed.
This certificate shall not be valid for any purpose until duly
signed by the Voting Trustee.
The term "Voting Trustee" as used in this certificate means
the Voting Trustee or the successor trustees acting under such
Voting Trust Agreement.
IN WITNESS WHEREOF, the Voting Trustee has signed this
certificate on ______________, 19____.
______________________
Voting Trustee
LEGEND:
THIS VOTING TRUST CERTIFICATE AND THE STOCK REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED WITHOUT AN OPINION OF COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED, THAT THE PROPOSED TRANSFER WILL NOT VIOLATE FEDERAL
SECURITIES LAWS, OHIO LAWS OR ANY OTHER APPLICABLE LAWS.
(Form of Assignment):
FOR VALUE RECEIVED _________________________ hereby assigns
the certificate within, and all rights and interest represented
thereby, to _____ (Social Security Number ) and appoints
________________ as attorney to transfer this certificate on the
books of the Voting Trustee mentioned therein, with full power of
substitution.
----------------------- -------------------------
Dated
(Seal)
In presence of/guaranteed by:
-------------------------
-------------------------
6
<PAGE>
Note: The signature on this assignment must correspond with the name
as written upon the face of this certificate in every particular,
without alteration, enlargement or any change whatever. All
endorsements, in the discretion of the Voting Trustee, shall be
guaranteed by a bank or trust company satisfactory to the Voting
Trustee.
6. Termination Procedure; Renewal.
(a) At any time within two (2) years prior to the time of
expiration of the kbd/Technic, Inc. Voting Trust (the "Voting Trust") as
originally fixed or as last extended as provided in this Section 6, the Voting
Trustee shall mail written notice of such anticipated expiration to the
registered owners of the outstanding Voting Trust Certificates at their
addresses as appearing on the transfer books of the Voting Trustee. Such notice
shall state that the Voting Trust Certificates must be surrendered to the Voting
Trustee by the expiration date in order to receive the corresponding stock in
the Company or other property in exchange therefor upon termination of the
Voting Trust.
(b) The Voting Trust shall terminate immediately upon any of
the following events and at such time the remaining Voting Trust property shall
be distributed to the Stockholder or its nominee:
(i) The sale by the Voting Trust of the shares of
the Company held by it or the Voting Trust for
any other reason ceasing to hold shares of the
Company;
(ii) The Company ceasing to be registered in the
State of Ohio as a corporation engaged in
engineering;
(iii) The sale of substantially all the assets of
the Company in one or more transactions;
(iv) The Company is no longer required to have its
stock owned by an engineer licensed to
practice engineering with State of Ohio for
any reason;
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(v) The Company dissolves prior to the expiration
of the term of the Voting Trust or any renewal
period thereof;
(c) At any time after notice of the expiration of the
kbd/Technic, Inc. Voting Trust has been given as provided above and ending
thirty (30) days prior to such expiration, one (1) or more holders of Voting
Trust Certificates hereunder may, by written agreement and with the written
consent of the Voting Trustee, renew the Voting Trust as to their stock in the
Company for an additional period not to exceed nine (9) years and eleven (11)
months from the expiration date of the Voting Trust as originally fixed or as
last extended as provided in this Section 6. In the event of such renewal, the
renewal agreement shall specify the stock that is subject to it. The Voting
Trustee shall, prior to the time of expiration of the Voting Trust, file copies
thereof with the Company at the Registered Office of the Company (as hereinafter
defined in subparagraph (b) of Article 12 hereof) and with the Voting Trustee at
the Principal Office of the Voting Trustee. Such renewal shall have the effect
of creating a new voting trust as to the shares in the Company to which the
renewal applies, except that such shares shall remain in the name and possession
of the Voting Trustee as if no termination had occurred. Such renewal shall have
no effect on the termination of the Voting Trust as to the remaining shares of
stock in the Company not subject to the renewal agreement, which shall be
tendered in accordance with the provisions relating to termination hereunder. No
such renewal agreement shall extend the term of this Voting Trust Agreement
beyond the maximum period permitted by applicable law or affect the rights or
obligations of persons not parties thereto.
(d) Upon termination of the kbd/Technic, Inc. Voting Trust,
the Voting Trust Certificates shall cease to have any effect and the holders of
such Voting Trust Certificates shall have no further rights under this Voting
Trust Agreement other than to receive certificates for shares of stock of the
Company or other property distributable under the terms hereof upon the
surrender of such Voting Trust Certificates to the Voting Trustee.
(e) Subject to Article 11, within thirty (30) days after the
termination of the Voting Trust, the Voting Trustee shall deliver to the
registered holders of such Voting Trust Certificates, at
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their addresses as they appear on the records of the Voting Trustee, properly
endorsed certificates for the number of shares of the capital stock of the
Company represented by the Voting Trust Certificates actually received from
them.
(f) At any time subsequent to thirty (30) days after the
termination of the Voting Trust, the Voting Trustee may deposit with the Company
(if the Company shall consent to such deposit) any properly endorsed stock
certificates or other property which have not been delivered to the holders of
Voting Trust Certificates, together with written authority for the Company to
deliver the same to the persons entitled thereto upon receipt of their Voting
Trust Certificates. Upon such deposit all further liability of the Voting
Trustee for the delivery of such stock certificates shall cease and the Voting
Trustee shall not be required to take any further action hereunder.
7. Rights and Powers of Voting Trustee.
(a) The Voting Trustee shall possess and be entitled to
exercise, subject to the provisions hereof, all the rights and powers of
absolute owners of all shares deposited hereunder, including, but without
limitation, the right to receive dividends on such shares and the right to vote,
consent in writing or otherwise act with respect to any corporate or
shareholders' action, to increase or reduce the stated capital of the Company,
to classify or reclassify any of the shares as now or hereafter authorized into
preferred or common shares or other classes of shares with or without par value,
to amend the Articles of Incorporation or By-Laws, to merge or consolidate the
Company with other corporations, to sell all or any part of its assets (except
for the stock of the Company without the consent of the Stockholder), to create
any mortgage or security interest in or lien on any property of the Company, or
for any other corporate act or purpose; provided that the Voting Trustee shall
give the holders of Voting Stock certificates not less than fifteen (15) days
prior written notice of the exercise of such rights and powers if such exercise
is not at the request of the beneficial owners of a majority of the shares of
the Company, it being expressly stipulated that no voting right shall pass to
others by or under the Voting Trust Certificates, under this Voting Trust
Agreement or by or under any other agreement expressed or implied.
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(b) In case the Company effectuates a consolidation or merger
with or into another corporation, or of another corporation with or into the
Company, or all or substantially all of the assets of the Company are
transferred to another corporation, then in connection with such consolidation,
merger or transfer the term "Company" for all purposes of this Voting Trust
Agreement shall be taken to include such successor corporation. The Voting
Trustee may in connection with such consolidation or merger surrender such
shares and receive in lieu thereof and exchange therefor the shares issuable
thereof in such merger or consolidation, and may hold the shares so received in
place of the shares deposited hereunder. Thereafter, the rights and obligations
of the Voting Trustee and of the holders of Voting Trust Certificates with
respect to shares deposited hereunder shall for all purposes be treated as
applying to the shares so received, there being substituted for each share of
the Company an amount of the new shares proportionate to the entire amount of
such new shares received for all of the shares of the Company so surrendered.
Upon demand of the Voting Trustee to the holders of Voting Trust Certificates,
such holders shall surrender their Voting Trust Certificates and shall accept in
lieu thereof one (1) or more new Voting Trust Certificates in form similar to
that hereinbefore set forth, but modified so as to describe expressly the
interest then represented by the Voting Trust Certificate. The terms "stock" and
"capital stock" as used herein shall be taken to include any stock which may be
received by the Voting Trustee in lieu of all or any part of the capital stock
of the Company. Any transfer tax or other charges payable in respect of any such
exchange, if so required by the Voting Trustee, shall be paid by the holders of
the Voting Trust Certificates.
(c) The Voting Trustee is authorized to become a party to or
prosecute or defend or intervene in any suits or legal proceedings, and the
shareholders and holders from time to time of the Voting Trust Certificates
agree to hold the Voting Trustee harmless from any action or omission by him in
connection therewith. The Voting Trustee shall be under no obligation to
institute any action to recover amounts owed with respect to stock of the
Company unless the holders of Voting Trust Certificates deposit funds in an
amount sufficient for all expenses and attorneys' fees which
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may reasonably be anticipated to be incurred by the Voting Trustee in such
action and agree to indemnify the Voting Trustee for all expenses and attorneys'
fees in connection with such action.
(d) The Voting Trustee is authorized to pledge the capital
stock of the Company held hereunder in connection with any financing for the
benefit of, among other parties, the Stockholder.
8. Liability of Voting Trustee.
Provided that the Voting Trustee gives the holders of Voting
Stock certificates fifteen (15) days prior written notice of whether or not he
will vote the shares of stock in accordance with the their recommendations, the
Voting Trustee shall exercise business judgment in voting the shares of stock of
the Company, or otherwise acting hereunder, with respect to such shares, but
shall not be liable to the holders of Voting Trust Certificates for errors of
law or of any thing done or suffered or omitted in connection therewith, except
for his own individual willful misconduct. The Voting Trustee shall act with due
care and shall act in compliance with all applicable laws, but shall not be
bound by the prudent person rule or any equivalent rule imposing fiduciary
liability. The Voting Trustee shall not be required to give any bond or other
security for the discharge of his duties.
Specifically, Voting Trustee shall not be liable for any loss,
liability, expense or damage to the Company or the stock occasioned by such
Voting Trustee's acts or omissions undertaken or omitted in good faith
(including, without limiting the generality of the foregoing, acts or omissions
in reliance on opinion of counsel). The Voting Trustee may rely upon any notice,
certificate, will, affidavit, letter, telegram, or other paper or document
believed by him to be valid or genuine, or upon any evidence deemed by him to be
sufficient, in making any payment, allocation or distribution hereunder. No
successor Voting Trustee shall be personally liable for any act or omission of
any predecessor Voting Trustee. Any successor Voting Trustee shall have all the
rights, duties and powers granted to the original Voting Trustee hereunder.
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9. Dividends.
(a) During the term of the Voting Trust, the holder of each
Voting Trust Certificate shall be entitled to receive from the Company payments
equal to the cash dividends, if any, receivable by the Voting Trustee upon that
number and class of shares of capital stock of the Company as is represented by
such Voting Trust Certificate. If any cash dividend is paid to the Voting
Trustee, the Voting Trustee shall pay such dividend to those holders registered
as such on the transfer books of the Voting Trustee at the close of business on
the day fixed by the Company for the taking of a record to determine those
holders of the Company stock entitled to receive such dividend. Such
distributions shall be made to such holders of Voting Trust Certificates in
accordance with the number of shares represented by their respective Voting
Trust Certificates.
(b) If any dividend in respect of the stock deposited with the
Voting Trustee is paid, in whole or in part, in stock of the Company having
general voting powers, the Voting Trustee shall likewise hold, subject to the
terms of this Voting Trust Agreement, the certificates for stock which are
received by it on account of such dividend, and the holder of each Voting Trust
Certificate representing stock on which such stock dividend has been paid, shall
be entitled to receive a Voting Trust Certificate, issued under this Voting
Trust Agreement, for the number of shares received with respect to such stock.
Holders entitled to receive the dividends described above shall be those
registered as such on the transfer books of the Voting Trustee at the close of
business on the day fixed by the Company for the taking of a record to determine
those holders of Company stock entitled to receive such dividends.
(c) If any dividend or distribution in respect of the stock
deposited with the Voting Trustee is paid other than in cash or in capital stock
having general voting powers (including distributions in respect to the
dissolution or partial or total liquidation of the Company), then the Voting
Trustee shall distribute the same among the holders of Voting Trust Certificates
registered as such on the transfer books of the Voting Trustee at the close of
business on the day fixed by the Company for the taking of a record to determine
the holders of Company stock entitled to receive such distribution. If such a
distribution is a result of the dissolution or in total liquidation of the
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Company the Voting Trustee may in his discretion deposit such monies,
securities, rights or property with any bank or trust company doing business in
the United States of America with authority and instructions to distribute the
same as above provided, and upon such deposit all further obligations or
liabilities of the Voting Trustee in respect of such monies, securities, rights
or property so deposited shall cease.
(d) If the Company does not fix a record date with respect to
a dividend or distribution, the actual date of the distribution of such dividend
or distribution by the Company shall be deemed the record date.
10. Subscription Rights.
In case any stock or other securities of the Company are
offered for subscription to the holders of capital stock of the Company
deposited hereunder, the Voting Trustee, promptly upon receipt of notice of such
offer, shall mail a copy thereof to each of the holders of the Voting Trust
Certificates. Upon receipt by the Voting Trustee, at least five (5) days prior
to the last day fixed by the Company for subscription and payment, of a request
from any such registered holder of a Voting Trust Certificate to subscribe in
his behalf, accompanied with the sum of money required to pay for such stock or
securities (not in excess of the amount subject to subscription in respect of
the shares represented by the Voting Trust Certificate held by such certificate
holder), the Voting Trustee shall make such subscription and payment, and upon
receiving from the Company the certificates for shares or securities so
subscribed for, shall issue to such holder a Voting Trust Certificate in respect
thereof if the same be stock having general voting powers, but if the same be
securities other than stock having general voting powers, the Voting Trustee
shall mail or deliver such securities to the certificate holder in whose behalf
the subscription was made, or may instruct the Company to make delivery directly
to the certificate holder entitled thereto.
11. Expenses.
The Voting Trustee shall be entitled to reimbursement for its
expenses incurred in performance of its duties hereunder. If the Voting Trustee
becomes involved in litigation on account
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of this Voting Trust Agreement it shall have the right to retain counsel. The
Voting Trustee shall have a lien on all stock, cash and other property held
pursuant to the Agreement for any and all costs, attorneys' fees, charges,
disbursement and expenses incurred by the Voting Trustee in connection with this
Voting Trust Agreement. The holders of Voting Trust Certificates agree to pay
the Voting Trustee on demand such costs, attorneys' fees, charges, disbursements
and expenses with each holder being responsible for that portion equal to the
portion that the number of shares represented by his Voting Trust Certificate
represent of the total number of shares which all the Voting Trust Certificates
represent. In the event one of the holders of a Voting Trust Certificate shall
fail to pay his share of the Voting Trustee's costs and expenses within fifteen
(15) days of his receipt of a demand therefor, such amount shall be treated as a
business loan from the Voting Trustee to the party who has failed to pay his
share of the Voting Trustee's fees and expenses. Such loan shall accrue interest
from the date of such holder's receipt of the demand from the Voting Trustee for
payment at the variable rate of interest equal to the sum of the corporate base
rate (as announced from time to time by PNC Bank, National Association) plus an
additional four (4) percentage points and shall be immediately due and payable.
Such loan may be enforced against such defaulting party in a court of competent
jurisdiction (and the costs of collection, including attorneys fees, shall be
paid by such defaulting party or by right of set off). The Voting Trustee shall
not transfer any Voting Trust Certificate with respect to which any costs or
expenses are owed. In the event any such loan or any amount is outstanding as of
the date of the termination of this Agreement with respect to a Voting Trust
Certificate, the Voting Trustee may refuse to surrender the stock of the Company
or other property held with respect to such certificate until such amount is
paid in full with interest as herein provided.
12. Notice.
(a) Any notice to the holders of the Voting Trust Certificates
hereunder shall be deemed given on the date delivered, if delivered in person,
or on the date deposited with the U.S. Postal Service, if enclosed in postpaid
envelopes and sent by registered or certified mail, return
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receipt requested, addressed to such holders at their respective addresses
appearing below their signatures on the signature page of this agreement, or at
such other address of which a holder shall notify the Voting Trustee in
accordance with the provisions of Paragraph (c).
(b) The Registered Office of the Company shall mean the
Registered Office of the Company in the State of Indiana as required to be
maintained by the Company pursuant to provisions of Indiana corporate law. Any
document required to be deposited in the Registered Office of the Company shall
be deposited in such offices.
(c) Any notice to the Voting Trustee hereunder shall be deemed
to be sufficiently given on the date delivered, if delivered in person to the
Voting Trustee or on the date deposited with the U.S. Postal Service, if
enclosed in a postpaid envelope and sent by registered or certified mail, return
receipt requested, addressed to the Voting Trustee at _________________
_______________ or to such other address as the Voting Trustee may designate by
notice in writing to the holders of the Voting Trust Certificates in accordance
with Section (a) (the "Principal Office of the Voting Trustee").
(d) All distributions of cash, securities, or other property
hereunder by the Voting Trustee to the holders of Voting Trust Certificates may
be sent in the same manner as hereinabove provided for the giving of notices to
the holders of Voting Trust Certificates.
13. Books and Records.
Copies of this Voting Trust Agreement, and of every agreement
supplemental hereto or amendatory hereof, shall be filed with the Company at the
Registered Office of the Company and with the Voting Trustee at the Principal
Office of the Voting Trustee, and shall be open to the inspection of any
stockholder of the Company, daily during business hours.
14. Continuing Agreement.
All Voting Trust Certificates issued as herein provided shall
be issued, received and held subject to all the terms of this Voting Trust
Agreement. Every person, firm or corporation, including their successors and
assigns, that deposits stock of the Company with the Voting Trustee
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and is entitled to receive Voting Trust Certificates representing such shares,
upon accepting the Voting Trust Certificates issued hereunder, shall be bound by
the provisions of this Voting Trust Agreement as if such had actually been a
signatory hereto, without the further agreement of the Voting Trustee or of the
holders of the other Voting Trust Certificates at such time.
15. Miscellaneous.
Wherever necessary or proper herein the singular imports the
plural or vice versa, and masculine, feminine and neuter expressions are
interchangeable. This Agreement shall be interpreted according to the laws of
the State of Ohio (without regard to its choice of law rules). This Agreement
constitutes the entire Agreement between the parties; and it may be amended only
by a written document executed by the Voting Trustee and all parties then
holding Voting Trust Certificates. This Agreement shall be binding upon, and
shall inure to the benefit of, the heirs, executors, assigns, transferees, and
successors in interest of the parties hereto, notwithstanding the death,
bankruptcy or incompetency of any party. Any reference to a section number in
this Agreement shall be deemed to be to sections in this Agreement. The section
titles used herein are provided for informational purposes only and shall affect
neither the meaning of the terms nor the intent of the parties. This Agreement
may be executed in one or more counterparts, all of which shall be deemed one
original document. Any portion of this Agreement which shall be deemed void, or
unenforceable, or contrary to public policy, shall be deemed severed from this
Agreement.
16. Transferability.
The Voting Trustee agrees that it shall not allow any Voting
Trust Certificate to be transferred if such transfer would result in a violation
by a Stockholder of federal or state securities laws treating his Voting Trust
Certificate as if it were the common stock of the Company. In furtherance of the
preceding sentence, the Stockholders hereby agree that the Voting Trustee shall
be entitled to rely on an opinion of counsel furnished by a Stockholder who
wishes to assign his Voting Trust Certificate that a proposed transfer of a
Voting Trust Certificate is not in violation of
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state and federal securities laws, treating his Voting Trust Certificate as is
it were the common stock of the Company.
IN WITNESS WHEREOF, the Stockholder and the Voting Trustee
have executed this Voting Trust Agreement as of the above date.
THE VOTING TRUSTEE: THE STOCKHOLDER:
CECO GROUP, INC.
Richard J. Blum By: Phillip Dewirek
- ---------------------------- -------------------------------
Richard J. Blum Phillip DeZwirek, President
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EXHIBIT 10.14
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made as of the 1st day
of June, 1999, between CECO Environment Corp. ("CECO"), a New York corporation,
and CECO Filters, Inc. a Delaware corporation.
WHEREAS, CECO Filters, Inc. and its subsidiaries (collectively, where
appropriate, "Company") are engaged in the manufacture and sale of industrial
air filters;
WHEREAS, CECO wants to provide management and financial consulting
services to the Company that will involve advising the Company on corporate
policies, marketing, strategic and financial planning, and mergers and
acquisitions and related matters.
WHEREAS, the Company believes that CECO's skills, expertise and
qualifications will be valuable to its business; and
WHEREAS, the Company desires to engage CECO and CECO desires to be
engaged by the Company to provide consulting services to the Company on the
terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt, adequacy and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. Engagement. The Company hereby engages CECO to render to it the
consulting services herein described and CECO hereby accepts such engagement.
2. Duties. The Company and CECO agree that CECO shall provide
consulting services regarding the Company's corporate policies, marketing,
strategic and financial planning, including long and short-term goals, mergers
and acquisitions and other business combinations, financing, growth plans and
other related matters.
3. Compensation. As compensation for the consulting services to be
rendered hereunder, the Company shall pay to CECO a consulting fee of $50,000
per month until the termination of this Agreement ("Monthly Fees") payable in
advance on or prior to the first business day of each month at CECO's offices in
Toronto, Ontario or such other address as CECO shall direct.
4. Term. This Agreement shall be terminable upon the occurrence of the
events described below:
(a) At the option of CECO, upon 10 days notice to the other,
upon the sale of substantially all of the assets of the Company or the
merger of the Company into or with another entity that results in a
change in control of the Company. For purposes of this Section 4(a) a
change in control of the Company shall mean: (i) a change in ownership
of the Company of 50% or more; or (ii) a decrease in CECO's ownership
of the outstanding voting securities of the Company to less than 51%.
<PAGE>
(b) At the Company's or CECO's option, respectively, if the
CECO or the Company, respectively, pursuant to or within the meaning of
any Bankruptcy Law: (i) commences a voluntary case; (ii) consents to
the entry of an order for relief against it in an involuntary case;
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (iv) makes a general assignment
for the benefit of its creditors; or
(c) At the Company's or CECO's option, respectively, if a
court of competent jurisdiction enters an order or decree under any
Bankruptcy Law (defined below) that: (i) is for relief against CECO or
the Company, respectively, in an involuntary case; (ii) appoints a
Custodian (defined below) for all or substantially all of the property
of CECO or the Company, respectively; or (iii) orders the liquidation
of CECO or the Company, and the order or decree remains unstayed and in
effect for 90 days.
For purposes of this Agreement, the term "Bankruptcy Law" shall mean
Title 11, United States Code, or any similar federal or state law for the relief
of debtors.
For purposes of this Agreement, the term "Custodian" shall mean any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
5. Severance Fee. In the event this Agreement is terminated for any
reason other than the Company's termination of this Agreement for the reasons
set forth in Sections 4(b) or 4(c), the Company shall pay to CECO a severance
fee ("Severance Fee") equal to $600,000. The Severance Fee shall be paid by the
Company to CECO within 30 days of the termination of this Agreement.
6. No Quotas. CECO's consulting arrangement hereunder shall not be
subject to any quotas or other similar type of performance measurement.
7. CECO's Availability. CECO shall not be required to provide services
to the Company for a specified number of hours or at predetermined times, other
than as may be agreed upon between CECO and the Company, from time to time.
8. Expense Reimbursement. CECO shall pay all of the expenses incurred
in connection with the provision of consulting services hereunder, unless
otherwise specifically agreed to by the Company and CECO.
9. Independent Contractor Status. Nothing set forth herein shall be
deemed or construed to create a joint venture relationship or a partnership
relationship between CECO and the Company or any officers or directors of CECO,
it being the express intention of the parties hereto that CECO, in performing
services hereunder, is an independent contractor and has no authority to bind
the Company. CECO agrees that neither it nor any of its officers and directors,
acting in their capacity as officers or directors of CECO, will represent or
hold themselves out as joint venturers or partners of the Company, nor represent
that they have any authority to contract for or bind the Company in any manner.
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CECO's employees and independent contractors shall at all times remain
employees and independent contractors, respectively, of CECO. CECO shall be
solely responsible for the payment of each of its: (i) employee's benefits and
entire compensation, including employment taxes, worker's compensation and any
similar taxes associated with employment; and (ii) independent contractor's
compensation.
CECO and the Company acknowledge that Phillip DeZwirek ("DeZwirek") the
Chief Executive Officer, Chief Financial Officer, a director and a controlling
shareholder of CECO is an executive officer and a director of the Company and
that this Agreement and the performance by CECO of consulting services hereunder
shall not affect the Company's relationship with DeZwirek or the rights of
DeZwirek to receive compensation for such activities and the ability of DeZwirek
to bind the Company when acting in such capacities.
10. Mutual Representations, Warranties and Covenants. Each party
represents and warrants to the other that it is not a party to any agreement,
contract or understanding which will in any way restrict or prohibit it from
entering into this Agreement and performing its obligations hereunder in
accordance with the terms and conditions of this Agreement. Each party
represents and warrants to the other that it has the requisite corporate
authority and other approvals necessary to enter into this Agreement and that
all approvals required for the execution, delivery and performance of the terms
and conditions of this Agreement have been received. Each party agrees that it
shall comply with all applicable federal and state or other laws, rules and
regulations in the performance of its responsibilities and the exercise of its
rights hereunder.
11. The Company's Approvals. The Company represents and warrants to
CECO that the consulting arrangement between CECO and the Company and this
Agreement have been approved by a majority of the disinterested members of the
Company's Board of Directors.
12. Other Activities of CECO. CECO and its principals have the right to
engage in such other business activities or businesses as they may choose,
except that during the term of this Agreement CECO may not engage in consulting
relationships with businesses that directly compete with the business activities
of the Company.
13. Indemnification. Each party shall indemnify and hold the other
(including its officers, directors, employees and agents) harmless from and
against any and all losses, liabilities, damages and expenses (including legal
fees and expenses to be paid as incurred), judgments, fines, settlements and all
other amounts arising out of any and all claims, costs, demands, actions, suits,
or other proceedings (whether civil, criminal, administrative or investigative)
in which the indemnified parties may be involved as parties or threatened to be
involved or otherwise incurred by any of such indemnified parties arising out of
or resulting from the failure by such indemnifying party or any person employed
by such party to comply with the terms of this Agreement, any applicable
federal, state or other law, rule or regulation relating to the provision of
services under this Agreement or any gross negligence or willful misconduct of
such indemnifying party occurring or alleged to have occurred in connection with
or as a result of the performance or failure to perform services under this
Agreement. The provisions of this section shall survive termination of this
Agreement for a period of three years.
Expenses incurred in investigating claims related to and defending a
civil, criminal, administrative or investigative action, suit or other
proceedings shall be paid by the indemnifying parties as incurred by the
indemnified parties if so requested by the indemnified parties.
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The indemnification provided hereby shall be in addition to any other
rights to which the indemnified parties may be entitled under any agreement, as
a matter of law or otherwise.
If the right to indemnification provided shall to any extent be
invalid, unenforceable or unavailable, a right of contribution shall exist for
the benefit of the indemnified parties, to the extent of 99% of any and all
losses, claims, damages, liabilities and expenses to which the indemnified
parties may become liable, or if such level of contribution is not enforceable
or otherwise invalid, in such amounts as are appropriate to reflect equitable
considerations and the relative faults of each party. Such contribution
provisions shall be in addition to any right to contribution otherwise available
to the indemnified parties.
14. Severability. Each of the terms and provisions of this Agreement is
and is to be deemed severable in whole or in part and, if any term or provision
or the application thereof in any circumstance should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and shall remain in full force and
effect.
15. No Exclusive Rights. During the term of this Agreement, the Company
shall not grant any rights to any third parties or enter into any exclusive
agreements or arrangements with any third parties that would prevent CECO from
performing services hereunder.
16. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, to the other parties
hereto at his or its address as set forth on the signature page of this
Agreement and shall be deemed received when delivered, or three days after
mailing, respectively. Any party may change the address to which notices,
requests, demands, and other communications hereunder shall be sent by sending
written notice of such change of address to the other parties in the manner
above provided.
17. No Assignment. Neither CECO nor the Company may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of its rights or obligations
under this Agreement, and any such attempted delegation, assignment or
disposition by any such party shall be null, void and without effect, unless the
other party consents thereto; except, that CECO may assign or transfer its
rights hereunder to a successor corporation controlled by DeZwirek.
18. Waiver. Waiver by any party hereto of any breach or default by
another party in respect of any of the terms and conditions of this Agreement
shall not operate as a waiver of any other breach or default, whether similar to
or different from the breach or default waived.
19. Entire Agreement; Modification. This writing sets forth the entire
agreement and supersedes all prior agreements among the parties respecting the
subject matter hereof. No modification or amendment of this Agreement or waiver
or cancellation of any provision hereof shall be valid except by a written
document signed by all parties hereto.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Pennsylvania.
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21. Dispute Resolution - Arbitration. All disputes arising out of or in
connection with this Agreement, or for the breach thereof, shall be referred to
and finally settled by arbitration (without being submitted to any court in the
United States or elsewhere). Such arbitration shall take place in Philadelphia,
Pennsylvania, U.S.A. in accordance with the Commercial Rules of Procedure of the
American Arbitration Association ("AAA") by three arbitrators approved by the
AAA, and shall be limited in duration to two days. The award rendered shall be
final and binding upon both parties hereto, and judgment upon the award rendered
may be entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CECO ENVIRONMENTAL CORP.
By: /s/ Phillip DeZwirek
-----------------------------------------------
Title: President
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Address: 505 University Avenue, Suite 1400
Toronto, Ontario
Canada M5G 1X3
CECO FILTERS, INC.
By: /s/ Phillip DeZwirek
-----------------------------------------------
Title: Assistant Secretary
--------------------------------------------
Address: 1027-29 Conshohocken Road
Conshohocken, PA 19428
5
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
in this Report on Form 8-K of our reports dated April 16, 1997 and March 11,
1999 relating to the financial statements of The Kirk & Blum Manufacturing
Company for the years ended December 31, 1996, December 31, 1997 and December
31, 1998.
/s/ Rippe & Kingston Co. PSC
------------------------------
Rippe & Kingston Co. PSC
Cincinnati, Ohio
December 14 , 1999
