SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-5083 KANEB SERVICES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 74-1191271
(State or other jurisdiction IRS Employer Identification No.)
of incorporation or organization)
2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (972) 699-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, Without Par Value New York Stock Exchange
Adjustable Rate Cumulative Class A New York Stock Exchange
Preferred Stock
8 3/4% Convertible Subordinated New York Stock Exchange
Debentures due 2008
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Subsection 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant: $167,854,753. This figure is estimated as of March 16, 1998, at
which date the closing price of the Registrant's Common Stock on the New York
Stock Exchange was $5.50 per share, and assumes that only the Registrant's
officers and directors were affiliates of the Registrant.
Number of shares of Common Stock, without par value, of the Registrant
outstanding at March 16, 1998: 32,212,164.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K
is incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Kaneb Services, Inc. ("KSI" or the "Company") conducts its principal
businesses in two industry segments, specialized industrial field services, and
pipeline transportation and storage of refined petroleum products. The Company
operates its specialized industrial field services business through a
wholly-owned subsidiary of the Company, Furmanite Worldwide, Inc., and its
domestic and international subsidiaries and affiliates (collectively,
"Furmanite"). The Furmanite group of companies provide underpressure leak
sealing, on-site machining, valve testing and repair and other engineering
products and services, primarily to electric power generating plants, petroleum
refineries and other process industries in Western Europe, North America, Latin
America and the Pacific Rim. See "Industrial Field Services." The Company's
wholly-owned subsidiary, Kaneb Pipe Line Company ("KPL"), operates and manages
refined petroleum products pipeline transportation systems and petroleum
products and specialty liquids terminal storage and pipeline facilities for the
benefit of Kaneb Pipe Line Partners, L.P. ("KPP" or the "Partnership"), which
owns such systems and facilities through its subsidiaries. See "Pipeline and
Terminaling Services." The Company is also engaged in the information management
services industry through, among other entities, its wholly-owned subsidiary,
Fields Financial Services, Inc. ("Fields"), which offers products and services
that enable financial institutions to monitor the continual insurance coverage
of their loan collateral and provides other information management services to
financial institutions and other customers.
Kaneb Services, Inc. was incorporated in Delaware on January 23, 1953.
The Company is a holding company that conducts its business through the
subsidiaries identified above, among others. The Company's principal operating
office is located at 2435 North Central Expressway, Richardson, Texas 75080 and
its telephone number is (972) 699-4000.
INDUSTRY SEGMENTS
Financial information regarding the Company's industry segments and
foreign operations is presented under the caption "Business Segment Data" in
Note 11 to the Company's consolidated financial statements. Such information is
hereby incorporated by reference into this Item 1.
INDUSTRIAL FIELD SERVICES
The Company, through Furmanite, offers a variety of specialized
industrial field services to an international base of process industry clients.
Founded in Virginia Beach, Virginia in the 1920s as a manufacturer of leak
sealing kits, Furmanite has evolved into an international service company. In
the 1960s, Furmanite expanded within the United Kingdom, primarily through its
leak sealing products and services, and, during the 1970's and 1980's, grew
through geographic expansion and the addition of new techniques, processes and
services to become the largest leak sealing company, and one of the largest
on-site machining companies, in the world. In 1991, the Company acquired
Furmanite to diversify the Company's operations and take advantage of
anticipated international growth opportunities. For the year ended December 31,
1997, Furmanite's sales and operating income were approximately $108,223,000 and
$7,438,000, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PRODUCTS AND SERVICES
Furmanite is an industry leader in providing on-line repairs of leaks
in valves, pipes and other components of piping systems and related equipment
("leak sealing") typically used in process industries. See "Customers and
Markets." Other services provided by Furmanite include on-site machining,
bolting and valve testing and repair on such systems and equipment. These
services tend to complement Furmanite's leak sealing service, since these
"turnaround services" are usually performed while a plant or piping system is
off-line. In addition, Furmanite provides a variety of services, such as hot
tapping, fugitive emissions monitoring, passive fire protection, concrete
repair, heat exchanger repair and pipeline engineering. The Company performs
diagnostic services on valves and motors by, among other methods, utilizing its
patented Trevitest(R) system and employing proprietary diagnostic equipment
under an exclusive license from Framatome Technologies. In performing these
services, Furmanite technicians generally work at the customer's location,
frequently responding on an emergency basis. Over its history, Furmanite has
established a reputation for delivering quality service and helping its
customers avoid or delay costly plant or equipment shutdowns. For each of the
years ended December 31, 1997, 1996, and 1995, underpressure services
represented approximately 35%, 37% and 34%, respectively, of Furmanite's
revenues, while turnaround services accounted for approximately 45%, 41% and
42%, respectively, and product sales and other industrial services represented
approximately 20%, 22% and 24%, respectively, of Furmanite's revenues for each
of such years.
Furmanite's on-line, underpressure leak sealing services are performed
on a variety of process industry machinery, often in difficult situations. Many
of Furmanite's techniques and materials are proprietary and/or patented and, the
Company believes, provide Furmanite with a competitive advantage over other
organizations that provide similar services. The Company's skilled technicians
work with equipment in a manner designed to enhance safety and efficiency in
temperature environments ranging from cryogenic to 1,400 degrees Fahrenheit and
pressure environments ranging from vacuum to 5,000 pounds per square inch. In
many circumstances, Furmanite personnel are called upon to custom-design tools,
equipment or other materials in order to effect the necessary repairs. These
efforts are supported by an internal quality control group that works together
with the on-site technicians in crafting these materials.
CUSTOMERS AND MARKETS
Furmanite's customer base spans a broad industry spectrum, which
includes petroleum refineries, chemical plants, offshore energy production
platforms, steel mills, power generation and other process industries in more
than 25 countries. Over 80% of Furmanite's revenues are derived from fossil and
nuclear fuel power generation companies, petroleum refiners and chemical
producers, while other significant markets include offshore oil producers and
steel manufacturers. As the worldwide industrial infrastructure continues to
age, additional repair and maintenance expenditures are expected to be required
for the specialized services provided by Furmanite and similarly situated
organizations. Other factors that may influence the markets served by Furmanite
include regulations governing construction of industrial plants, safety and
environmental compliance requirements, and fulfillment of specialized services
through the increased use of outsourcing, rather than an organization's in-house
staff.
Furmanite serves its customers from its Richardson, Texas worldwide
headquarters and maintains a strong presence in England and continental Europe.
Furmanite currently operates North American offices in the United States in
Baton Rouge, Beaumont, Charlotte, Chicago, Houston, Los Angeles, Philadelphia,
Salt Lake City and San Francisco; and in Edmonton, Alberta and Sarnia, Ontario,
Canada. Furmanite's worldwide strength is further supported by offices currently
located in Australia, Austria, Belgium, China, France, Germany, Hong Kong,
Malaysia, the Netherlands, New Zealand, Norway, Singapore, South Africa and the
United Kingdom (14 locations) and by licensee, agency and/or minority ownership
interest arrangements in Argentina, Brazil, Chile, Croatia, Cyprus, Czech
Republic, Egypt, Finland, Hungary, India, Indonesia, Italy, Japan, Kuwait,
Macedonia, Poland, Portugal, Puerto Rico, Saudi Arabia, Slovak Republic, South
Africa, South Korea, Sweden, Thailand, Trinidad, Ukraine, and the United Arab
Emirates. Sales by geographic region for 1997 were 31.1% for the Americas, 61.4%
for Europe and 7.5% for Asia-Pacific. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 11 to the Company's
consolidated financial statements.
Furmanite's underpressure leak sealing and other specialty field
services are marketed primarily through direct sales calls on customers by
salesmen based at Furmanite's various operating locations, which are situated to
facilitate timely customer response, 24 hours a day, seven days a week.
Customers are usually billed on a time and materials basis for services
typically performed pursuant to either job quotation sheets or purchase orders
issued under written customer agreements. Customer agreements are generally
short-term in duration and specify the range of and rates for the services to be
performed. Furmanite typically provides various limited warranties, depending
upon the services furnished, and, to date, has had no material warranty claims.
Furmanite competes on the basis of service, product performance and price,
generally on a localized basis with smaller companies and the in-house
maintenance departments of its customers. In addition to staff reductions and
the trend toward outsourcing, Furmanite believes it currently has an advantage
over in-house maintenance departments because of the ability of its
multi-disciplined technicians to use Furmanite's proprietary and patented
techniques to perform quality repairs on a timely basis while customer equipment
remains in service.
SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Many aspects of Furmanite's operations are subject to governmental
regulation. National, state and local authorities of the U.S. and various
foreign countries have each adopted safety, environmental and other regulations
relating to the use of certain methods, practices and materials in connection
with the performance of Furmanite's services and which otherwise affect its
operations. Additionally, Furmanite participates, from time to time, with
various regulatory authorities in certain studies, reviews and inquiries of its
projects and/or operations. Further, because of its international presence,
Furmanite is subject to a number of political and economic uncertainties,
including expropriation of equipment, taxation policies, labor practices, import
and export limitations, foreign exchange restrictions, currency exchange rate
fluctuations and local political conditions. Except in certain developing
countries, where payment in a specified currency is required by contract,
Furmanite's services are paid, and its operations are typically funded, in the
currency of the particular country in which its business activities are
conducted.
Underpressure leak sealing and other Furmanite services are often
performed in emergency situations under dangerous circumstances involving
exposure to high temperatures and pressures, potential contact with caustic or
toxic materials, fire and explosion hazards and environmental contamination, any
of which can cause serious personal injury or property damage. Furmanite manages
its operating risks by providing its technicians with extensive classroom and
field training and supervision, maintaining a system of technical support
through its staff of professionally qualified specialists, establishing and
enforcing strict safety and competency requirements, standardizing procedures
and evaluating new materials and techniques for use in connection with its lines
of service. Furmanite also maintains insurance coverage for certain risks,
although there is no assurance that insurance coverage will continue to be
available at rates considered reasonable or that the insurance will be adequate
to protect the Company against liability and loss of revenues resulting from the
consequences of a significant accident.
RECENT DEVELOPMENTS
In July 1997, Furmanite acquired certain assets and business operations
from its licensee in Australia and New Zealand for $4.9 million, including
transaction costs. The acquisition, which was financed with a note due in 2001,
represented the first major geographical expansion by Furmanite since it was
acquired by the Company in 1991.
PIPELINE AND TERMINALING SERVICES
Through its KPL subsidiary, the Company, among other activities,
manages and operates refined petroleum products pipeline transportation system
and petroleum products and specialty liquids terminal storage businesses, and
their associated properties, for the benefit of KPP, which owns such systems and
facilities through its subsidiaries. The pipeline business consists primarily of
the transportation, as a common carrier, of refined petroleum products in
Colorado, Iowa, Kansas, Nebraska, North Dakota, South Dakota and Wyoming, as
well as related terminaling activities. Through its Support Terminal Services,
Inc. subsidiary, among others (collectively, "ST"), the Company operates 31
terminal storage facilities in 16 states and the District of Columbia, with a
total storage capacity of approximately 17,200,000 barrels. Including those
situated along its refined petroleum products pipeline systems, the
Partnership's terminal storage operations comprise the third largest independent
liquids terminaling company in the United States. For a more detailed discussion
of the business, activities and results of operations of the Partnership than
that which is contained herein, reference is made to the Annual Report on Form
10-K and other publicly filed documents of Kaneb Pipe Line Partners, L.P. (NYSE:
KPP, KPU).
<PAGE>
PIPELINE TRANSPORTATION SYSTEMS
MARKETS SERVED
Initially built in 1953, the KPP pipeline transportation operations
currently consist of two pipeline systems: the East and West Pipelines (the
"Pipelines"), with its operational headquarters located in Wichita, Kansas. The
East Pipeline is a 2,075 mile integrated pipeline, ranging between six and
sixteen inches in diameter, that transports refined petroleum products received
from refineries in southeast Kansas or other interconnecting pipelines to
terminals in Iowa, Kansas, Nebraska, North Dakota and South Dakota and to
receiving pipeline connections in Kansas. The East Pipeline has direct
connections to two Kansas refineries and has direct access by third-party
pipelines to four other refineries in Kansas, Oklahoma and Texas. The East
Pipeline also provides access to Gulf Coast suppliers of refined petroleum
products through connecting pipelines which receive products from a pipeline
originating on the Gulf Coast and receives propane through five connecting
pipelines from gas processing plants in Kansas, New Mexico, Oklahoma and Texas.
The East Pipeline's operation also includes 15 public truck loading terminals
located in five states, comprised of a total of 224 tanks having storage
capacity of approximately 3,100,000 barrels of product, and has intermediate
storage facilities in McPherson and El Dorado, Kansas, consisting of 23 tanks
having an aggregate storage capacity of approximately 922,000 barrels.
The West Pipeline, acquired by the Partnership from Wyco Pipe Line
Company in February 1995, consists of approximately 550 miles of six to eight
inch diameter pipeline that transports refined petroleum products received
directly and by other interconnecting pipelines from refineries located in
Colorado, Montana, South Dakota and Wyoming to terminals in Colorado, South
Dakota and Wyoming. The West Pipeline's operations include four public truck
loading terminals, also located in Colorado, South Dakota and Wyoming, having
storage capacity of approximately 1,600,000 barrels of product. Through these
facilities and operations, the West Pipeline serves the growing Denver and
northeastern Colorado markets and supplies jet fuel for Ellsworth Air Force
Base, Rapid City, South Dakota.
The West Pipeline is the nearest pipeline system paralleling the East
Pipeline to the west. Consequently, there is a high level of commonality of
shippers on the Pipelines, and due to the proximity of the East and West
Pipelines to one another, they often face similar competitive issues. The
Pipelines' more significant competitors include refineries, common carrier
pipelines, proprietary pipelines owned and operated by major integrated and
large independent oil companies and other companies in the areas where the
Partnership's pipeline systems and operations deliver products. In particular,
the Pipelines' major competitor is an independent regulated common carrier
pipeline system that operates approximately 100 miles east of and parallel with
the East Pipeline. Competition between common carrier pipelines is based
primarily on transportation charges, quality of customer service and proximity
to end users. The Company believes that high capital costs, tariff regulation,
environmental considerations and problems in acquiring rights-of-way make it
unlikely that other competing pipeline systems comparable in size and scope to
the Pipelines will be built in the near future, provided that the Pipeline has
available capacity to satisfy demand and its tariffs remain at reasonable
levels. Further, while pipeline transportation systems are generally the lowest
cost method for intermediate and long-haul overland movement of refined
petroleum products, trucks may also competitively deliver products in some of
the areas served by the Pipelines. However, as trucking costs render that mode
of transportation uncompetitive for longer hauls or larger volumes, the Company
does not believe that, over the long term, trucks are effective competition to
the Pipelines' long-haul volumes.
PRODUCTS DELIVERED
The mix of refined petroleum products delivered by the pipelines varies
seasonally, with gasoline demand peaking in early summer, diesel fuel demand
peaking in late summer and propane demand higher in the fall. In addition,
weather conditions in the geographic areas served by the Pipelines affect the
demand for and the mix of the refined petroleum products delivered through the
Pipelines, although any such impact on the volumes shipped has historically been
short-term. Most of the refined petroleum products delivered through the East
Pipeline are ultimately used in agricultural operations, including fuel for farm
equipment, irrigation systems, crop drying facilities and trucks used to
transport crops to a variety of destinations; while the West Pipeline's products
are generally delivered to a more urban and commercial marketplace. The
agricultural sector served by the East Pipeline is also affected by governmental
policy and crop prices. Further, the Pipelines are dependent upon adequate
levels of production of refined petroleum products by refineries that are
connected to the Pipeline, which refineries are, in turn, dependent upon
adequate supplies of suitable grades of crude oil. KPL, in its capacity as
General Partner of the Partnership, believes that, in the event that operations
at any one refinery were discontinued (and assuming unchanged demand in the
markets served by the Pipelines), the effects thereof would be short-term in
nature and the Company's business would not be materially adversely affected
over the long term. However, a substantial reduction of output by several
refineries as a group could affect the Pipelines' operations to the extent that
a greater percentage of the supply would have to come from refineries outside
the Pipelines' connecting access pipelines.
TARIFFS
Substantially all of the Pipelines' operations constitute common
carrier activities that are subject to Federal or state tariff regulation. Such
common carrier activities are those under which transportation services through
the Pipeline are available at published tariffs, as filed with the Federal
Energy Regulatory Commission ("FERC") or the applicable state regulatory
authority, to any shipper of refined petroleum products who requests such
services, provided that each refined petroleum product for which transportation
is requested satisfies the conditions, requirements and specifications for
transportation.
TERMINAL STORAGE OPERATIONS
FACILITIES
Acquired by the Partnership in 1993, ST and its predecessors have a
proven track record of more than 40 years of quality service and experience in
the operation of specialty liquids terminal storage facilities. ST's terminal
facilities provide throughput and storage on a fee basis for a wide variety of
products from petroleum products to specialty chemicals and edible and other
liquids. ST's 31 facilities offer storage capacity ranging from 40,000 to
5,403,000 barrels, comprised of two to 124 tanks per facility. As of December
31, 1997, ST's five largest facilities were located at Piney Point, Maryland
(5,403,000 Bbls capacity; 28 tanks); Jacksonville, Florida (2,066,000 Bbls
capacity; 30 tanks); Texas City, Texas (2,002,000 Bbls capacity; 124 tanks);
Westwego, Louisiana (858,000 Bbls capacity; 54 tanks); and, Baltimore, Maryland
(821,000 Bbls capacity; 49 tanks). In addition to the foregoing, the other ST
facilities are located in Alabama (2), Arizona, California (2), the District of
Columbia (2), Florida, Georgia (6), Illinois (2), Indiana, Kansas, Maryland,
Minnesota, New Mexico, Oklahoma, Texas, Virginia (2) and Wisconsin. These
terminals provide ST with a geographically diverse base of customers and
revenue. ST's operational headquarters is located in Dallas, Texas.
The independent liquids terminaling industry is fragmented and includes
both large, well financed publicly-traded companies that own and/or operate many
terminal locations and small private companies that may own and/or operate only
a single terminal location. In addition to the terminals owned by independent
terminal operators, many major energy and chemical companies also own extensive
terminal facilities. Although such terminals often have the same capabilities as
those owned by independent operators, they generally do not provide terminaling
services to third parties. In many instances, major energy and chemical
companies that own storage facilities are also significant customers of
independent terminal operators, when independent terminals have more cost
effective locations near key transportation links such as deep water ports.
Major energy and chemical companies also require independent terminal storage
when their captive storage facilities are inadequate, either because of size
constraints, the nature of the stored material or specialized handling
requirements. Independent terminal owners, such as ST, compete on the basis of
location, versatility of terminals, service and price. For example, a favorably
located terminal will have access to various means of cost-effective
transportation both to and from the terminal. Terminal versatility is a function
of the operator's ability to offer safe handling for a diverse group of products
having complex handling requirements. The service function typically provided by
the terminal includes, among other things, the safe storage of the product at
specified temperature, moisture and other conditions, as well as loading and
unloading of product at the terminal. Additionally, an increasingly important
aspect of the versatility and service capabilities of an operator is that
operator's ability to offer product handling and storage which complies with
applicable environmental, safety and health regulations, among others,
especially since customers may retain the liability for certain acts of
non-compliance with such regulations.
<PAGE>
PRODUCTS
The variety of products that can be stored at ST's terminal storage
facilities is a significant part of, what the Company believes is, its
competitive advantage among similarly situated organizations. ST's terminals
provide storage capacity for such products as petroleum products, specialty
chemicals, asphalt, fertilizer, herbicides, latex and caustic solutions, and
edible liquids, including animal and vegetable fats and oils. Further, the
terminaling and pipeline transportation of jet fuel for the U.S. Department of
Defense is an important part of ST's business. Eleven of ST's terminal sites are
involved in the terminaling or transport (via pipeline) of jet fuel for the
Defense Department. Seven of the eleven locations are utilized solely by the
Defense Department and six of these locations include pipelines that deliver jet
fuel directly to nearby military bases. Revenue attributable to Department of
Defense activities is derived from a combination of terminal contracts and
tenders for the handling and movement of jet fuel. The terminal contracts
provide a fixed monthly revenue for a period of one to four years per contract,
with additional revenues generated if specific throughput levels are exceeded.
The tenders provide for charges per barrel of throughput and have no minimum
guarantees. From time to time, military base closings or other events have
impacted the operation of certain of ST's facilities. Presently, two of ST's
terminals are unproductive due to loss of military business. However, KPL, in
its capacity as General Partner of the Partnership, does not believe that, in
the aggregate, the Partnership will experience a significant decrease in cash
flows for the foreseeable future as a result of Department of Defense changes in
activity. KPL, in its capacity as General Partner of the Partnership, does not
believe that ST's business is dependent upon any one customer or any small group
of customers.
SAFETY, ENVIRONMENTAL AND OTHER REGULATORY MATTERS
In addition to tariff regulation of the Partnership's pipeline
activities, certain operations of the Partnership are subject to Federal, state
and local laws and regulations relating to the construction, maintenance and
management of its facilities, the safety of its personnel and the protection of
the environment. Although KPL, in its capacity as General Partner of the
Partnership, believes that the operations of the Partnership are in general
compliance with applicable laws and regulations, risks of substantial costs and
liabilities are inherent in both pipeline and terminaling operations, and there
can be no assurance that significant costs and liabilities will not be incurred
by the Partnership. For example, contamination resulting from spills or releases
of refined petroleum products within the petroleum pipeline industry, or refined
petroleum or other products within the terminaling industry, are not unusual in
such industries. From time to time, the Partnership has experienced limited
contamination at certain of its pipeline related terminal sites, resulting from
spills of refined petroleum products. In each instance, the appropriate
regulatory authorities have been notified of these events and appropriate
remediation activities have either been completed or are ongoing. In connection
with the formation of the Partnership, the Company agreed to bear the costs
associated with environmental contamination relating to the operations of the
East Pipeline arising prior to October 3, 1989; however, such costs have not
been, and are not in the future anticipated to be, material.
Additionally, from time to time, the Partnership has experienced
limited contamination at certain of its current and former terminal storage
facilities, as a result of operations at or around these locations. Again, in
each instance, the appropriate regulatory authorities have been notified of
these events and appropriate remediation activities have either been completed,
are ongoing or are under investigation. In certain instances where other
unrelated companies may also have responsibility for the contamination of a
particular facility or area, the Partnership, through the appropriate operating
subsidiary, has entered into agreements (or is in the process of negotiating
such agreements) with such company or companies providing for the allocation of
the costs and/or responsibilities of remediation of such facilities or areas.
Further, ST has been named as a "potentially responsible party" for a
federally-designated and EPA-supervised "Superfund" site where a small amount of
material handled by the former operator was attributed to the facility owned by
ST. While the Company believes that the Partnership's obligations in connection
with the remediation process at this location will be de minimis, until a final
settlement agreement is signed with the EPA, there is a possibility that the EPA
could bring additional claims against ST.
<PAGE>
ENVIRONMENTAL CONTROLS
The Company is subject to Federal, state and local laws and regulations
relating to protection of the environment. Although the Company believes that
its operations are in general compliance with applicable environmental
regulation, risks of additional costs and liabilities are inherent in its
operations, and there can be no assurance that significant costs and liabilities
will not be incurred by the Company. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws, regulations,
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Company could result in substantial costs
and liabilities.
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries employed 1,798
persons, of which a total of 1,254 persons were employed by the Furmanite group
of companies, collectively, and a total of 427 persons were employed by KPL and
subsidiaries of the Partnership. The Partnership has no employees, as the
business and operations of the Partnership are conducted by KPL, the General
Partner of the Partnership and a wholly-owned subsidiary of the Company. As of
December 31, 1997, approximately 565 of the persons employed by Furmanite were
subject to representation by unions or other similar associations for collective
bargaining or other similar purposes; however, there were no significant
collective bargaining or other similar contracts covering the Furmanite
employees in effect at that date. Additionally, as of December 31, 1997,
approximately 151 of the persons employed by KPL were subject to representation
by unions for collective bargaining purposes; however, except for approximately
53 employees of KPL who were subject to representation by the Oil, Chemical and
Atomic Workers International Union AFL-CIO ("OCAW"), there were no collective
bargaining or other similar contracts covering employees of KPL in effect at
that date. The union contracts with the OCAW regarding conditions of employment
for 38 and 15 of such persons, are in effect through June 28, 1999 and November
1, 2000, respectively. Both agreements are subject to automatic renewal for
successive one year periods unless either party serves written notice to
terminate or modify such agreement in a timely manner.
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located in Richardson,
Texas, in a modern, sixteen story building pursuant to a lease agreement which
expires in 2002, with an option to renew for an additional five year period. In
addition to properties owned or leased by its industrial field services,
pipeline transportation and liquids terminaling businesses, the Company, through
its wholly-owned subsidiary, Fields Financial Services, Inc., also leases office
space in Bryan, Texas.
Descriptions of other properties owned or utilized by the Company (or
its subsidiaries) are contained in Item 1 of this report and such descriptions
are hereby incorporated by reference into this Item 2. Under the caption
"Commitments and Contingencies" in Note 10 to the Company's consolidated
financial statements, additional information is presented concerning obligations
of the Company (or its subsidiaries) for lease and rental commitments. Such
additional information is also incorporated by reference into this Item 2.
ITEM 3. LEGAL PROCEEDINGS
A subsidiary of the Company that is no longer actively conducting any
operations was notified in 1989 that it is a "potentially responsible party" in
connection with a governmental investigation relating to a waste disposal
facility which has been subject to remedial action as a location listed on the
Environmental Protection Agency's ("EPA") Superfund National Priority List
("Superfund"). Proceedings arising under Superfund typically involve numerous
waste generators and other waste transportation and disposal companies for each
identified facility and seek to allocate or recover costs associated with site
investigation and cleanup, which costs could be substantial. This proceeding
involves actions allegedly taken by a former operating subsidiary of the Company
at a time prior to the acquisition of such subsidiary by the Company. The
Company's subsidiary has been included within a de minimis group of waste
generators that are involved in this proceeding, who have been negotiating a
collective settlement of their liabilities with the EPA. However, the Company
has joined with others within this de minimis group who are each contesting
their respective liability. Proceedings in this matter are ongoing. The Company
has reviewed its potential exposure, if any, in connection with this matter,
giving consideration to the nature, accuracy and strength of evidence relating
to the Company's alleged relationship to the location, the amount and nature of
waste taken to the location, and the number, relationship and financial ability
of other named and unnamed "potentially responsible parties" at the location.
While the Company does not anticipate that the amount of expenditures from its
involvement in the above matter will have a material adverse effect on the
Company's operations or financial condition, the possibility remains that
technological, regulatory, enforcement or legal developments, the results of
environmental studies or other factors could materially alter this expectation
at any time.
In addition, from time to time, the Company and certain of its
subsidiaries are involved in various litigation and other legal proceedings in
the ordinary course of business. However, the Company believes that resolution
of these matters will not have a material adverse affect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit
any matter to a vote of stockholders in the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Shares of the Company's Common Stock are listed and traded principally
on the New York Stock Exchange. At March 16, 1998, there were approximately
4,250 holders of Common Stock of record. The following table sets forth, for the
fiscal periods indicated, the quoted high and low sales prices of the shares on
the New York Stock Exchange.
QUOTED STOCK PRICES
--------------------------------
CALENDAR YEAR HIGH LOW
-------------------------- -------- --------
1996:
First Quarter 3 1/4 2 1/4
Second Quarter 3 3/4 2 3/8
Third Quarter 3 3/8 2 1/2
Fourth Quarter 3 3/4 3
1997:
First Quarter 4 1/2 3 1/8
Second Quarter 4 1/8 3 1/2
Third Quarter 5 3/8 3 5/8
Fourth Quarter 6 5/16 4 1/2
1998:
First Quarter 6 4 13/16
(through 3/16/98)
The Company currently intends to retain future earnings for the
development of its business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company's future dividend policy
will be determined by its Board of Directors on the basis of various factors,
including the Company's results of operation, financial condition, capital
requirements and investment opportunities. Additionally, the credit facilities
for the working capital of each of Furmanite and KPL each contain restrictions
on the respective subsidiary's ability to pay dividends or distributions to the
Company, if an event of default exists.
<PAGE>
ITEM 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following selected financial data (in thousands, except per share
amounts) is derived from the consolidated financial statements of the Company
and should be read in conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this report. The Company has not
declared a dividend on its Common Stock for any of the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 236,936 $ 228,861 $ 212,062 $ 208,722 $ 198,549
========= ========= ========= ========= =========
Operating income................ $ 58,660 $ 53,815 $ 43,465 $ 31,964 $ 29,530
========= ========= ========= ========= =========
Income before gains on
sale or issuance of KPP units.. $ 10,643 $ 7,024 $ 5,024 $ 2,035 $ 1,032
Gains on sale or issuance of
KPP units.................... -- -- 54,157 -- 15,122
--------- --------- --------- --------- ---------
Net income................. $ 10,643 $ 7,024 $ 59,181 $ 2,035 $ 16,154
========= ========= ========= ========= =========
PER SHARE DATA:
Earnings per common share:
Basic........................ $ .31 $ .19 $ 1.72 $ .02 $ .46
========= ========= ========= ========= =========
Diluted...................... $ .30 $ .19 $ 1.59 $ .02 $ .46
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Net cash provided by operating
activities................... $ 55,120 $ 48,628 $ 39,964 $ 25,890 $ 30,880
Cash and cash equivalents....... 23,025 23,693 30,389 9,506 24,327
Working capital................. 20,423 20,033 16,302 (42,797) 15,842
Total assets.................... 402,273 404,691 409,827 284,213 287,472
Long-term debt.................. 181,052 186,544 191,846 103,376 152,678
Stockholders' equity (1)........ 78,447 75,366 69,022 18,844 14,861
<FN>
(1) See Note 8 to the Company's Consolidated Financial Statements for a
discussion of the Company's Preferred Stock.
</FN>
</TABLE>
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated
financial statements of the Company and notes thereto included elsewhere in this
report.
CONSOLIDATED RESULTS OF OPERATIONS
(in millions)
---------------------------------
1997 1996 1995
--------- --------- --------
Consolidated revenues..................... $ 236.9 $ 228.9 $ 212.1
Consolidated operating income............. $ 58.7 $ 53.8 $ 43.5
Consolidated operating income before
depreciation and amortization.......... $ 75.4 $ 69.2 $ 56.5
Consolidated net income before gains
on sale of pipeline partnership units.. $ 10.6 $ 7.0 $ 5.0
Consolidated capital expenditures,
excluding acquisitions................. $ 13.0 $ 10.7 $ 13.4
Consolidated revenues increased $8.0 million, or 3%, in 1997, primarily
as a result of improvements in the industrial field services operations and
improvements in operations of the terminaling assets that were acquired by Kaneb
Pipe Line Partners, L.P. ("KPP") in December 1995 and in 1996. Consolidated
operating income increased $4.9 million, or 9%, from 1996 to 1997 with
substantial improvements in the industrial field services operations.
Consolidated revenues increased $16.8 million in 1996, primarily as a result of
the acquisition of terminaling assets that were acquired by KPP in December
1995. Pipeline and terminaling services operating income increased $8.8 million
in 1996 largely due to the terminaling assets acquired by KPP in December 1995.
Industrial Field Services
The Company's industrial field services business is conducted through
Furmanite, which was acquired in March 1991. Furmanite provides specialized
industrial field services to plants in the process and power industries and to
refineries and chemical plants.
(in millions)
----------------------------------------
1997 1996 1995
-------- ------- --------
Revenues:
Americas........................ $ 33.7 $ 32.7 $ 32.8
Europe.......................... 66.4 65.9 67.4
Asia-Pacific.................... 8.1 4.7 4.3
------- ------- -------
$ 108.2 $ 103.3 $ 104.5
======= ======= =======
Operating income:
Americas........................ $ 1.8 $ 1.5 $ 1.9
Europe.......................... 6.1 4.0 2.4
Asia-Pacific.................... 1.1 .9 .4
Headquarters.................... (1.6) (1.3) (.8)
-------- ------- -------
$ 7.4 $ 5.1 $ 3.9
======= ======= =======
Operating income before
depreciation and amortization...... $ 12.0 $ 9.3 $ 8.0
======= ======= =======
Capital expenditures,
excluding acquisitions............. $ 2.0 $ 3.5 $ 4.3
======= ======= =======
Furmanite's revenues increased $4.9 million, or 5%, in 1997 primarily
as a result of improvements in turnaround services in Europe and the Americas
and the acquisition of a former licensee in Australia in July 1997, in spite of
a large non-recurring engineering contract that was completed in Germany in
1996. Revenues decreased $1.2 million in 1996 primarily as a result of
non-recurring passive fire protection work completed in Europe in 1995 that was
only partially offset by increases in revenues in other countries. Revenues from
traditional underpressure services improved primarily in the Americas in 1996
while revenues from turnaround services in 1995 included some large projects
that typically do not recur on an annual basis.
Operating income increased $2.3 million, or 45%, in 1997 with
substantial improvements in the core businesses in Europe and the Americas in
addition to the Asia-Pacific business acquired in mid-1997. Operating income
increased $1.2 million, or 31%, in 1996 as a result of improvements,
particularly in Europe and in Asia-Pacific, in spite of non-recurring passive
fire protection work completed in Europe in 1995 and from large turnaround
projects that were completed in the Americas in 1995.
Capital expenditures are primarily related to field services equipment
and the implementation of new services. Capital expenditures for 1998 are
currently estimated to be $3 million to $5 million, depending on the economic
environment and the needs of the business.
Pipeline and Terminaling Services
The Company's pipeline and terminaling services business includes the
operations of KPP, which owns refined petroleum products pipeline assets and,
since 1993, petroleum products and specialty liquids storage and terminaling
assets. The Company operates, manages, and controls the pipeline and terminaling
operations of KPP through its 2% general partner interest and a 31% limited
partner interest in the partnership.
(in millions)
-----------------------------------------
1997 1996 1995
------- ------- --------
Revenues .......................... $ 121.2 $ 117.6 $ 96.9
======= ======= ========
Operating income .................. $ 53.4 $ 51.3 $ 42.5
======= ======= ========
Operating income before
depreciation and amortization.... $ 65.1 $ 62.2 $ 50.8
======= ======= ========
Capital expenditures,
excluding acquisitions........... $ 10.6 $ 7.1 $ 9.0
======= ======= ========
Revenues increased $3.6 million, or 3%, in 1997 and operating income
increased $2.1 million, or 4%, primarily due to improvements in tankage utilized
at terminals acquired by KPP in December 1995, terminaling assets acquired in
1996 and increases in prices charged for storage. Revenues increased $20.7
million, or 21%, and operating income increased $8.8 million, or 21%, in 1996
primarily due to the acquisition of terminaling assets in December 1995 by KPP,
combined with continued improvements at the West Pipeline.
The interest of outside non-controlling partners in KPP's net income
was $27.7 million, $27.0 million and $18.0 million in 1997, 1996 and 1995,
respectively. The increase in 1996 is attributable to the sale by the Company in
September 1995 of 3.5 million of the preference units that it had owned since
1989. Proceeds from the 1995 sale were used to permanently retire debt and
redeem a preferred stock issue. Distributions paid to the outside
non-controlling unitholders of KPP aggregated approximately $26.9 million, $24.7
million and $16.3 million in 1997, 1996 and 1995, respectively.
Capital expenditures relate to the maintenance of existing operations.
Routine capital expenditures for 1998 are currently estimated to be between $7
million and $10 million.
In February 1995, KPP, through a wholly-owned subsidiary, acquired the
pipeline assets of WYCO Pipe Line Company (the "West Pipeline"), a company
jointly owned by GATX Terminals Corporation and Amoco Pipeline Company, for
$27.1 million, plus transaction costs and the assumption of certain
environmental liabilities. KPP financed the acquisition by the sale of first
mortgage notes due February 24, 2002, which bear interest at the rate of 8.37%
per annum.
In December 1995, KPP, through a wholly-owned subsidiary, acquired the
liquids terminaling assets of Steuart Petroleum Company and certain of its
affiliates (collectively "Steuart") for $68 million, plus transaction costs and
the assumption of certain environmental liabilities. KPP initially financed the
acquisition by a bank bridge loan, which was later refinanced with first
mortgage notes due in varying amounts in June 2001, 2003, 2006 and 2016 bearing
interest at rates ranging from 7.08% to 7.98% per annum.
Other Operations
The Company had operating income of $2.7 million, $2.2 million and $1.7
million in 1997, 1996 and 1995, respectively, on revenues of $7.6 million, $8.0
million, and $10.6 million for the same periods, primarily related to
subsidiaries that provide information processing, payment and collection
services primarily to financial institutions.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per
Share," which requires a dual presentation of earnings per share, computed by
(1) dividing the net income applicable to common stock by the weighted average
number of common shares outstanding for the period ("Basic" earnings per share),
and (2) dividing the net income applicable to common stock by the weighted
average number of common shares outstanding plus the number of additional common
shares that would have been outstanding if dilutive potential common shares had
been issued ("Diluted" earnings per share). The Company adopted SFAS 128 at
December 31, 1997 and has applied its provisions retroactively to all periods
presented.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The provisions of SFAS 130 must be adopted in fiscal year
1998. The Company expects to comply with the provisions of SFAS 130 in the
Consolidated Statements of Stockholders' Equity, when adopted.
Also, in June 1997, the FASB issued SFAS 131, "Disclosure About
Segments of an Enterprise and Other Information," which requires segment
information to be reported on a basis consistent with that used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The provisions of SFAS 131 must be adopted in fiscal year 1998. The
Company is evaluating the impact of adopting SFAS 131 on the way it currently
reports segment information.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by consolidated operating activities was $55.1 million,
$48.6 million and $40.0 million during the years 1997, 1996 and 1995,
respectively. The increase in 1997 resulted from an overall improvement in
revenues and operating income in both the industrial field services and the
pipeline and terminaling businesses. A substantial portion of the increases in
1996 related to pipeline and terminaling services, primarily as a result of the
acquisitions by KPP of the Steuart terminals in December 1995 and the West
Pipeline in February 1995.
At December 31, 1997, $23.4 million was outstanding under a credit
facility, as amended, that was originally obtained by a wholly-owned subsidiary
in conjunction with the acquisition of Furmanite. The credit facility, which is
without recourse to the parent company, is due 2001, bears interest at the
option of the borrower at variable rates based on either the LIBOR rate or the
prime rate plus a differential of up to 150 basis points, and contains certain
financial and operational covenants with respect to the specialized industrial
field services group of companies.
In 1994, a wholly-owned subsidiary of KPP entered into a Restated
Credit Agreement with a group of banks that, as amended, provides a $25 million
revolving credit facility through January 31, 2001. The credit facility bears
interest at variable interest rates and has a commitment fee of 0.15% per annum
of the unused credit facility. No amounts were drawn under the credit facility
at December 31, 1997. In 1995, KPP financed the acquisition of the West Pipeline
with the issuance of $27 million of notes due February 24, 2002 ("Notes"), which
bear interest at the rate of 8.37% per annum. The Notes and credit facility are
secured by a mortgage on the East Pipeline and contain certain financial and
operational covenants. The acquisition by KPP of the Steuart terminaling assets
in December 1995 was initially financed by a $68 million bridge loan from a
bank. KPP refinanced this bridge loan in June 1996 with a series of first
mortgage notes (the "Steuart Notes") bearing interest at rates ranging from
7.08% to 7.98% and maturing in varying amounts in June 2001, 2003, 2006 and
2016. The Steuart Notes are secured, pari passu with the Notes and credit
facility, by a mortgage on the East Pipeline.
In September 1995, the Company, through a wholly-owned subsidiary, sold
in a public offering 3.5 million Preference Units it held in KPP. The Company
received net cash proceeds of approximately $74 million related to the sale and
recorded a gain of $54.2 million. The Company used the proceeds from the sale to
retire its 8% convertible subordinated debentures totaling $43.2 million, retire
its 11.5% subordinated debentures totaling $5.0 million, repay its $10 million
term loan, redeem, in 1996, its Series D Preferred Stock for approximately $8.0
million and retire, in 1996, a $6.0 million 8.85% senior note. The Company
continues to control the pipeline and terminaling operations of KPP through its
2% general partner interest and a 31% limited partner interest.
In December 1995, the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit facility
through December 1, 2000 that bears interest at a variable rate at the Company's
option based on the LIBOR rate plus 100 basis points or at the prime rate in
effect from time to time with a commitment fee of .5% per annum of the unused
credit facility. No amounts were drawn under the credit facility at December 31,
1997, 1996 or 1995.
Most of the software systems used by the Company are licensed from
third party vendors and are Year 2000 compliant or will be upgraded to Year 2000
compliant releases over the next year. The Company does not anticipate that the
incremental costs to become fully Year 2000 compliant will be material.
Consolidated capital expenditures for 1998 have been budgeted at $10
million to $15 million, depending on the economic environment and the needs of
the business. Consolidated debt maturities are $5.4 million, $6.8 million, $2.1
million, $88.5 million (including $68 million of KPP debt) and $27.0 million for
each of the five years ending December 31, 2002. Capital expenditures in 1998
are expected to be funded from existing cash and anticipated cash flows from
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the
Company begins on page F-1 of this report. Such information is hereby
incorporated by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated by reference from portions of the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS PAGE
Set forth below are financial statements appearing in this report.
Report of Independent Accountants............................. F - 1
Financial Statements of Kaneb Services, Inc., and Subsidiaries:
Consolidated Statements of Income - Years Ended December 31,
1997, 1996 and 1995..................................... F - 3
Consolidated Balance Sheets - December 31, 1997 and 1996.. F - 4
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995............ F - 5
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1997, 1996 and 1995.... F - 6
Notes to Consolidated Financial Statements................. F - 7
(A) (2) FINANCIAL STATEMENT SCHEDULES
Set forth are the financial statement schedules appearing in this
report.
Schedule I - Kaneb Services, Inc. (Parent Company)
Condensed Financial Statements:
Statements of Income - Years Ended December 31, 1997,
1996 and 1995............................................ F - 23
Balance Sheets - December 31, 1997 and 1996................ F - 24
Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995......................... F - 25
Schedule II - Kaneb Services, Inc. Valuation and Qualifying Accounts
Years Ended December 31, 1997, 1996 and 1995............... F - 26
Schedules, other than those listed above, have been omitted because of
the absence of the conditions under which they are required or
because the required information is included in the consolidated
financial statements or related notes thereto presented in the
Annual Report to Stockholders.
(A) (3) LIST OF EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant, dated
September 26, 1979, filed as Exhibit 3.1 of the exhibits to the
Registrant's Registration Statement on Form S-16, which exhibit is
hereby incorporated by reference.
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the
exhibits to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1981, which exhibit is hereby incorporated by
reference.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1985, which exhibit is hereby incorporated by
reference.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated September 17, 1985, filed as Exhibit 4.1 of
the exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985, which exhibit is hereby incorporated
by reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated July 10, 1990, filed as Exhibit 3.5 of the
exhibits to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 ("1990 Form 10-K"), which exhibit is hereby
incorporated by reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated September 21, 1990, filed as Exhibit 3.5 of
the exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, which exhibit is hereby incorporated
by reference.
3.7 By-laws of the Registrant, filed herewith.
4.1 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits
to the Registrant's Quarterly Report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights related to the
Registrant's Series B Junior Participating Preferred Stock, filed as
Exhibit 1 of the exhibits to the Registrant's Current Report on Form
8-K and Registration Statement on Form 8-A, dated April 5, 1988, which
exhibit is hereby incorporated by reference.
4.3 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series C, dated April 23, 1991,
filed as Exhibit 4.4 of the exhibits to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991, which exhibit is hereby
incorporated by reference.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series F, dated June 12, 1997,
filed herewith.
4.5 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("First City"), dated January 15, 1984, under which
Moran issued the 8 3/4% Convertible Subordinated Debentures due 2008,
filed as Exhibit 4.1 to Moran's Registration Statement on Form S-3 (SEC
File No. 2-81227), which exhibit is hereby incorporated by reference.
4.6 First Supplemental Indenture between the Registrant and First City,
dated as of March 20, 1984, under which the Registrant assumed
obligations under the Indenture listed as Exhibit 4.5 above, filed as
Exhibit 4.7 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1983, which exhibit is hereby incorporated by
reference.
10.1 Kaneb Services, Inc. Savings Investment Plan, as amended, filed as
Exhibit 4.10 of the exhibits to the Registrant's Registration Statement
on Form S-8 ("Form S-8") (S.E.C. File No. 33-41295) and as Exhibit 4.1
to the exhibits of Registrant's Form S-8 (S.E.C. File No. 333-14067),
which exhibits are hereby incorporated by reference.
10.2 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 to the exhibits of the Registrant's Form S-8 (S.E.C. File
No. 2-90929), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-54027), which exhibit is hereby incorporated by reference.
10.4 Kaneb Services, Inc. Deferred Stock Unit Plan, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-08725),
which exhibit is hereby incorporated by reference.
10.5 Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08727), which exhibit is hereby incorporated by
reference.
10.6 Kaneb Services, Inc. $1.63 Director Stock Options, filed as Exhibit 4.1
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-58981), which exhibit is hereby incorporated by reference.
10.7 Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-14069),
which exhibit is hereby incorporated by reference.
10.8 Kaneb Services, Inc. 1996 Directors Stock Incentive Plan, as amended,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-14071) and as Exhibit 4.1 to the exhibits of
Registrant's Form S-8 (S.E.C. File No. 333-22109), which exhibits are
hereby incorporated by reference.
10.9 Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08723), which exhibit is hereby incorporated by
reference.
10.10 Form of Termination Agreement, filed as Exhibit 10.10 to the exhibits
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, which exhibit is hereby incorporated by reference.
10.11 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, as amended (the
"Furmanite Loan Agreement"), filed as Exhibit 10.8 of the exhibits to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994 and Exhibit 10.11 of the exhibits to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, which
exhibits are hereby incorporated by reference.
10.12 Amendments to the Furmanite Loan Agreement, filed herewith.
10.13 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed as Exhibit 10.10 of the exhibits to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants Price Waterhouse LLP filed herewith
27 Financial Data Schedule, filed herewith.
Certain instruments respecting long-term debt of the Registrant have
been omitted pursuant to instructions as to Exhibits. The Registrant agrees to
furnish copies of any of such instruments to the Commission upon request.
(B) REPORTS ON FORM 8-K - NONE.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Kaneb Services, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 15 present fairly, in all material
respects, the financial position of Kaneb Services, Inc. and its subsidiaries
("the Company") at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 19, 1998
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenues................................................... $ 236,936,000 $ 228,861,000 $ 212,062,000
-------------- -------------- ---------------
Costs and expenses:
Operating costs........................................ 156,654,000 154,935,000 151,014,000
Depreciation and amortization.......................... 16,715,000 15,434,000 13,055,000
General and administrative............................. 4,907,000 4,677,000 4,528,000
-------------- -------------- ---------------
Total costs and expenses............................. 178,276,000 175,046,000 168,597,000
-------------- -------------- ---------------
Operating income........................................... 58,660,000 53,815,000 43,465,000
Interest income............................................ 533,000 859,000 858,000
Other expense.............................................. (696,000) (832,000) (1,037,000)
Interest expense........................................... (15,531,000) (15,420,000) (15,927,000)
Amortization of excess of cost over fair
value of net assets of acquired business............... (1,879,000) (1,848,000) (1,847,000)
--------------- -------------- ---------------
Income before interest of outside non-controlling
partners in KPP's net income, income taxes
and gain on sale of KPP units.......................... 41,087,000 36,574,000 25,512,000
Interest of outside non-controlling partners
in KPP's net income.................................... (27,655,000) (26,969,000) (17,953,000)
Gain on sale of KPP units.................................. - - 54,157,000
Income tax expense......................................... (2,789,000) (2,581,000) (2,535,000)
--------------- -------------- ---------------
Net income................................................. 10,643,000 7,024,000 59,181,000
Dividends applicable to preferred stock.................... 538,000 502,000 1,527,000
-------------- -------------- ---------------
Net income applicable to common stock...................... $ 10,105,000 $ 6,522,000 $ 57,654,000
============== ============== ===============
Earnings per common share:
Basic.................................................. $ .31 $ .19 $ 1.72
============== ============== ==============
Diluted................................................ $ .30 $ .19 $ 1.59
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
-------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 23,025,000 $ 23,693,000
Accounts receivable, trade (net of allowance for doubtful
accounts of $570,000 in 1997 and $666,000 in 1996).......... 35,268,000 33,157,000
Inventories.................................................... 7,079,000 6,706,000
Prepaid expenses and other current assets...................... 5,693,000 6,367,000
-------------- --------------
Total current assets......................................... 71,065,000 69,923,000
-------------- --------------
Property and equipment............................................ 383,078,000 373,087,000
Less accumulated depreciation and amortization.................... 121,717,000 106,449,000
-------------- --------------
Net property and equipment..................................... 261,361,000 266,638,000
-------------- --------------
Excess of cost over fair value of net assets of acquired business 62,719,000 63,183,000
Other assets...................................................... 7,128,000 4,947,000
-------------- --------------
$ 402,273,000 $ 404,691,000
============== ==============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt:
Industrial field services.................................... $ 3,059,000 $ 2,558,000
Pipeline and terminaling services............................ 2,335,000 2,036,000
-------------- --------------
Total current portion of long-term debt.................... 5,394,000 4,594,000
Accounts payable............................................... 9,569,000 9,015,000
Accrued expenses............................................... 35,679,000 36,281,000
-------------- --------------
Total current liabilities.................................... 50,642,000 49,890,000
-------------- --------------
Long-term debt, less current portion:
Industrial field services..................................... 25,268,000 23,425,000
Pipeline and terminaling services.............................. 132,118,000 139,453,000
Parent company................................................. 23,666,000 23,666,000
-------------- --------------
Total long-term debt, less current portion................... 181,052,000 186,544,000
-------------- --------------
Deferred income taxes and other liabilities....................... 15,903,000 16,906,000
Interest of outside non-controlling partners in KPP............... 76,229,000 75,985,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, without par value............................. 5,792,000 5,792,000
Common stock, without par value. Authorized
60,000,000 shares; issued 36,527,283 shares
in 1997 and 36,491,027 shares in 1996 4,234,000 4,230,000
Additional paid-in capital..................................... 197,242,000 197,213,000
Accumulated deficit............................................ (101,491,000) (111,596,000)
Treasury stock, at cost........................................ (25,216,000) (20,631,000)
Cumulative foreign currency translation adjustment............. (2,114,000) 358,000
--------------- --------------
Total stockholders' equity................................... 78,447,000 75,366,000
$ 402,273,000 $ 404,691,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- ---------------
<S> <C> <C> <C>
Operating Activities:
Net income ............................................ $ 10,643,000 $ 7,024,000 $ 59,181,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization...................... 16,715,000 15,434,000 13,055,000
Amortization of excess of cost over net assets
acquired......................................... 1,879,000 1,848,000 1,847,000
Interest of outside non-controlling partners in KPP 27,655,000 26,969,000 17,953,000
Deferred income taxes.............................. 86,000 766,000 (778,000)
Gain on sale of KPP units.......................... - - (54,157,000)
Changes in current assets and liabilities:
Short-term investments........................... - - 1,020,000
Accounts receivable.............................. (2,111,000) (449,000) (6,857,000)
Inventories...................................... (373,000) (897,000) 301,000
Prepaid expenses and other current assets........ 674,000 1,098,000 (1,968,000)
Accounts payable and accrued expenses............ (48,000) (3,165,000) 10,367,000
-------------- -------------- --------------
Net cash provided by operating activities............ 55,120,000 48,628,000 39,964,000
------------- ------------- --------------
Investing Activities:
Capital expenditures................................... (13,011,000) (10,685,000) (13,428,000)
Acquisitions........................................... (4,855,000) (8,507,000) (97,850,000)
Decrease (increase) in other assets, net............... (1,819,000) 3,320,000 3,740,000
-------------- ------------- --------------
Net cash used in investing activities................ (19,685,000) (15,872,000) (107,538,000)
-------------- ------------- ---------------
Financing Activities:
Issuance of long-term debt ............................ 8,619,000 1,735,000 6,975,000
Issuance of long-term debt by KPP...................... - 74,500,000 96,500,000
Payments on long-term debt ............................ (5,732,000) (10,138,000) (67,957,000)
Payments on long term debt by KPP...................... (7,036,000) (71,276,000) (3,047,000)
Distributions to outside non-controlling
partners in KPP...................................... (26,864,000) (24,667,000) (16,306,000)
Preferred stock dividends paid......................... (538,000) (502,000) (1,328,000)
Net proceeds from sale of KPP units.................... - - 73,620,000
Redemption of preferred stock.......................... - (8,025,000) -
Common stock issued.................................... 33,000 - -
Purchase of treasury stock............................. (4,585,000) (1,079,000) -
------------- ------------- -------------
Net cash provided by (used in) financing
activities.......................................... (36,103,000) (39,452,000) 88,457,000
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents.......... (668,000) (6,696,000) 20,883,000
Cash and cash equivalents at beginning of year............ 23,693,000 30,389,000 9,506,000
------------- ------------- --------------
Cash and cash equivalents at end of year.................. $ 23,025,000 $ 23,693,000 $ 30,389,000
============= ============= ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
PREFERRED COMMON ADDITIONAL ACCUMULATED TREASURY CURRENCY
STOCK STOCK PAID-IN CAPITAL DEFICIT STOCK TRANSLATION
------------ ----------- --------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 $ 14,085,000 $ 4,224,000 $198,736,000 $(175,772,000) $(23,435,000) $1,006,000
Net income for the year......... - - - 59,181,000 - -
Common stock issued............. - 6,000 (2,764,000) - 3,883,000 -
Preferred stock dividends
declared...................... - - - (1,527,000) - -
Series D preferred stock
redemption................... (8,201,000) - 1,179,000 - - (1,179,000)
Foreign currency translation
adjustment.................... (70,000) - - - - (330,000)
------------- -------------- ------------ ------------- ------------ -----------
BALANCE AT DECEMBER 31, 1995 5,814,000 4,230,000 197,151,000 (118,118,000) (19,552,000) (503,000)
Net income for the year....... - - - 7,024,000 - -
Common stock issued........... - - 10,000 - - -
Purchase of treasury stock.... - - - - (1,079,000) -
Preferred stock dividends
declared..................... - - - (502,000) - -
Conversion of Series D
preferred stock............ - - 30,000 - - -
Series C preferred stock
redemption................. (22,000) - 22,000 - - -
Foreign currency translation
adjustment................. - - - - - 861,000
------------- -------------- ------------ ------------- ------------ -----------
BALANCE AT DECEMBER 31, 1996 5,792,000 4,230,000 197,213,000 (111,596,000) (20,631,000) 358,000
Net income for the year....... - - - 10,643,000 - -
Common stock issued........... - 4,000 29,000 - - -
Purchase of treasury stock ... - - - - (4,585,000) -
Preferred stock dividends
declared.................... - - - (538,000) - -
Foreign currency translation
adjustment ................ - - - - - (2,472,000)
------------- -------------- ------------ ------------- ------------ -----------
BALANCE AT DECEMBER 31, 1997 $ 5,792,000 $ 4,234,000 $197,242,000 $(101,491,000) $(25,216,000)$(2,114,000)
============= ============== ============ ============= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by Kaneb
Services, Inc. (the "Company") and its subsidiaries in the preparation of
financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and Kaneb Pipe Line Partners, L.P. ("KPP"). The
Company controls the operations of KPP through its 2% general partner
interest and 31% limited partner interest as of December 31, 1997. All
significant intercompany transactions and balances are eliminated in
consolidation.
Segment Information
The Company provides specialized industrial field services to an
international client base that includes refineries, chemical plants,
pipelines, offshore drilling and production platforms, steel mills, food
and drink processing facilities, power generation, and other process
industries. The Company, as general partner, also manages and operates
the pipeline and terminaling business of KPP.
Cash, Cash Equivalents and Short-term Investments
The Company's policy is to invest cash in highly liquid investments with
maturities of three months or less, upon acquisition. Accordingly,
uninvested cash balances are kept at minimum levels. Such investments are
valued at cost, which approximates market, and are classified as cash
equivalents. Similar investments with original maturities beyond three
months are considered short-term investments and are carried at cost,
which approximates market value. The Company does not have any derivative
financial instruments.
Inventories
Inventories consist primarily of finished goods of the industrial
services segment and are valued at the lower of average cost or market.
Cost is determined using the weighted average cost method.
Property and Equipment
Property and equipment are carried at original cost. Certain leases have
been capitalized and the leased assets have been included in property and
equipment. Additions of new equipment and major renewals and replacements
of existing equipment are capitalized. Repairs and minor replacements
that do not materially increase values or extend useful lives are
expensed.
Depreciation of property and equipment is provided on the straight-line
basis at rates based upon the expected useful lives of the various
classes of assets. The rates used for pipeline and certain storage
facilities, which are subject to regulation, are the same as those
promulgated by the Federal Energy Regulatory Commission.
The carrying value of property and equipment is periodically evaluated
using undiscounted future cash flows as the basis for determining if
impairment exists under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS
121"). To the extent impairment is indicated to exist, an impairment loss
will be recognized under SFAS 121 based on fair value.
Revenue Recognition
Substantially all revenues are recognized when services to unaffiliated
customers have been rendered. Pipeline transportation revenues are
recognized upon receipt of the products into the pipeline system.
Earnings Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("SFAS 128"), in 1997. Under SFAS 128, the amount of earnings for the
period applicable to each share of common stock outstanding during the
period ("Basic" earnings per share) and the amount of earnings for the
period applicable to each share of common stock outstanding during the
period and to each share that would have been outstanding assuming the
issuance of common shares for dilutive potential common shares
outstanding during the period ("Diluted" earnings per share) have been
presented in the consolidated statements of income. The provisions of
SFAS 128 have been applied retroactively to all periods presented.
F-6
<PAGE>
Foreign Currency Translation
The Company translates the balance sheets of its foreign subsidiaries
using year-end exchange rates and translates income statement amounts
using the average exchange rates in effect during the year. The gains and
losses resulting from the change in exchange rates from year to year have
been reported separately as a component of stockholders' equity. Gains
and losses resulting from foreign currency transactions are included in
the statements of income.
Excess of Cost Over Fair Value of Net Assets of Acquired Business
The excess of the purchase price of a specialized industrial field
services company over the fair value of the net assets acquired is being
amortized on a straight-line basis over a period of 40 years. Accumulated
amortization was $12.2 million and $10.3 million at December 31, 1997 and
1996, respectively.
The Company periodically evaluates the propriety of the carrying amount
of the excess of cost over fair value of net assets of businesses
acquired, as well as the amortization period, to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or revised estimates of useful lives. As this time, the Company
believes that no such impairment has occurred and that no reduction in
estimated useful lives is warranted.
Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Change in Presentation
Certain financial statement items for 1996 and 1995 have been
reclassified to conform with the 1997 presentation.
2. ASSET ACQUISITIONS BY PIPELINE PARTNERSHIP
In February 1995, KPP acquired the refined petroleum product pipeline
assets (the "West Pipeline") of Wyco Pipe Line Company for $27.1 million,
plus transaction costs and the assumption of certain environmental
liabilities. The West Pipeline was owned 60% by a subsidiary of GATX
Terminals Corporation and 40% by a subsidiary of Amoco Pipe Line Company.
KPP financed the acquisition by the issuance of $27 million of first
mortgage notes.
F-7
<PAGE>
In December 1995, KPP acquired the liquids terminaling assets of Steuart
Petroleum Company and certain of its affiliates (collectively, "Steuart")
for $68 million, plus transaction costs and the assumption of certain
environmental liabilities. KPP financed the acquisition price by the
issuance of $68 million of first mortgage notes. The asset purchase
agreement includes a provision for an earn-out payment based upon
revenues of one of the terminals exceeding a specified amount for a
seven-year period beginning in January 1996. The contracts also included
provisions for the continuation of all terminaling contracts in place at
the time of the acquisition, including those contracts with Steuart.
KPP's acquisitions have been accounted for using the purchase method of
accounting. The total purchase price of each acquisition has been
allocated to the assets and liabilities based on their respective fair
values based on valuations and other studies.
Assuming the above acquisitions in 1995 occurred as of the beginning of
the year ended December 31, 1995, the summarized unaudited pro forma
consolidated revenues, net income, basic earnings per share and diluted
earnings per share for 1995 would be $233,004,000, $59,025,000, $1.72 and
$1.59, respectively. The unaudited pro forma financial results are for
comparative purposes only and may not be indicative of the results that
would have occurred if KPP had acquired the pipeline assets of the West
Pipeline and the liquids terminaling assets of Steuart on the dates
indicated or which will be obtained in the future.
3. SALE OF PIPELINE PARTNERSHIP UNITS
In September 1995, the Company, through a wholly-owned subsidiary, sold
in a public offering, 3.5 million Preference Units it held in KPP. The
Company received net cash proceeds of $73.6 million related to the sale
and recorded a gain of $54.2 million, net of expenses. The Company used
the proceeds to retire its 8% convertible subordinated debentures
totaling $43.2 million, its 11.5% subordinated debentures totaling $5.0
million and repay its $10 million term loan in 1995 and, in 1996, to
redeem $8 million of its Series D Preferred Stock and repay $6 million of
its long-term debt. The Company continues to control the operations of
KPP through its 2% general partner interest and 31% limited partner
interest.
4. INCOME TAXES
Income before income tax expense is comprised of the following
components:
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------ ------------ -------------
Domestic operations.. $ 11,769,000 $ 12,580,000 $ 63,607,000
Foreign operations... 1,663,000 (2,975,000) (1,891,000)
------------ ------------ -------------
$ 13,432,000 $ 9,605,000 $ 61,716,000
============ ============ =============
Income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
------------------------ -------------- ------------- -------------- ---------------
1997:
<S> <C> <C> <C> <C>
Current............... $ 577,000 $ 925,000 $ 1,201,000 $ 2,703,000
Deferred.............. 74,000 12,000 -_ 86,000
-------------- ------------ ------------ ------------
$ 651,000 $ 937,000 $ 1,201,000 $ 2,789,000
============== ============ ============ ============
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FEDERAL FOREIGN STATE TOTAL
------------------------ -------------- ------------- -------------- ---------------
1996:
<S> <C> <C> <C> <C>
Current............... $ 435,000 $ 423,000 $ 957,000 $ 1,815,000
Deferred.............. 500,000 266,000 - 766,000
-------------- ------------ ------------ ------------
$ 935,000 $ 689,000 $ 957,000 $ 2,581,000
============== ============ ============ ============
1995:
Current............... $ 1,415,000 $ 328,000 $ 1,570,000 $ 3,313,000
Deferred.............. (791,000) 13,000 - (778,000)
--------------- ------------ ------------ -------------
$ 624,000 $ 341,000 $ 1,570,000 $ 2,535,000
============== ============ ============ ============
</TABLE>
Deferred income tax provisions or benefits result from temporary
differences between the tax basis of assets (principally fixed assets)
and liabilities of foreign subsidiaries and certain domestic subsidiaries
not included in the Company's consolidated Federal tax return, and their
reported amounts in the financial statements that will result in
differences between income for tax purposes and income for financial
statement purposes in future years.
The Company has recorded deferred tax assets of approximately $58 million
and $88 million as of December 31, 1997 and 1996, respectively, primarily
relating to the Company's domestic net operating loss carryforwards and
investment tax credit carryforwards, partially offset by a valuation
reserve of approximately $56 million and $86 million, respectively. The
Company has recorded a deferred tax liability of $3.4 million and $2.3
million as of December 31, 1997 and 1996, which is associated with
certain domestic subsidiaries not included in the Company's consolidated
Federal income tax return.
The reasons for the differences between the amount of tax expense
provided and the amount of tax expense computed by applying the statutory
Federal income tax rate to income from continuing operations before
income taxes for the years 1997, 1996 and 1995 are as follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995
--------------------- ------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
------------- ---- ------------ ----- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rates................ $ 4,701,000 35.0 $ 3,360,000 35.0 $ 21,601,000 35.0
Increase (decrease) in taxes
resulting from:
Domestic loss carryforward
adjustments.................. (3,048,000) (22.7) (3,215,000) (33.5) (21,089,000) (34.2)
State income taxes, net........ 781,000 5.8 622,000 6.5 1,021,000 1.7
Foreign losses not
benefited and foreign
income taxes................. 355,000 2.7 1,814,000 18.9 1,002,000 1.6
------------- ----- ------------ ----- -------------- -----
$ 2,789,000 20.8 $ 2,581,000 26.9 $ 2,535,000 4.1
============= ===== ============ ===== ============== =====
</TABLE>
At December 31, 1997, the Company had available domestic tax net
operating loss carryforwards ("NOLs"), which will expire, if unused, as
follows: $21,004,000 in 2001, $73,015,000 in 2002, $12,626,000 in 2003,
$16,866,000 in 2005, $17,508,000 in 2006 and $3,033,000 in 2007.
Additionally, at December 31, 1997, the Company had investment tax
credits aggregating $8,276,000, which will expire, if unused, in varying
amounts through 2000, that could be used to offset current domestic
income taxes, but only after the Company utilized all available NOLs.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax
carryforwards which could be utilized.
F-9
<PAGE>
5. RETIREMENT PLANS
The Company has a defined contribution plan which covers substantially
all domestic employees and provides for varying levels of employer
matching. Company contributions to this plan were $1.1 million, $1.0
million and $.9 million for 1997, 1996 and 1995, respectively.
One of the Company's foreign subsidiaries has a defined benefit pension
plan covering substantially all of its United Kingdom employees (the
"U.K. Plan"). The benefit is based on the average of the employee's
salary for the last three years of employment. Generally, the employee
contributes 5% and the employer contributes up to 12% of pay. Plan assets
are primarily invested in unitized pension funds managed by United
Kingdom registered funds managers. The most recent valuation of the U.K.
Plan was performed as of November 1, 1997.
Net pension cost for the U.K. Plan included the following components:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Service cost for benefits earned
during the period........................... $ 1,254,000 $ 1,269,000 $ 1,107,000
Interest cost on projected benefit
obligations................................. 2,021,000 1,617,000 1,416,000
Less actual return on plan assets............. (3,829,000) (2,884,000) (2,126,000)
Net amortization and deferral................. 1,015,000 620,000 243,000
-------------- ------------- -------------
Net pension cost.............................. $ 461,000 $ 622,000 $ 640,000
============== ============= =============
</TABLE>
Actuarial assumptions used in the accounting for the U.K. Plan were a
weighted average discount rate of 7.5% for 1997, 8.5% for 1996 and 9% for
1995, an expected long-term rate of return on assets of 9.0% for 1997,
1996 and 1995 and a rate of increase in compensation levels of 5.5% for
1997 and 6% for 1996 and 1995. The funded status of the U.K. Plan is as
follows:
<TABLE><CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations (all vested)...................................... $ 29,564,000 $ 23,648,000
============== ==============
Actuarial present value of projected benefit
obligations................................................... $ (30,564,000) $ (24,449,000)
Plan assets at fair value....................................... 33,138,000 29,557,000
Unrecognized net gain........................................... (3,213,000) (6,451,000)
Unrecognized prior service cost................................. 322,000 363,000
-------------- --------------
Net pension liability recorded in other liabilities............. $ (317,000) $ (980,000)
=============== ==============
</TABLE>
6. PROPERTY AND EQUIPMENT
The cost of property and equipment is as follows:
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
Industrial field services............. $ 30,388,000 $ 31,292,000
Pipeline and terminaling services..... 345,802,000 337,202,000
General corporate..................... 3,848,000 3,819,000
Other ............................... 3,040,000 774,000
-------------- -------------
Total property and equipment.......... 383,078,000 373,087,000
Accumulated depreciation and
amortization........................ (121,717,000) (106,449,000)
-------------- -------------
Net property and equipment............ $ 261,361,000 $ 266,638,000
============== =============
F-10
<PAGE>
Equipment acquired under capital leases and included in the cost of
property and equipment is as follows:
DECEMBER 31,
------------------------------
1997 1996
-------------- ------------
Industrial field services equipment... $ 5,530,000 $ 6,638,000
Pipeline and terminaling services
equipment (a)...................... 22,513,000 22,271,000
-------------- ------------
Total equipment acquired under
capital leases.................... 28,043,000 28,909,000
Accumulated depreciation............. (13,570,000) (12,977,000)
-------------- ------------
Net equipment acquired under
capital leases.................... $ 14,473,000 $ 15,932,000
============== ============
(a) Secured by certain pipeline equipment. KPP has recorded its option
to purchase this equipment for approximately $4.1 million at the
termination of the lease.
7. DEBT
Debt is summarized as follows:
<TABLE><CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Industrial field services:
Credit facility due through 2001..................... $ 23,408,000 $ 23,003,000
Various notes of foreign subsidiaries ranging
from 6.75% to 8.0% due through 2001................ 3,278,000 231,000
Capital leases....................................... 1,641,000 2,749,000
-------------- --------------
Total debt...................................... 28,327,000 25,983,000
Less current portion................................. 3,059,000 2,558,000
-------------- --------------
$ 25,268,000 $ 23,425,000
============== ==============
Pipeline and terminaling services:
Mortgage notes due 2001 and 2002..................... $ 60,000,000 $ 60,000,000
Mortgage notes due 2001 through 2016................. 68,000,000 68,000,000
Capital lease........................................ 6,453,000 8,489,000
Revolving credit facility.......................... - 5,000,000
-------------- --------------
Total debt...................................... 134,453,000 141,489,000
Less current portion................................. 2,335,000 2,036,000
-------------- --------------
$ 132,118,000 $ 139,453,000
============== ==============
Parent company:
8.75% convertible subordinated debentures
due through 2008................................... $ 23,666,000 $ 23,666,000
Revolving credit facility............................ - -
-------------- --------------
Total debt...................................... 23,666,000 23,666,000
Less current portion................................. - -
-------------- --------------
$ 23,666,000 $ 23,666,000
============== ==============
Total consolidated long-term debt...................... $ 186,446,000 $ 191,138,000
Current portion........................................ 5,394,000 4,594,000
-------------- --------------
Total consolidated long-term debt,
less current portion................................. $ 181,052,000 $ 186,544,000
============== ==============
</TABLE>
F-11
<PAGE>
Industrial Field Services
At December 31, 1997, $23.4 million was outstanding under a credit
facility, as amended, that was obtained by a wholly-owned subsidiary in
conjunction with the acquisition of Furmanite. The credit facility, which
is without recourse to the parent company, is due 2001, bears interest at
the option of the borrower at variable rates based on either the LIBOR
rate or the prime rate plus a differential of up to 150 basis points, has
a commitment fee equal to one-half of one percent per annum on unutilized
amounts, contains certain financial and operational covenants with
respect to the specialized industrial field services group of companies,
and restricts the subsidiary from paying dividends to the parent company
under certain circumstances. This credit facility is secured by all of
the tangible assets of the industrial field services group, excluding
assets in Germany.
Pipeline and Terminaling Services
In 1994, KPP, through a wholly-owned subsidiary, issued $33 million of
first mortgage notes ("Notes") to a group of insurance companies. The
Notes bear interest at the rate of 8.05% per annum and are due on
December 22, 2001. In 1994, KPP, through a wholly-owned subsidiary,
entered into a Restated Credit Agreement with a group of banks that, as
amended, provides a $25 million revolving credit facility through January
31, 2001. The credit facility bears interest at variable interest rates
and has a commitment fee of .15% per annum of the unused credit facility.
At December 31, 1997, no amounts were drawn under the credit facility. In
1995, KPP financed the acquisition of the West Pipeline with the issuance
of $27 million of Notes due February 24, 2002 which bear interest at the
rate of 8.37% per annum. The Notes and credit facility are secured by a
mortgage on the East Pipeline and contain certain financial and
operational covenants.
The acquisition of Steuart by KPP was initially financed by a $68 million
bridge loan from a bank. In June 1996, KPP refinanced this obligation
with $68.0 million of new first mortgage notes (the "Steuart notes")
bearing interest at rates ranging from 7.08% to 7.98%. $35.0 million of
the Steuart notes is due June 2001, $8.0 million is due June 2003, $10.0
million is due June 2006 and $15.0 million is due June 2016. The loan is
secured, pari passu with the existing Notes and credit facility, by a
mortgage on the East Pipeline.
Parent Company
The 8.75% subordinated debentures are convertible into shares of the
Company's common stock at a conversion price of $17.54 per share. The
Company has satisfied the sinking fund requirements on these subordinated
debentures through 2000.
On February 1, 1996, the Company retired a 8.85% senior note, which was
convertible into shares of the Company's common stock at a conversion
price of $6.00 per share.
In December 1995, the Company entered into an agreement with an
international bank that provides for a $15 million revolving credit
facility through December 1, 2000, that bears interest at a variable rate
at the Company's option based on the LIBOR rate plus 100 basis points or
at the prime rate in effect from time to time with a commitment fee of
.5% per annum of the unused credit facility. The credit facility is
secured by 1.0 million of the Company's limited partnership units in KPP.
No amounts were drawn under the credit facility at December 31, 1997 or
1996.
Consolidated Maturities
Annual sinking fund requirements and debt maturities on consolidated long
term debt, including capital leases, are $5.4 million, $6.8 million, $2.1
million, $88.5 million (including $68 million of KPP debt) and $27.0
million for each of the five years ending December 31, 2002.
F-12
<PAGE>
8. CAPITAL STOCK
The changes in the number of issued and outstanding shares of the
Company's preferred and common stock are summarized as follows:
<TABLE><CAPTION>
COMMON STOCK
------------------------------------------------
PREFERRED HELD IN
STOCK ISSUED ISSUED TREASURY OUTSTANDING
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995................. 1,558,374 36,428,823 3,357,615 33,071,208
Series D preferred stock redemption........ (990,424) - - -
Common shares issued....................... - 51,131 (524,739) 575,870
------------- ------------- --------------- --------------
BALANCE AT DECEMBER 31, 1995............... 567,950 36,479,954 2,832,876 33,647,078
Common shares issued or purchased.......... - 11,073 323,200 (312,127)
------------- -------------- -------------- -----------------
BALANCE AT DECEMBER 31, 1996............... 567,950 36,491,027 3,156,076 33,334,951
------------- -------------- -------------- ----------------
Series F preferred stock issued............ 1,000 - - -
Common shares issued or purchased.......... - 36,256 1,190,900 (1,154,644)
------------- -------------- -------------- -----------------
BALANCE AT DECEMBER 31, 1997............... 568,950 36,527,283 4,346,976 32,180,307
============= ============== ============== ================
</TABLE>
Series A Preferred Stock
The Company has 567,950 shares of its Cumulative Class A Adjustable Rate
Preferred Stock, Series A ("Series A Preferred") with a stated value of
$10 per share outstanding at December 31, 1997. Dividends accrue
quarterly at the applicable U.S. Treasury rate plus 2.00 percentage
points (200 basis points) ("Applicable Rate"), but will in no event be
less than 7.5% per annum or greater than 14% per annum. If dividends are
in arrears for two or more quarters, additional dividends accrue on all
dividends in arrears at a rate equal to the Applicable Rate plus 25 basis
points for each quarter dividends are in arrears (but not more than the
lesser of 14% per annum or 300 basis points more than the Applicable
Rate). If unpaid accrued dividends exist with respect to eight or more
quarters, the holders of the Series A Preferred may elect individually to
require the Company to redeem their shares at a price of $12 per share
plus dividends in arrears. No such arrearages existed as of December 31,
1997, 1996 and 1995. The Company, at its option, may redeem shares at any
time at a price of $12 per share (reduced ratably to $10 over 15 years
unless unpaid accrued dividends exist with respect to eight or more
quarters) plus accrued and unpaid dividends thereon.
Series B Preferred Stock
On March 26, 1988, the Board of Directors of the Company declared a
dividend distribution of one stock purchase right ("Right") for each
outstanding share of common stock to stockholders of record on April 19,
1988. Each Right entitles the holder, upon the occurrence of certain
events, to purchase from the Company one one-hundredth of a share of
Series B Junior Participating Preferred Stock, no par value, at a price
of $10, subject to adjustment. The Rights will not separate from the
common stock or become exercisable until a person or group either
acquires beneficial ownership of 20% or more of the Company's common
stock or commences a tender or exchange offer that would result in
ownership of 30% or more, whichever occurs earlier. The Rights, which
expire on April 19, 1998, are redeemable in whole, but not in part, at
the Company's option at any time for a price of $0.05 per Right. At
December 31, 1997, 1996 and 1995 there were no Series B Preferred shares
outstanding.
F-13
<PAGE>
Series C Preferred Stock
In April 1991, the Company authorized 1,000 shares of Adjustable Rate
Cumulative Class A Preferred Stock, Series C ("Series C Preferred") which
has a preference value of $1.00 per share and is only entitled to a
dividend if the value of the Company's common stock increases. The Series
C Preferred, as an entire class, is entitled to an annual dividend
commencing January 1, 1992, equal to 1/2 of 1% (proportionately reduced
for authorized but unissued shares in the class) of the increase in the
average per share market value of the Company's common stock during the
year preceding payment of the dividend, over $4.79 (the average per share
market value of the Company's common stock during 1990) multiplied by the
average number of shares of common stock outstanding. The Series C
Preferred has mandatory redemption requirements in the event of certain
types of corporate reorganizations and may be redeemed at the option of
the Company during the first 60 days of each year commencing 1994. The
redemption price is the sum of (i) one divided by the average annual
yield of all issues of preferred stock listed on the New York Stock
Exchange during the calendar year preceding the date of the redemption
period times the average dividend for the two most recent years plus (ii)
a pro rata portion of the prior year's dividend based upon the number of
elapsed days in the year of redemption plus (iii) any accrued and unpaid
dividends. The Company may also repurchase the shares of a holder at such
redemption price during the first 60 days following the year in which the
holder first ceases to be an employee of the Company. A holder of the
Series C Preferred may, at his option, require the Company to redeem his
shares at 120% of such redemption price if the Company elects, within 10
days after the most recent dividend payment date, not to pay the accrued
dividend. Upon liquidation, holders of the Series C Preferred are
entitled to receive $1.00 per share plus accrued and unpaid dividends.
The Company granted 600 shares of Series C Preferred to certain officers
in April 1991 and redeemed 100 shares in July 1996.
Series D Preferred Stock
In conjunction with the acquisition of Furmanite, the Company issued
1,098,373 shares of its 12% Convertible Class A Preferred Stock, Series D
("Series D Preferred") with a stated value of pounds sterling 5.34
($8.36) per share. The Series D Preferred was not redeemable by the
holder; however, each share was convertible at the option of the holder
into 1.691 shares of the Company's common stock. During 1994, 10,880
shares of Series D Preferred stock were converted into 18,398 shares of
the Company's common stock. On December 28, 1995, the Company notified
the Series D Preferred stockholders that it would redeem the Series D
Preferred Stock, and it was fully redeemed on January 26, 1996 for $8.0
million.
Series F Preferred Stock
In June 1997, the Company authorized and issued 1,000 shares of
Adjustable Rate Cumulative Class A Preferred Stock, Series F ("Series F
Preferred"), with a stated value of $1.00 per share to an officer of the
Company. The annual dividend for the entire class of Series F Preferred,
which is payable on April 1 of each year, is calculated by multiplying
(i) 1% of the annual improvement (but not including amounts related to
any gains or losses on the sale of any KPP units and not including
amounts related to any other gains or losses in excess of $1 million on
the sale of other capital assets) in the Company's diluted earnings per
share of common stock ("Common EPS"), by (ii) the amount of issued and
outstanding shares of the Company's common stock on January 1, 1997.
F-14
<PAGE>
If the Common EPS increase for the five-year period ending December 31,
2001 has not exceeded 20% compounded annually, the series will be
redeemed for $1.00 per share on April 1, 2002. Otherwise, the series will
be redeemed on April 1, 2002 at a "Redemption Price" for the entire class
of the series equal to the average percentage increase in excess of 20%
in Common EPS for such period multiplied by (i) three-fourths of 1% of
the cumulative Common EPS for each calendar year ended for which the
series is outstanding, and (ii) the amount of issued and outstanding
shares of the Company's Common stock on January 1, 1997.
Redemption of the series may be deferred at the Company's option until no
later than April 1, 2003 if the Common EPS increase for the 2001 calendar
year is less than 15%. The Series F Preferred may be redeemed at the
option of the holder at 120% of the Redemption Price if the Company fails
to pay an annual dividend within 10 days of the due date or in the event
of a change of control, or at the Redemption Price in the event of
certain corporate reorganizations or the authorization of a class of
preferred stock ranking higher in priority to the Series F Preferred.
Upon liquidation, holders of the Series F Preferred are entitled to
receive $1.00 per share plus accrued and unpaid dividends.
Stock Compensation Plans
The Company has stock option plans and agreements for officers, directors
and key employees. The options granted under these plans and agreements
generally expire ten years from date of grant. All options were granted
at prices greater than or equal to the market price at the date of grant
or repricing. At December 31, 1997, options on 1,578,515 shares at prices
ranging from $1.63 to $5.00 were outstanding, of which 427,429 were
exercisable at prices ranging from $1.63 to $3.50.
The changes in stock options outstanding for the Company's plans for 1996
and 1997 were as follows:
Average Price
Shares per Share
------------ -------------
Outstanding at January 1, 1996...... 1,431,436 $ 4.76
Granted and repriced ............... 1,277,678 $ 2.67
Exercised........................... (6,000) $ 1.67
Forfeited and repriced.............. (1,082,936) $ 5.56
-------------
Outstanding at December 31, 1996.... 1,620,178 $ 2.60
Granted............................. 138,872 $ 3.74
Exercised........................... (64,535) $ 2.29
Forfeited........................... (116,000) $ 2.63
-------------
Outstanding at December 31, 1997.... 1,578,515 $ 2.70
============
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company applies APB Opinion
25 and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS 123. The
Black-Scholes option pricing model has been used to estimate the value of
stock options issued and the assumptions in the calculations under such
model include stock price variance or volatility ranging from 11.51% to
12.03% based on weekly average variances of the stock for the five year
period preceding issuance, a risk-free rate of return ranging from 5.71%
to 6.56% based on the 30-year U.S. Treasury bill rate for the five-year
expected life of the options, and no dividend yield. Using estimates
calculated by such option pricing model, pro forma net income, basic
earnings per share and diluted earnings per share would have been
$10,327,000, $0.30 and $0.30, respectively for the year ended December
31, 1997 as compared to the reported amounts of $10,643,000, $0.31 and
$0.30, respectively. For the year ended December 31, 1996, pro forma net
income, basic earnings per share and diluted earnings per share would
have been $6,750,000, $0.19 and $0.19, respectively, as compared to the
reported amounts of $7,024,000, $0.19 and $0.19, respectively. For the
year ended December 31, 1995, pro forma net income, basic earnings per
share and diluted earnings per share would have been $59,134,000, $1.72
and $1.59, respectively, as compared to the reported amounts of
$59,181,000, $1.72 and $1.59, respectively.
F-15
<PAGE>
Deferred Stock Unit Plan
In 1996, the Company initiated its Deferred Stock Unit Plan (the "DSU
Plan"), pursuant to which key employees of the Company have, from time to
time, been given the opportunity to defer a portion of their
compensation, for a specified period toward the purchase of deferred
stock units ("DSUs") at a value equal to the closing price of the
Company's common stock on the day following the last day by which the
employee must elect (if he so desires) to participate in the DSU Plan; as
established by the Compensation Committee, from time to time (the
"Election Date"). During a vesting period following the Election Date
(generally, one or two years), a participant's DSUs vest only in an
amount equal to the lesser of the compensation actually deferred to date
or the value (based upon the then-current closing price of the Company's
common stock) of the pro-rata portion (as of such date) of the number of
DSUs acquired. After the expiration of the vesting period, the DSUs
become fully vested, but may only be distributed through the issuance of
a like number of shares of the Company's common stock on a pre-selected
date, which is irrevocably selected by the participant on the Election
Date and which is typically no earlier than the expiration of the vesting
period and no later than ten years after the Election Date. DSU accounts
are unfunded by the Company and do not bear interest. Each person that
elects to participate in the DSU Plan is awarded, under the Company's
1994 Stock Incentive Plan, an option to purchase a number of shares of
the Company's common stock equal to the number of DSUs agreed to be
purchased by such person at 100% of the closing price of the Company's
common stock on the day following the date of election to participate in
the DSU Plan, which options become exercisable over a specified period
after the grant, according to a schedule determined by the Compensation
Committee.
9. EARNINGS PER SHARE
The following is a reconciliation of basic and diluted earnings per
share:
<TABLE><CAPTION>
Net Common Per-Share
Income Shares Amount
---------------- ---------------- ---------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net income................................ $ 10,643,000
Dividend applicable to preferred stock.... (538,000)
----------------
Basic EPS:
Income available to common stock....... 10,105,000 32,547,371 $ 0.31
==============
Effect of dilutive securities:
Common stock options................... - 585,926
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed options exercised......... $ 10,105,000 33,133,297 $ 0.30
=============== ============== ==============
YEAR ENDED DECEMBER 31, 1996
Net income................................ $ 7,024,000
Dividend applicable to preferred stock.... (502,000)
----------------
Basic EPS:
Income available to common stock....... 6,522,000 33,630,723 $ 0.19
==============
Effect of dilutive securities:
Common stock options................... - 242,600
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed options exercised.......... $ 6,522,000 33,873,323 $ 0.19
=============== ============== ==============
YEAR ENDED DECEMBER 31, 1995
Net income................................ $ 59,181,000
Dividend applicable to preferred stock.... (1,527,000)
----------------
Basic EPS:
Income available to common stock....... 57,654,000 33,449,900 $ 1.72
==============
Effect of dilutive securities:
Common stock options................... - 41,578
Convertible debt....................... 3,937,000 4,201,146
Series D convertible preferred stock... 1,005,000 1,658,462
--------------- --------------
Diluted EPS:
Income available to common stock
and assumed conversions and options
exercised.............................. $ 62,596,000 39,351,086 $ 1.59
=============== ============== ==============
</TABLE>
F-16
<PAGE>
Options to purchase 15,000, 80,308 and 1,208,936 shares of common stock
at weighted average prices of $5.00, $3.73 and $5.31, were outstanding at
December 31, 1997, 1996 and 1995, respectively, but were not included in
the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common stock.
10. COMMITMENTS AND CONTINGENCIES
The Company leases vehicles, office space, data processing equipment,
office equipment and other items of personal property under leases
expiring at various dates. Management expects that, in the normal course
of business, leases that expire will be renewed or replaced by other
leases. Total rent expense under operating leases was $3.5 million for
1997, $4.0 million for 1996 and $3.5 million for 1995.
At December 31, 1997, minimum rental commitments under all capital
leases and operating leases for future years are as follows:
CAPITAL OPERATING
LEASES LEASES
-------------- --------------
1998..................... $ 4,106,000 $ 3,909,000
1999..................... 4,750,000 2,759,000
2000..................... 54,000 2,160,000
2001..................... 11,000 1,574,000
2002..................... - 1,072,000
2003 and thereafter...... - 3,947,000
-------------- --------------
Total minimum lease payments.. 8,921,000 $ 15,421,000
==============
Less amounts representing
interest.................... 827,000
--------------
Present value of net minimum
lease payments.............. $ 8,094,000
==============
In March 1995, the Company settled a lawsuit filed in the late 1980's by
Stephen R. Herbel and other named individuals doing business as Pinnacle
Petroleum Company ("Pinnacle") that related to an interest in coalbed gas
produced from a property that a subsidiary of the Company previously
owned. The settlement of this lawsuit was adequately reserved.
In August 1996, the Company settled a lawsuit filed in Germany in
February 1996 on behalf of Gesellschaft fur Industrieanlagen und
Maschineninstandhaltung GmbH or G.I.M. Engineering against one of the
Company's German subsidiaries, Furmanite Technische Dienstleistungen
GmbH, concerning the consideration received in a German contract that was
part of a series of transactions relating to the sale of one of the
Company's domestic subsidiaries. The settlement of this lawsuit was
adequately reserved.
KPP makes quarterly distributions of 100% of its Available Cash (as
defined in the Partnership Agreement) to holders of limited partnership
units and the general partner. Available Cash consists generally of all
the cash receipts of the Partnership less all of its cash disbursements
and reserves. KPP believes it will make distributions of Available Cash
for each quarter of not less than $.55 per Unit (the "Minimum Quarterly
Distribution"), or $2.20 per Unit on an annualized basis for the
foreseeable future. The Minimum Quarterly Distribution on the Senior
Preference Units is cumulative and preferential to the partnership units
held by the Company. The assets of KPP, other than Available Cash, cannot
be distributed without a majority vote of the non-affiliated unitholders.
The operations of KPP are subject to Federal, state and local laws and
regulations relating to protection of the environment. Although KPP
believes that its operations are in general compliance with applicable
environmental regulation, risks of additional costs and liabilities are
inherent in its operations, and there can be no assurance that
significant costs and liabilities will not be incurred by KPP. Moreover,
it is possible that other developments, such as increasingly stringent
environmental laws, regulations, enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations
of KPP, could result in substantial costs and liabilities to KPP. KPP has
recorded an undiscounted reserve in other liabilities for environmental
claims of $3.1 million, including $2.2 million relating to the
acquisitions of the West Pipeline and Steuart, as of December 31, 1997.
F-17
<PAGE>
The Company has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse
effect on the financial position or results of operations of the Company.
11. BUSINESS SEGMENT DATA
Selected financial data pertaining to the operations of the Company's
business segments is as follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Industrial field services................... $ 108,223,000 $ 103,252,000 $ 104,500,000
Pipeline and terminaling services........... 121,156,000 117,554,000 96,928,000
Other....................................... 7,557,000 8,055,000 10,634,000
--------------- -------------- --------------
$ 236,936,000 $ 228,861,000 $ 212,062,000
=============== ============== ==============
Operating income:
Industrial field services .................. $ 7,438,000 $ 5,073,000 $ 3,855,000
Pipeline and terminaling services........... 53,420,000 51,285,000 42,488,000
General corporate........................... (4,907,000) (4,741,000) (4,593,000)
Other....................................... 2,709,000 2,198,000 1,715,000
--------------- -------------- --------------
$ 58,660,000 $ 53,815,000 $ 43,465,000
=============== ============== ==============
Depreciation and amortization:
Industrial field services................... $ 4,563,000 $ 4,227,000 $ 4,152,000
Pipeline and terminaling services........... 11,711,000 10,907,000 8,274,000
General corporate........................... 290,000 66,000 65,000
Other....................................... 151,000 234,000 564,000
--------------- -------------- --------------
$ 16,715,000 $ 15,434,000 $ 13,055,000
=============== ============== ==============
</TABLE>
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Capital expenditures (including capitalized
leases and excluding acquisitions):
Industrial field services................... $ 2,013,000 $ 3,504,000 $ 4,323,000
Pipeline and terminaling services........... 10,641,000 7,075,000 8,975,000
General corporate........................... 30,000 23,000 32,000
Other....................................... 327,000 83,000 98,000
--------------- -------------- --------------
$ 13,011,000 $ 10,685,000 $ 13,428,000
=============== ============== ==============
</TABLE>
<TABLE><CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Identifiable assets:
Industrial field services................ $ 116,503,000 $ 114,354,000 $ 117,438,000
Pipeline and terminaling services........ 270,055,000 273,927,000 264,510,000
General corporate........................ 10,286,000 12,422,000 23,718,000
Other.................................... 5,429,000 3,988,000 4,161,000
--------------- -------------- --------------
$ 402,273,000 $ 404,691,000 $ 409,827,000
=============== ============== ==============
</TABLE>
F-18
<PAGE>
Selected financial data pertaining to the operations of the Company in
geographical areas is as follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
United States............................ $ 162,367,000 $ 158,274,000 $ 140,387,000
Europe................................... 66,431,000 65,949,000 67,385,000
Asia-Pacific............................. 8,138,000 4,638,000 4,290,000
--------------- -------------- --------------
$ 236,936,000 $ 228,861,000 $ 212,062,000
=============== ============== ==============
Operating income:
United States............................ $ 51,384,000 $ 48,884,000 $ 40,649,000
Europe................................... 6,139,000 4,001,000 2,399,000
Asia-Pacific............................. 1,137,000 930,000 417,000
--------------- -------------- --------------
$ 58,660,000 $ 53,815,000 $ 43,465,000
=============== ============== ==============
</TABLE>
<TABLE><CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Identifiable assets:
United States............................ $ 299,535,000 $ 302,424,000 $ 304,227,000
Europe................................... 95,998,000 100,329,000 103,559,000
Asia-Pacific............................. 6,740,000 1,938,000 2,041,000
--------------- -------------- --------------
$ 402,273,000 $ 404,691,000 $ 409,827,000
=============== ============== ==============
</TABLE>
12. ACCRUED EXPENSES
Accrued expenses is comprised of the following components at December 31,
1997 and 1996:
<TABLE><CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Accrued distribution payable.................................... $ 7,177,000 $ 6,588,000
Accrued income taxes............................................ 3,079,000 2,245,000
Accrued compensation and benefits............................... 2,002,000 2,650,000
Accrued interest................................................ 970,000 1,058,000
Other accrued expenses.......................................... 22,451,000 23,740,000
-------------- --------------
$ 35,679,000 $ 36,281,000
============== ==============
</TABLE>
F-19
<PAGE>
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued 5,073 and 1,113 shares of its common stock upon
conversion of 3,000 and 658 shares of its Series D Preferred Stock in
1996 and 1995, respectively. The Company contributed 394,739 shares of
its common stock to its 401(k) Savings Plan and 160,000 shares of its
common stock to its subsidiary's defined benefit pension plan in 1995, in
satisfaction of required pension payments. During 1996, $5,099,000 in
property and equipment was netted against accumulated depreciation and
amortization.
Supplemental information on cash paid during the period for:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
--------------- -------------- -------------
<S> <C> <C> <C>
Interest.................................. $ 15,373,000 $ 14,502,000 $ 15,675,000
=============== ============== =============
Income taxes.............................. $ 1,535,000 $ 1,340,000 $ 2,293,000
=============== ============== =============
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash, cash equivalents, short-term
investments and accounts receivable approximate their carrying amount due
to the relatively short period to maturity of these instruments. The
estimated fair value of all long-term debt (excluding capital leases) as
of December 31, 1997 was approximately $183 million as compared to the
carrying value of $178 million. These fair values were estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements, when quoted
market prices were not available. The Company has not determined the fair
value of its capital leases as it is not practicable. The estimates
presented above are not necessarily indicative of the amounts that would
be realized in a current market exchange. The Company has no derivative
financial instruments.
The Company does not believe that it has a significant concentration of
credit risk at December 31, 1997, as approximately 65% of the Company's
accounts receivable are generated from its industrial field services
customers located throughout the United States, Europe and Asia-Pacific.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for 1997 and 1996 are summarized as follows:
<TABLE><CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- --------------- -------------- --------------
1997:
<S> <C> <C> <C> <C>
Revenues................ $ 53,154,000 $ 58,388,000 $ 62,074,000 $ 63,320,000
============== =============== ============== ==============
Operating income........ $ 12,444,000 $ 14,245,000 $ 15,695,000 $ 16,276,000
============== =============== ============== ==============
Net income ............. $ 1,529,000 $ 2,707,000 $ 3,276,000 $ 3,131,000
============== =============== ============== ==============
Earnings per
common share:
Basic................ $ .04 $ .08 $ .10 $ .09
============== =============== ============== ==============
Diluted.............. $ .04 $ .08 $ .10 $ .09
============== =============== ============== ==============
1996:
Revenues................ $ 54,839,000 $ 57,215,000 $ 57,010,000 $ 59,797,000
============== =============== ============== ==============
Operating income........ $ 11,683,000 $ 13,469,000 $ 13,984,000 $ 14,679,000
============== =============== ============== ==============
Net income ............. $ 831,000 $ 1,700,000 $ 2,313,000 $ 2,180,000
============== =============== ============== ==============
Earnings per
common share:
Basic................ $ .02 $ .05 $ .06 $ .06
============== =============== ============== ==============
Diluted.............. $ .02 $ .05 $ .06 $ .06
============== =============== ============== ==============
</TABLE>
F-20
<PAGE>
SCHEDULE I
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
General and administrative expenses..................... $ (4,617,000) $ (4,677,000) $ (4,528,000)
Depreciation and amortization........................... (290,000) (64,000) (65,000)
Interest expense........................................ (2,239,000) (2,377,000) (4,343,000)
Intercompany fees and expenses.......................... 2,266,000 3,997,000 1,104,000
Interest income......................................... 372,000 247,000 261,000
Other income (expense).................................. (1,024,000) (332,000) (307,000)
Equity in income of subsidiaries and KPP................ 16,175,000 10,230,000 67,059,000
------------- ------------- --------------
Net income.............................................. 10,643,000 7,024,000 59,181,000
Dividends applicable to preferred stock................. 538,000 502,000 1,527,000
------------- ------------- --------------
Net income applicable to common stock.................. $ 10,105,000 $ 6,522,000 $ 57,654,000
============= ============= ==============
Earnings per common share:
Basic................................................ $ .31 $ .19 $ 1.72
============= ============= ==============
Diluted.............................................. $ .30 $ .19 $ 1.59
============= ============= ==============
</TABLE>
F-21
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
<PAGE>
SCHEDULE I
(CONTINUED)
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE><CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 8,043,000 $ 8,931,000
Accounts receivable.................................................. - 102,000
Prepaid expenses and other current assets............................ - 818,000
--------------- ---------------
Total current assets.................................................... 8,043,000 9,851,000
--------------- ---------------
Property and equipment.................................................. 3,848,000 3,819,000
Less accumulated depreciation........................................... 3,848,000 3,559,000
--------------- ---------------
Net property and equipment......................................... - 260,000
--------------- ---------------
Investments in, advances to and notes receivable
from subsidiaries and KPP............................................. 104,135,000 104,035,000
Other assets............................................................ 2,243,000 2,311,000
--------------- ---------------
$ 114,421,000 $ 116,457,000
=============== ===============
LIABILITIES AND EQUITY
Current liabilities - accounts payable and accrued expenses............. $ 3,987,000 $ 8,426,000
Long-term debt.......................................................... 23,666,000 23,666,000
Deferred credits and other liabilities.................................. 8,321,000 8,999,000
Stockholders' equity:
Preferred stock, without par value................................... 5,792,000 5,792,000
Common stock, without par value...................................... 4,234,000 4,230,000
Additional paid-in capital........................................... 197,242,000 197,213,000
Accumulated deficit.................................................. (101,491,000) (111,596,000)
Treasury stock, at cost.............................................. (25,216,000) (20,631,000)
Cumulative foreign currency translation adjustment................... (2,114,000) 358,000
---------------- ---------------
Total stockholders' equity......................................... 78,447,000 75,366,000
--------------- ---------------
$ 114,421,000 $ 116,457,000
=============== ===============
</TABLE>
F-22
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
<PAGE>
SCHEDULE I
(CONTINUED)
KANEB SERVICES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ---------------- ------------------
<S> <C> <C> <C>
Operating Activities:
Net income ....................................... $ 10,643,000 $ 7,024,000 $ 59,181,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization................... 290,000 64,000 65,000
Equity in net income of subsidiaries and KPP.... (16,175,000) (10,230,000) (67,059,000)
Changes in current assets and liabilities:
Short-term investments........................ - - 1,020,000
Accounts receivable........................... 102,000 99,000 (107,000)
Prepaid expenses.............................. 818,000 979,000 (1,797,000)
Accrued expenses ............................. (4,439,000) (1,245,000) 2,401,000
------------------ ----------------- ------------------
Net cash used in operating activities......... (8,761,000) (3,309,000) (6,296,000)
------------------ ---------------- ------------------
Investing Activities:
Capital expenditures.............................. (30,000) (25,000) (32,000)
Decrease in other assets, net..................... (3,082,000) (129,000) (459,000)
------------------ ----------------- -------------------
Net cash used in investing activities......... (3,112,000) (154,000) (491,000)
------------------ ----------------- -------------------
Financing Activities:
Payments on long-term debt........................ - (6,000,000) (15,011,000)
Payment of subsidiary note........................ - - (50,000,000)
Preferred stock dividends paid.................... (538,000) (502,000) (1,328,000)
Decrease in investments in, advances to and notes
receivable from subsidiaries and KPP............ 16,075,000 1,369,000 91,102,000
Common stock issued............................... 33,000 - -
Purchase of treasury stock, net................... (4,585,000) (1,079,000) -
----------------- ----------------- ------------------
Net cash provided by (used in) financing
activities................................. 10,985,000 (6,212,000) 24,763,000
----------------- ----------------- ------------------
Increase (decrease) in cash and cash equivalents..... (888,000) (9,675,000) 17,976,000
Cash and cash equivalents at beginning of year....... 8,931,000 18,606,000 630,000
----------------- ---------------- ------------------
Cash and cash equivalents at end of year............. $ 8,043,000 $ 8,931,000 $ 18,606,000
================= ================ ==================
</TABLE>
F-23
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
<PAGE>
SCHEDULE II
KANEB SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE><CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTIONS PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ ------------- ------------- -------------- ------------- -------------
ALLOWANCE DEDUCTED FROM
ASSETS TO WHICH THEY APPLY
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
For doubtful receivables
classified as current assets... $ 666 $ 246 $ (19)(a) $ (323)(b) $ 570
============= =========== ============== ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 86,698 $ - $ - $ (31,014) $ 55,684
============= =========== ============= ============ =============
YEAR ENDED DECEMBER 31, 1996:
For doubtful receivables
classified as current assets... $ 1,133 $ 333 $ (23)(a) $ (777)(b) $ 666
============= =========== ============== ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 84,284 $ - $ 6,598 $ (4,184) $ 86,698
============= =========== ============= ============ =============
YEAR ENDED DECEMBER 31, 1995:
For doubtful receivables
classified as current assets... $ 854 $ 598 $ 41(a) $ (360)(b) $ 1,133
============= =========== ============= ============ =============
For deferred tax asset valuation
allowance classified as
noncurrent assets.............. $ 108,441 $ - $ - $ (24,157) $ 84,284
============= =========== ============= ============ =============
</TABLE>
Notes:
(a) Foreign currency translation adjustments.
(b) Receivable write-offs and reclassifications, net of recoveries.
F-24
See "Notes to Consolidated Financial Statements" of
Kaneb Services, Inc. and Subsidiaries included in this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Kaneb Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KANEB SERVICES, INC.
By: JOHN R. BARNES
President and Chief Executive Officer
Date: March 23, 1998
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
Kaneb Services, Inc. and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
- -------------------------- ------------------------------- --------------
Principal Executive Officer
JOHN R. BARNES President, Chief Executive March 23, 1998
Officer and Director
Principal Accounting Officer
HOWARD C. WADSWORTH Vice President, Treasurer March 23, 1998
and Secretary
Directors
SANGWOO AHN Director March 23, 1998
JOHN R. BARNES Director March 23, 1998
FRANK M. BURKE, JR. Director March 23, 1998
CHARLES R. COX Director March 23, 1998
HANS KESSLER Director March 23, 1998
JAMES R. WHATLEY Director March 23, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Registrant, dated
September 26, 1979, filed as Exhibit 3.1 of the exhibits to the
Registrant's Registration Statement on Form S-16, which exhibit is
hereby incorporated by reference.
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated April 30, 1981, filed as Exhibit 3.2 of the
exhibits to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1981, which exhibit is hereby incorporated by
reference.
3.3 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated May 28, 1985, filed as Exhibit 4.1 of the
exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1985, which exhibit is hereby incorporated by
reference.
3.4 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated September 17, 1985, filed as Exhibit 4.1 of
the exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985, which exhibit is hereby incorporated
by reference.
3.5 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated July 10, 1990, filed as Exhibit 3.5 of the
exhibits to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 ("1990 Form 10-K"), which exhibit is hereby
incorporated by reference.
3.6 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, dated September 21, 1990, filed as Exhibit 3.5 of
the exhibits to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990, which exhibit is hereby incorporated
by reference.
3.7 By-laws of the Registrant, filed herewith.
4.1 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, filed as Exhibit 4 of the exhibits
to the Registrant's Quarterly Report of Form 10-Q for the quarter ended
September 30, 1983, which exhibit is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights related to the
Registrant's Series B Junior Participating Preferred Stock, filed as
Exhibit 1 of the exhibits to the Registrant's Current Report on Form
8-K and Registration Statement on Form 8-A, dated April 5, 1988, which
exhibit is hereby incorporated by reference.
4.3 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series C, dated April 23, 1991,
filed as Exhibit 4.4 of the exhibits to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991, which exhibit is hereby
incorporated by reference.
4.4 Certificate of Designation related to the Registrant's Adjustable Rate
Cumulative Class A Preferred Stock, Series F, dated June 12, 1997,
filed herewith.
4.5 Indenture between Moran Energy Inc. ("Moran") and First City National
Bank of Houston ("First City"), dated January 15, 1984, under which
Moran issued the 8 3/4% Convertible Subordinated Debentures due 2008,
filed as Exhibit 4.1 to Moran's Registration Statement on Form S-3 (SEC
File No. 2-81227), which exhibit is hereby incorporated by reference.
4.6 First Supplemental Indenture between the Registrant and First City,
dated as of March 20, 1984, under which the Registrant assumed
obligations under the Indenture listed as Exhibit 4.5 above, filed as
Exhibit 4.7 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1983, which exhibit is hereby incorporated by
reference.
10.1 Kaneb Services, Inc. Savings Investment Plan, as amended, filed as
Exhibit 4.10 of the exhibits to the Registrant's Registration Statement
on Form S-8 ("Form S-8") (S.E.C. File No. 33-41295) and as Exhibit 4.1
to the exhibits of Registrant's Form S-8 (S.E.C. File No. 333-14067),
which exhibits are hereby incorporated by reference.
10.2 Kaneb Services, Inc. 1984 Nonqualified Stock Option Plan, filed as
Exhibit 10.26 to the exhibits of the Registrant's Form S-8 (S.E.C. File
No. 2-90929), which exhibit is hereby incorporated by reference.
10.3 Kaneb Services, Inc. 1994 Stock Incentive Plan, filed as Exhibit 4.12
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-54027), which exhibit is hereby incorporated by reference.
10.4 Kaneb Services, Inc. Deferred Stock Unit Plan, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-08725),
which exhibit is hereby incorporated by reference.
10.5 Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08727), which exhibit is hereby incorporated by
reference.
10.6 Kaneb Services, Inc. $1.63 Director Stock Options, filed as Exhibit 4.1
to the exhibits of the Registrant's Form S-8 (S.E.C. File No.
33-58981), which exhibit is hereby incorporated by reference.
10.7 Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1 to
the exhibits of the Registrant's Form S-8 (S.E.C. File No. 333-14069),
which exhibit is hereby incorporated by reference.
10.8 Kaneb Services, Inc. 1996 Directors Stock Incentive Plan, as amended,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-14071) and as Exhibit 4.1 to the exhibits of
Registrant's Form S-8 (S.E.C. File No. 333-22109), which exhibits are
hereby incorporated by reference.
10.9 Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit Plan,
filed as Exhibit 4.1 to the exhibits of the Registrant's Form S-8
(S.E.C. File No. 333-08723), which exhibit is hereby incorporated by
reference.
10.10 Form of Termination Agreement, filed as Exhibit 10.10 to the exhibits
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, which exhibit is hereby incorporated by reference.
10.11 Amended and Restated Loan Agreement between Furmanite PLC, Bank of
Scotland and certain other Lenders, dated May 1, 1991, as amended (the
"Furmanite Loan Agreement"), filed as Exhibit 10.8 of the exhibits to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994 and Exhibit 10.11 of the exhibits to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996, which
exhibits are hereby incorporated by reference.
10.12 Amendments to the Furmanite Loan Agreement, filed herewith.
10.13 Loan Agreement between the Registrant, KPL and Bank of Scotland, dated
as of December 1, 1995, filed as Exhibit 10.10 of the exhibits to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995, which exhibit is hereby incorporated by reference.
21 List of subsidiaries of the Registrant, filed herewith.
23 Consent of independent accountants Price Waterhouse LLP filed herewith
27 Financial Data Schedule, filed herewith.
KANEB SERVICES, INC.
BYLAWS
Article I
Stockholders
Section 1. Place of Holding Meetings: All meetings of the stockholders
shall be held at the principal office of the Corporation outside of the State of
Delaware, or at such other place within or without the State of Delaware as
shall be specified or fixed in the notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings: The presence in person or
by proxy of stockholders entitled to cast a majority in number of votes shall be
necessary to constitute a quorum at all meetings of the stockholders unless
otherwise provided by law or by the certificate of incorporation. If less than a
quorum shall be in attendance at the time for which the meeting shall have been
called, the meeting may, after the lapse of at least half an hour, be adjourned
from time to time by vote of the stockholders holding a majority of the issued
and outstanding shares of the capital stock of the Corporation entitled to vote
who are present in person or by proxy at such meeting, for a period not
exceeding one month for any one adjournment, without any notice or call other
than by announcement at the meeting of the time and place 6f the holding of the
adjourned meeting, until a quorum shall attend. Any meeting or adjournment
thereof at which a quorum is present may also be adjourned by a like majority
vote, for such time without notice or call, or upon such notice or call as may
be determined by such majority vote. At any adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted if the meeting had been held as originally called.
Section 3. State Annual Meetings; Election of Directors: The annual
meeting of stockholders for the election of directors -and the transaction of
general business shall be held at ten o'clock (10:00) in the forenoon on the
fourth Monday in April in each year, or on such other date as may be
appropriately selected by the Board of Directors. If this date shall fall upon a
legal holiday, the meeting shall be held on the next succeeding business day not
a legal holiday. At each annual meeting the stockholders shall elect a board of
directors, and they may transact as any other business -within the powers of the
Corporation as may come before -the meeting without special notice of such
business.
Section 4. Special Meetings: Special Meetings of -the stockholders for
any purpose or purposes may be called at any time in the interval between
regular meetings by the President or by a majority of the board of directors, or
by a majority of the executive c6mmittee, and shall be called by the President,
Secretary or a director upon a request in writing therefor, stating the purpose
or purposes of the meeting, delivered to the President, Secretary or such
director, signed by the holders of one-fifth of all the shares outstanding and
entitled to vote.
Section 5. Notice of Stockholders Meetings: A written or printed
notice, stating the place, day and hour of the meeting, and, in case of a
special meeting, the business proposed to be transacted thereat, shall be given
by the Secretary to each stockholder entitled to vote thereat by delivering such
notice to him personally or by mailing it postage prepaid and addressed to him
at his address as it appears upon the books of the Corporation, at least ten
(10) days prior to the meeting. No business shall be transacted at any special
meeting except that referred to in the notice.
Section 6. Voting; Elections; Inspectors; Votes by Ballot: At all
meetings of stockholders, every stockholder of record of any class entitled to
vote thereat shall have one vote for each share of full paid and nonassessable
stock standing in his name on the books of the Corporation on the date for the
determination of stockholders entitled to vote at such meeting, either in person
or by proxy appointed by instrument in writing subscribed by such stockholder or
his duly authorized attorney. All elections shall be had and all questions
decided by a majority vote of the votes cast at a duly constituted meeting,
except as otherwise provided for in these bylaws or in the certificate of
incorporation or by some specific statutory provision superseding the
restrictions and limitations contained in the bylaws or the certificate of
incorporation.
At any election of directors, the chairman of the meeting may, and upon
the request of the holders of ten percent (l0%) of the stock present and
entitled to vote at such election shall, appoint two inspectors of election who
shall subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability and shall canvass the votes and make and sign a certificate of
the result thereof. No candidate for the office of director shall be appointed
as such inspector. The chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote by ballot shall be taken upon
the request of the holders of ten percent (l0%) of the stock present and
entitled to vote on such election or matter.
Section 7. Conduct of Stockholders' Meetings: The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if he is
not present, by the President, or if he is not present, by a Vice President or
if neither the Chairman of the Board, President nor a Vice President is present,
by a chairman elected at the meeting. The Secretary of the Corporation, if
present, shall act as secretary of such meetings, or if he is not present, an
Assistant Secretary shall so act; if neither the Secretary nor an Assistant
Secretary is present, then a secretary shall be appointed by the chairman of the
meeting. The order of business shall be as follows:
(a) calling of meeting to order
(b) election of a chairman and the appointment of a secretary, if
necessary
(c) presentation of proof of the due calling of the meeting
(d) presentation and examination of proxies
(e) reading and settlement of the minutes of the previous meeting
(f) reports of officers and committees
(g) the election of directors and officers, if an annual meeting, or a
meeting called for that purpose
(h) unfinished business
(i) new business
(j) adjournment.
Section 8. Validity of Proxies; Ballots; Etc.: At every meeting of the
stockholders, all proxies shall be received and taken in charge of and all
ballots shall be received and canvassed by the secretary of the meeting who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed by the chairman of the meeting, in which
event such inspectors of election shall decide all such questions.
Article II
Directors
Section 1. Election of Directors; Terms of Office: At all meetings of
the stockholders for the election of directors at which a quorum is present, the
persons receiving the greatest number of votes shall be the directors. Each
director of the Corporation shall hold office until the next annual meeting of
the stockholders and thereafter until his successor shall have been duly elected
and shall have qualified, or until he shall resign or be removed in accordance
with the provisions of these bylaws.
Section 2. First Meeting: The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent in
writing of all the directors.
Section 3. Regular Meetings: Regular meetings of the board of directors
may be held without notice at such places and times as may be fixed from time to
time by resolution of the board.
Section 4. Special Meetings; How Called; Notice: Special meetings of
the board of directors may be called by the President or, on the written request
of any two directors, by the Secretary, in each case on at least twenty-four
(24) hours written or printed or telegraphic, cable or wireless notice to each
director. Such notice, or any waiver thereof pursuant to Section 2 of Article
VIII hereof, need not state the purpose or purposes of such meeting, except as
may otherwise be required by law, by the certificate of incorporation or in
these bylaws.
Section 5. Place of Meeting; Order of Business The directors may hold
their meetings, have one or more offices, and keep the books of the corporation,
outside the State of Delaware, at any office or offices of the corporation, or
at any other place, as they may from time to time by resolution determine. At
all meetings of the board of directors business shall be transacted in such
order as shall from time to time be determined by resolution of the board.
Section 6. Number and Quorum: The business and property of the
corporation shall be conducted and managed by a board consisting of not less
than five (5) nor more than sixteen (16) directors, none of whom need be a
stockholder of the corporation. A majority of the members of the board of
directors shall constitute a quorum for the transaction of business. The board
of directors of the corporation shall initially be composed of six (6)
directors, but the board may at any time be increased to not more than sixteen
(16) or decreased to not less than five(5) by the stockholders at any regular or
special meeting of the stockholders1 or by the board of directors as provided in
Section 7 of this Article, provided that the number of directors constituting
the board shall in no case be decreased below the number then in office except
in connection with the removal of a director under the provisions of Section 9
of this Article II. A majority of the directors shall constitute a quorum for
the transaction of business.
Section 7. Increase or Decrease of Number of Directors: Any time or
from time to time at a special meeting called for the purpose, the board of
directors may increase the number of directors of the corporation to not more
than sixteen (16) or decrease the number of directors to not less than five (5)
and at any such meeting at which the board is increased, or at any subsequent
special meeting called for the purpose and held prior to the next annual
election, the board, by the vote of a majority of the board then in office, may
fill the vacancies created by any such increase in the number of directors. The
additional directors so chosen shall hold office until the next annual election
and until their successors are elected and shall qualify.
Section 8. Resignations: Any director or member of the committee may
resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified there in, and if no time be specified, at the time
of its receipt by the president or Secretary. The acceptance of a resignation
shall not be necessary to make it effective.
Section 9: Removal of Directors: At a special meeting of the
stockholders called and held for such purpose; any director may; by a vote of a
majority of all of the shares of stock outstanding and entitled to vote, be
removed from office and another be appointed in the place of the person so
removed, to serve for the remainder of his term.
Section 10: Filling of Vacancies: Subject to the provisions of Sections
7 and 9 of this Article, if the office of any director, member of the executive
committee, or other office becomes vacant, a majority of the directors in
office; if more than a quorum, or if less than a quorum, then the directors in
office, may appoint any qualified person to fill such vacancy, who shall hold
office for the un-expired term and until his successor shall be duly chosen and
shall qualify.
Section 11. Powers of Directors: The board of directors shall exercise
all of the powers of the Corporation subject to the restrictions imposed by law
by the certificate of incorporation, or by these bylaws. The directors shall act
only as a board and the individual directors shall have no power as such.
Section 12. Compensation of Directors: The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 13. Approval or Ratification of Acts or Contracts by
Stockholders: The board of directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of the capital stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that a quorum be present), shall be as valid and as binding upon the Corporation
and upon all the stockholders as if it has been approved or ratified by every
stockholder of the Corporation.
Article III
Committees
Section 1. Executive Committee; Designation: The board of directors,
by a resolution passed by a majority of the whole board, may designate two or
more of its members to constitute an executive committee, each member of which,
unless otherwise determined by the board, shall continue to be a member thereof
until the expiration of his term of office as a director.
Section 2. Bowers: During the intervals between the meetings of the
board of directors, the executive committee shall have, and may exercise, all
the powers of the board of directors in the management of the business and
affairs of the Corporation, in such manner as the executive committee shall deem
best for the interests of the Corporation, in all cases in which specific
directions shall not have been given by the board of directors.
All action by the executive committee shall be reported to the board
of directors at its meeting next succeeding such action, and shall be subject to
revision or alteration by the board of directors; provided that no rights or
acts of third parties shall be affected by any such revision or alteration.
Section 3. Procedure; Meetings; Quorum: The executive committee shall
choose its own chairman and secretary, shall fix its own rules of procedure, and
shall meet at such times and at such place or places as may be provided by such
rules, or by resolution of the executive committee or of the board of directors.
At every meeting of the executive committee the presence of a majority of all
the members thereof shall be necessary to constitute a quorum and the
affirmative vote of a majority of the members present shall be necessary for the
adoption by it of any resolution.
Section 4. Other Committees: The board of directors, by resolution
passed by a majority of the whole board, may designate members of the board to
constitute other committees, which shall in each case consist of such number of
directors, not less than two, and shall have and may exercise such powers as the
board may determine and specify in the respective resolutions appointing them. A
majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the board of directors shall
otherwise provide. The board of directors shall have power at any time to change
the number, subject as aforesaid, and members of any such committee, to fill
vacancies, and to discharge any such committee.
Article IV
Officers
Section 1. Officers: The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Treasurer and
a Secretary, all of whom shall be elected by the board of directors.
The board of directors or the executive committee may appoint one or
more Assistant Treasurers, one or more Assistant Secretaries, and such other
officers as they, or either of them, may deem necessary, who shall have such
authority and shall perform such duties as from time to time may be prescribed
by the board of directors or the executive committee. Any two offices, except
those of President and Secretary may be held by the same persons.
Section 2. President: The President shall be the chief executive
officer of the Corporation. He shall have general supervision of the business,
affairs and property of the Corporation, and of its officers and agents,
subject, however, to the control of the board of directors and of the executive
committee. He may agree upon, execute and deliver all authorized bonds, notes,
contracts, agreements or other obligations or instruments in the name of the
Corporation, and with the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary may execute and deliver all certificates for shares of
capital stock of the Corporation and any warrants evidencing the right to
subscribe to shares of the capital stock of the Corporation He shall annually
prepare a full and true statement of the affairs of the Corporation which shall
be submitted at the annual meeting of stockholders.
Section 3. Chairman of the Board: The Chairman of the Board shall
preside at all meetings of the stockholders and of the board of directors and
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the board of directors.
Section 4. Vice Presidents: At the request of the President, or in his
absence or disability or failure to act, a Vice President shall have and perform
all the duties of the President, and, when so acting, shall have all the powers
of and be subject to all restrictions upon the President. Any Vice President
(unless otherwise provided by resolutions of the board of directors or executive
committee) may execute and deliver all authorized bonds, notes, contracts,
agreements or other obligations or instruments in the name of the Corporation,
and with the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, may sign all certificates for shares of capital stock of
the Corporation and any warrants evidencing the right to subscribe to shares of
capital stock of the Corporation. Each Vice President shall have such other
powers and shall perform such other duties as may be assigned to him by the
board of directors, the executive committee or by the President.
Section 5. Treasurer: The Treasurer shall have the custody of all
funds, securities, evidences of indebtedness and other valuable documents of the
Corporation; he shall receive and give or cause to be given, receipts and
acceptances for moneys paid in on account of the Corporation, and shall pay out
of the funds on hand all just debts of the Corporation of whatever nature upon
maturity of the same; he shall enter or cause to be entered in the books of the
Corporation to be kept for that purpose full and accurate accounts of all moneys
received and paid out on account of the Corporation and whenever required by the
board of directors, the executive committee or the President, he shall render a
statement of his cash accounts; he may sign with the President or a Vice
President any or all certificates for shares of the capital stock of the
Corporation and any warrants evidencing the right to subscribe to shares of the
capital stock of the Corporation; and in general he shall perform all. of the
other duties incident to the office 6f Treasurer and such other duties as may be
assigned to him by the board of directors, the executive committee or the
President.
Section 6. Assistant Treasurer: At the request of the Treasurer, in
his absence or disability or failure to act, an Assistant Treasurer shall
perform all the duties of the Treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such 6ther duties as from time to time may be
assigned to them by the President, the Treasurer, the board of directors or the
executive committee.
Section 7. The Secretary: The Secretary shall be sworn to the faithful
discharge of his duties; shall keep or cause to be kept in books provided for
the purpose the minutes of all meetings of the stockholders, of the board of
directors and of the executive committee; shall see that all notices are duly
given in accordance with the provisions of these bylaws and as required by law;
shall be custodian of the records and of the seal of the Corporation and see
that the seal is affixed to all documents, the execution and delivery of which
on behalf of the Corporation under its seal are duly authorized in accordance
with the provisions of these bylaws; shall keep a register of the post office
address of each stockholder, and make all proper changes in such register,
retaining and filing his authority for all such entries; may sign with the
President or a Vice President any and all certificates for shares of the capital
stock of the Corporation and any warrants evidencing the right to subscribe to
shares of the capital stock of the Corporation; shall see that the books,
reports, statements, certificates and all other documents and records required
by law are properly kept and filed; and in general the Secretary shall perform
all duties incident to the office of Secretary and such other duties as may,
from time to time, be assigned to him by the board of directors, the executive
committee, or the President.
Section 8. Assistant Secretaries: At the request of the Secretary or in
his absence or disability or fai1ure to act; an Assistant Secretary shall
perform all the duties of the Secretary and, when so acting, shall have all the
powers of, and be subject to, all the restrictions upon the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time may
be assigned to them by the President, the Secretary, the board of directors or
the executive committee.
Section 9. Salaries: The salaries or other compensation of the officers
shall be fixed from time to time by the board of directors) and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he is also a director of the Corporation.
Section 10 Removal of Officers: Any officer may removed, either with or
without cause, by the vote of a majority of the whole board of directors at a
special meeting called for the purpose) or at any regular meeting of the board,
provided the notice for such meeting shall specify that the matter of any such
proposed removal will be considered at the meeting.
Article V
Capital Stock
Section 1. Certificates of Stock: Vice President shall cause to be
issued one or more certificates under the seal to each stockholder of the
Corporation and signed by the President or a Vice President and the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying
the number of shares (and, if the stock of the Corporation shall be divided into
classes, the class or classes of such shares) owned by such stockholder in the
Corporation; provided, however, that if any certificate shall be signed by a
transfer agent, or by a transfer clerk and registrar, appointed by the board of
directors for the purpose, the signatures of the officers of the Corporation on
the certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary, or at the Office of such
transfer agent or transfer agents as the board of directors or the executive
committee may from time to time by resolution determine. In case any officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be issued and delivered by the
Corporation as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers.
Section 2. Transfer of Shares: The shares of stock of the Corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the Corporation by the delivery
thereof to the Secretary or the transfer agent for said shares of stock or to
such other person as the board of directors may designate by whom such old
certificates shall be cancelled, and new certificates shall thereupon be issued.
A record shall be made of each transfer.
Section 3. Record Date: In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect to any change conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty or less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
Section 4. Dividends: The directors may declare dividends from the
surplus or net profits of the Corporation as and when they deem expedient.
Before declaring any dividend there may be reserved out of surplus or net
profits such sum or sums as the directors from time to time in their discretion
think proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends, or for such other purposes as the directors shall
think conducive to the interest of the Corporation.
Section 5. Lost or Destroyed Certificates:The board of directors or the
executive committee may determine the conditions upon which a new certificate of
stock may be issued in place of a certificate which is alleged to have been lost
or destroyed; and may, in their discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient surety, to
indemnify the Corporation and each transfer agent against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost or destroyed.
Article VI
Corporate Seal
The board of directors shall provide a corporate seal, which shall be
in the form of a circle, shall include the name of the Corporation and year of
its incorporation and shall otherwise be in such form as shall be approved by
the board of directors.
Article VII
Contracts, Notes, Checks, Etc.
Section 1. Execution of Contracts: The board of directors or executive
committee may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation, to enter into any contract or execute and
deliver any instrument, and such authority may be general or confined to
specific instances; and unless so authorized by the board of directors or the
executive committee or expressly authorized by these bylaws, no officer or agent
or employee shall have any power or authority to bind the Corporation by any
contract or other undertaking or to render it liable for the payment of money or
to subject it to any other obligation.
Section 2. Execution of Notes, Checks, Etc.: All notes, bonds or other
certificates or evidence of indebtedness of the Corporation, and all checks,
drafts, notes and other orders for the payment of money out of the funds of the
Corporation shall be signed on behalf of the Corporation in such manner as shall
from time to time be determined by resolution of the board of directors or the
executive committee.
Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year: The fiscal year of the Corporation shall be the
calendar year.
Section 2. Notice and Waiver of Notice: The term notice as used in
these bylaws shall not mean personal notice unless expressly so stated; any
notice so required shall be deemed to be sufficient if given by depositing the
same in a post office box in a sealed postpaid wrapper) addressed to the person
entitled thereto at 'his last known post office address, and such notice shall
be deemed to have been given on the day of such mailing. Any notice" required to
be given under these bylaws may be waived by the person entitled thereto.
Section 3. Voting upon Stocks: Unless otherwise ordered by the board of
directors) or by the executive committee, the President shall have full power
and authority on behalf of the Corporation to attend and to act and to vote at
any meetings of stockholders of any corporation in which the Corporation may
hold stock, and at any such meeting shall possess, and may exercise any and all
the rights and powers incident to the ownership of such stock, and which as the
owner thereof, the Corporation might have possessed and exercised if present.
The board of directors' or the executive committee, by resolution, from time to
time may confer like powers upon any other person or persons, which powers may
be general or confined to specific instances.
Section 4. Indemnification of Officers and Directors:
(a) To the full extent permitted by applicable law (whether as in
effect at the time of adoption of this Section or as such laws may be amended
from time to time), the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Corporation, against expenses (including attorney' fees) judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding. Such indemnification may, in
the discretion of the board of directors, include advances of his expenses in
advance of final disposition of such action, suit or proceeding, subject to the
provisions of any applicable statute.
(b) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any law, bylaws, agreement, vote of stockholders or disinterested
directors or otherwise and shall inure to the benefit of the heirs, executors
and administrators of such person.
Section 5. Engineering Decisions in Alaska. All engineering decisions
pertaining to engineering activities in the State of Alaska shall be; made by
the specified registered engineer in responsible charge as designated by the
board of directors, or other registered engineers under his direction ;or
supervision.
ARTICLE IX
Amendments
The board of directors shall have full power to alter, amend or repeal
these bylaws or any provision thereof, or to make new bylaws, at any regular
meeting as part of the general business of such meeting, or at a special meeting
called for the purpose. Bylaws made, altered or amended by the board of
directors may be altered, amended or repealed by the stockholders.
CERTIFICATION OF THE DESIGNATION,
PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS,
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE
NOT BEEN SET FORTH IN THE CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT
THEREOF, OF THE
ADJUSTABLE RATE CUMULATIVE CLASS A PREFERRED STOCK, SERIES F
(WITHOUT PAR VALUE)
OF
KANEB SERVICES, INC.
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
The undersigned DOES HEREBY CERTIFY that the following resolution has been
typographically corrected to accurately reflect the resolution as was duly
adopted by the Board of Directors of the Corporation, at a meeting duly convened
and held on June 12, 1997, at which a quorum was present and acting throughout:
"RESOLVED, that 1,000 shares of the total authorized amount of
5,000,000 shares of the Class A Preferred Stock of the Corporation be issued in
and constitute a single series designated "Adjustable Rate Cumulative Class A
Preferred Stock, Series F" (hereinafter called "the Series" or "this Series"),
the shares of the Series to have the voting powers, designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions set forth in the Certificate of
Incorporation of the Corporation, as it may be amended from time to time, and
hereinafter set forth:
(a) Designation and Rank.
(1) The designation of the series of Class A Preferred Stock created by
this resolution shall be "Adjustable Rate Cumulative Class A Preferred
Stock, Series F" and the number of shares constituting this Series shall be
1,000. Shares of this Series shall have a stated value of $1.00 per share.
The number of authorized shares of this Series may be reduced by further
resolution duly adopted by the Board and by the filing of a certificate
pursuant to the provisions of the General Corporation Law of the State of
Delaware stating that such reduction has been so authorized, but the number
of authorized shares of this Series shall not be increased.
(2) This Series shall rank on a parity with the Corporation's
outstanding Adjustable Rate Cumulative Class A Preferred Stock, 12%
Convertible Class A Preferred Stock, Series D, and Adjustable Rate
Cumulative Class A Preferred Stock, Series C, as to payment of dividends and
distribution of assets upon the dissolution, liquidation or winding up of
the Corporation.
(b) Dividends.
(1) The Annual Dividend (as hereinafter defined) per share of this
Series for the 1997 calendar year shall be determined as of January 1, 1998,
and as of each succeeding January 1 for subsequent calendar years (the
"Determination Date").
(2) Accrued dividends on the shares of this Series shall be cumulative.
The first Annual Dividend, for calendar year 1997, shall accrue on January
1, 1998, and the Annual Dividend for 1998 and each succeeding calendar year
shall accrue on the January 1 next succeeding such year. Accrued dividends
shall be payable, when and as declared by the Board, on April 1 of each
year, commencing April 1, 1998 (a "Dividend Payment Date"). Each of such
dividends shall be paid to the holders of record of shares of this Series as
they appear on the stock register of the Corporation on such record date,
not exceeding 30 days preceding the payment date thereof, as shall be fixed
by the Board. Accrued and unpaid dividends may be declared and paid at any
time, without reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board.
(3) In addition to dividends with respect to shares of this Series
accruing pursuant to Section 0, additional cumulative cash dividends at the
Prime Rate (as hereinafter defined) shall accrue daily on any accrued and
unpaid Annual Dividend from and after the Dividend Payment Date with respect
thereto, and such additional dividends shall be payable contemporaneously
with the payment of such Annual Dividend. As used herein, the "Prime Rate"
means the annual interest rate charged from time to time by Texas Commerce
Bank, National Association, Houston for unsecured 90-day loans to large
responsible commercial or industrial borrowers.
(4) No full dividends shall be declared or paid or set apart for
payment on Class A Preferred Stock of any series ranking, as to dividends,
on a parity with or junior to this Series for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment on this Series for all dividends accruing on or prior to the date of
payment of such full cumulative dividends. When dividends are not paid in
full, as aforesaid, upon the shares of this Series and of any other series
of Class A Preferred Stock ranking on a parity as to dividends with this
Series, all dividends declared upon shares of this Series and of any other
series of Class A Preferred Stock ranking on a parity as to dividends with
this Series shall be declared pro rata so that the amount of dividends
declared per share on this Series and such other series of Class A Preferred
Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and such other series of
Class A Preferred Stock bear to each other. Holders of shares of this Series
shall not be entitled to any dividend, whether payable in cash, property or
stock, in excess of full cumulative dividends, as herein provided, on this
Series.
(5) Any dividend payment made hereunder shall first be credited against
the earliest unpaid dividend hereunder.
(6) Following the end of each calendar year of the Corporation
commencing with the year ending December 31, 1998, the Corporation shall add
to the Cumulative Deficiency Per Preferred Share account one one-thousandth
of one percent (0.00001) of EPCS Deficiency, if any, for such calendar year.
The Annual Dividend shall be reduced (but not below zero) by the balance of
the Cumulative Deficiency Per Preferred Share account as reflected on the
books of the Corporation at the date of determination, and any such
reduction in the Annual Dividend shall be subtracted from the Cumulative
Deficiency Per Preferred Share account on the books of the Corporation.
(c) Redemption Upon Dividend Default or Change of Control.
(1) In the event that a Dividend Default (as hereinafter defined)
exists, or upon the occurrence of a Change of Control (as hereinafter
defined), each holder of shares of this Series shall have the right, at his
option (the "Option"), to require the Corporation to redeem the shares of
this Series owned by such holder at a redemption price equal to 120% of the
Redemption Price Per Share.
(2) The Option shall be exercised by a holder of shares of this Series
by surrendering certificates (the "Certificates") representing shares of
this Series to the Corporation at its office in Richardson, Texas,
accompanied by a notice to the Corporation that such holder elects to
exercise the option. The Certificates so surrendered shall be accompanied by
proper assignments thereof to the Corporation. As soon as practicable (and
in no event later than 10 days) after the receipt of such Notice of
Exercise, the Corporation shall issue and shall deliver a certified or bank
cashier's check in an amount equal to 120% of the Redemption Price Per Share
(as hereinafter defined) multiplied by the number of shares represented by
the Certificates so surrendered. Such check shall be issued and delivered at
the Corporation's principal office in Richardson, Texas, to the person for
whose account the Certificates were so surrendered, or on his written order.
The shares so presented for redemption shall be deemed to have been redeemed
upon delivery to the holder thereof of full payment of the Redemption Price
Per Share.
(d) Redemption upon Liquidation, Merger or Authorization of Prior
Preferred.
(1) The shares of this Series shall be redeemable, in whole only, at
the option of each holder of shares of this Series, at the Redemption Price
Per Share, for a period of 90 days after the Board shall have approved (i) a
liquidation of the Corporation, (ii) a merger or consolidation of the
Corporation into or with any other corporation in which the Corporation is
not the surviving corporation or (iii) the creation, authorization or issue
of any shares of any class of stock of the Corporation ranking prior to the
shares of this Series as to dividends or distributions upon liquidation, or
the reclassification of any authorized stock of the Corporation into any
such prior shares, or the creation, authorization or issue of any obligation
or security convertible into or evidencing the right to purchase any such
prior shares. Notice of any such event shall be given by the Corporation by
first class mail, postage prepaid, mailed not more than 10 days following
such approval, to each holder of record of shares of this Series, at such
holder's address as the same appears on the stock register of the
Corporation.
(2) The option provided in Section (d)(1) be exercised by a holder of
shares of this Series by surrendering Certificates to the Corporation at its
office in Richardson, Texas, accompanied by a notice to the Corporation that
such holder elects to exercise such option. The Certificates so surrendered
shall be accompanied by proper assignments thereof to the Corporation. As
soon as practicable (and in no event later than 10 days) after the receipt
of such Notice of Exercise, the Corporation shall issue and shall deliver a
certified or bank cashier's check in an amount equal to the Redemption Price
Per Share multiplied by the number of shares represented by the Certificates
so surrendered. Such check shall be issued and delivered at the
Corporation's principal office in Richardson, Texas, to the person for whose
account the Certificates were so surrendered, or on his written order. The
shares so presented for redemption shall be deemed to have been redeemed
upon delivery to the holder thereof of full payment of the Redemption Price
Per Share.
(e) Mandatory Redemption after January 1, 2002.
(1) Subject to the further provisions of this Section (e)(1), at any
time after January 1, 2002, the shares of this Series shall be redeemed in
whole at the Redemption Price Per Share determined as of January 1, 2002. If
the Adjusted Earnings Delta for the Corporation's calendar year ending
December 31, 2001 is fifteen percent (15%) or more, then the Corporation
shall give notice of such redemption on such date prior to April 1, 2002 as
the Corporation's Board of Directors shall determine; otherwise, such notice
of redemption shall be given on such date prior to April 1, 2003 as the
Corporation's Board of Directors shall determine.
(2) In the event that less than all of the outstanding shares of this
Series are to be redeemed pursuant to Section (e)(1), the number of shares
to be redeemed shall be determined by the Board, and such shares shall be
redeemed pro rata.
(3) At such time as the Corporation shall redeem shares of this Series,
notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at
such holder's address as the same appears on the stock register of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of this Series to be redeemed and, if fewer than all the
shares held by such holder are to be redeemed, the number of such shares to
be redeemed from such holder; (iii) the Redemption Price Per Share (and the
factors used in calculating such amount); and (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price.
(4) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price) dividends on the
shares of this Series so called for redemption shall cease to accrue, and
said shares shall no longer be deemed to be outstanding, and all rights of
the holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price plus accrued and unpaid
dividends to the redemption date) shall cease. Upon surrender in accordance
with said notice of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board shall so require and the
notice shall so state), such shares shall be redeemed by the Corporation at
the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder
thereof.
(5) Any shares of this Series which shall at any time have been
redeemed or purchased by the Corporation shall, after such redemption, have
the status of authorized but unissued shares of Class A Preferred Stock,
without designation as to series until such shares are once more designated
as part of a particular series by the Board.
(f) Liquidation Rights.
(1) Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the shares of this Series
shall be entitled to receive out of the assets of the Corporation, or the
proceeds thereof, cash in the amount of the aggregate stated value per share
of the outstanding shares of this Series plus a sum equal to all dividends
(whether or not declared) on such shares accrued and unpaid thereon to the
date of final distribution before any payment or distribution of any kind
shall be made on the Common Stock or on any other class of stock ranking
junior to the Class A Preferred Stock as to assets.
(2) Neither the sale of all or substantially all the property or
business of the Corporation, nor the merger or consolidation of the
Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation, shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section.
(3) After the payment to the holders of the shares of this Series of
the full preferential amounts provided for in this Section, the holders of
this Series as such shall have no right or claim to any of the remaining
assets of the Corporation.
(4) In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section (f)(1), no such distribution shall
be made on account of any shares of any other class or series of Class A
Preferred Stock ranking on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless proportionate distributive
amounts shall be paid on account of the shares of this Series, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation
or winding up.
(g) Ranking of Classes of Stock. Shares of this Series shall rank on a
parity as to dividends and upon liquidation with shares of the Corporation's
Adjustable Rate Cumulative Class A Preferred Stock, 12% Convertible Class A
Preferred Stock, Series D and Adjustable Rate Cumulative Class A Preferred
Stock, Series C. For purposes of this resolution, any stock of any class or
classes of the Corporation shall be deemed to rank:
(1) prior to the shares of this Series, either as to dividends or upon
liquidation, if the holder of such class or classes shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in
preference of or priority to the holders of shares of this Series;
(2) on a parity with shares of this Series, either as to dividends or
upon liquidation, whether or not the dividend rates, dividend payment dates
or redemption or liquidation prices per share or sinking fund provisions, if
any, are different from those of this Series, if the holders of such stock
shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case
may be, in proportion to their respective dividend rates or liquidation
prices, without preference or priority, one over the other, as between
holders of such stock and the holders of shares of this Series; and
(3) junior to shares of this Series, either as to dividends or upon
liquidation, if such class shall be Common Stock or if the holders of shares
of this Series shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference of or priority to the holders
of shares of such class or classes.
(h) Issuance of Common Stock Upon Redemption. Notwithstanding anything
to the contrary herein, at the sole and exclusive option of the Corporation,
up to one-half of any redemption payment that may be made under Section
(c)(2), Section (d)(2) or Section (e) may be made in the form of the
issuance and delivery to the holder of shares of this Series of shares of
the Common Stock, no par value, of the Corporation; provided however, that
the Corporation shall not have such option in the case of any redemption of
shares of this Series resulting from a Change of Control. Any shares of
Common Stock of the Corporation so issued and delivered pursuant to this
Section (h) shall be deemed to have a cash value equal to the last reported
sales price thereof in the primary trading market therefor on the trading
day next preceding (i) the date of surrender of certificates representing
shares of this Series pursuant to Section (c)(2)or Section (d)(2) or (ii)
the delivery of a notice of redemption pursuant to Section (e)(3), as the
case may be. Any shares of Common Stock of the Corporation so issued and
delivered must be registered under the Securities Act of the 1933 (the
"Act") so that such shares may be resold without the imposition of any
holding period under Rule 144 under the Act or any successor to such rule.
(i) Conversion or Exchange. The holders of shares of this Series shall
not have any rights herein to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of
any class or classes of capital stock of the Corporation.
(j) Voting. The shares of this Series shall not have any voting powers
either general or special, except that, unless the vote or consent of the
holders of a greater number of shares shall then be required by law, the
affirmative vote or consent of the holders of at least 66-2/3% of all of the
shares of this Series at the time outstanding, given in person or by proxy,
either in writing or by a vote at a meeting called for the purpose at which
the holders of shares of this Series shall vote together as a separate
class, shall be necessary for authorizing, effecting or validating the
amendment, alteration or repeal of any of the provisions of the Certificate
of Incorporation or of any certificate amendatory thereof or supplemental
thereto (including any Certificate of Designation, Preferences and Rights or
any similar document relating to any series of Class A Preferred Stock)
which would adversely affect the powers, preferences, privileges or rights
of this Series.
(k) Definitions. For the purposes hereof, the following terms have the
following respective meanings:
"Adjusted Earnings" for a calendar year of the Corporation means (i)
EPCS for such year multiplied by (ii) 33,334,951.
"Adjusted Earnings Delta" for a calendar year of the Corporation means
the percentage increase or decrease in the Adjusted Earnings for such year
over the Adjusted Earnings for the next preceding calendar year of the
Corporation.
An "Affiliate" of a specified Person is a Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the Person specified.
"Annual Dividend" means (A) the product of (i) one one-thousandth of
one percent (0.00001) multiplied by (ii) the amount by which EPCS for the
calendar year of the Corporation immediately preceding the year in which the
determination is made exceeds EPCS for the next preceding calendar year of
the Corporation multiplied by (iii) 33,334,951, minus (B) any reduction
required by Section (b)(6) hereof.
An "Associate" of a specified Person is (i) any corporation or
organization (other than the Corporation or any Subsidiary of the
Corporation) of which such Person is an officer or partner or is, directly
or indirectly, the Beneficial Owner of 10% or more of any class of equity
Securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee
or in a similar fiduciary capacity, or (iii) any relative or spouse of such
Person, or any relative of such spouse, who has the same home as such Person
or who is a director or officer of the Corporation or any Subsidiary or
Parent (defined below) of the Corporation.
"Average Adjusted Earnings Delta Factor" means the percentage obtained
by subtracting 20 percentage points from the arithmetical mean of the
Adjusted Earnings Delta for each calendar year of the Corporation in the
period commencing with the year ending December 31, 1997, and ending on the
December 31 next preceding the date of determination.
A Person is a "Beneficial Owner" of Securities of the Corporation if
such Person or any of such Person's Affiliates or Associates has or shares,
directly or indirectly, through any contract, arrangement, understanding or
otherwise, the power to vote or direct the voting of Securities of the
Corporation or the power to dispose or direct the disposition of Securities
of the Corporation. A Person shall be the "Beneficial Owner" of Securities
of the Corporation of which such Person or any of such Person's Affiliates
or Associates has the right to become the "Beneficial Owner" (whether such
right is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants, options, or otherwise.
"Change of Control" means the occurrence of any one or more of the
following events:
(i) any Person becomes the Beneficial Owner of Securities of the
Corporation having 20% or more of the total votes that may be cast for
the election of directors of the Corporation; or
(ii) the stockholders of the Corporation approve the sale or
other disposal of all or substantially all of the assets of the
Corporation (including a plan of liquidation or dissolution) or the
merger or consolidation of the Corporation with or into another
corporation in which the Corporation is not the surviving corporation,
in accordance with the requirements of the Certificate of Incorporation
of the Company and applicable law; or
(iii) as a result of or in connection with any tender offer,
exchange offer, merger or other business combination, sale of assets or
contested election of directors, or any combination of the foregoing,
the individuals who are directors of the Corporation immediately prior
to such event shall cease to constitute the majority of the
Corporation's Board of Directors; or
(iv) entering into an agreement by the Corporation, the
consummation of which would result in an event specified in clause (i),
(ii) or (iii) of this sentence.
"Cumulative Adjusted Earnings" means the sum of the Adjusted Earnings
for each calendar year of the Corporation in the period commencing with the
year ending December 31, 1997, and ending on the December 31 next preceding
the date of determination.
"Cumulative Deficiency Per Preferred Share" means the balance from time
to time of the account by that name to be maintained by the Corporation in
accordance with Section (b)(6).
A "Dividend Default" shall exist whenever an Annual Dividend shall have
accrued and remain unpaid for more than 10 days following the Dividend
Payment Date with respect thereto.
"EPCS" for a calendar year of the Corporation means the fully diluted
earnings per common share of the Corporation as reported in the audited
financial statements of the Corporation for such year, as adjusted to
exclude the effects on fully diluted earnings per common share of (i)any
gains or losses in excess of $1.0 million resulting from the sale of capital
assets, or (ii) any gains or losses from the sale of any class of
partnership interests in Kaneb Pipe Line Partners, L.P., a Delaware limited
partnership.
"EPCS Deficiency" means the product of (i) the amount, if any, by which
EPCS for a calendar year of the Corporation is less than EPCS for the
immediately preceding calendar year of the Corporation multiplied by (ii)
33,334,951.
A "Parent" of a specified Person is an Affiliate controlling such
Person directly, or indirectly through one or more intermediaries.
A "Person" means any individual, firm, corporation, partnership, trust
or other entity. Two or more Persons who agree to act together for the
purpose of acquiring, holding, voting, or disposing of Securities of the
Corporation shall be deemed a "Person". Excluded from the definition of
"Person" are the Corporation and any Affiliates of the Corporation, whether
individually or in any combination.
"Redemption Price Per Share" means (A)(i) Cumulative Adjusted Earnings
multiplied by (ii) the Average Adjusted Earnings Delta Factor multiplied by
(iii) seven and one-half basis points (.00075) plus (B) any accrued and
unpaid dividends on a share of this Series; provided however, that the
Redemption Price Per Share shall not be less that the stated value per
share.
"Securities" of the Corporation means, unless the context requires
otherwise, equity securities of the Corporation or any Subsidiary or Parent
or any other securities or instruments that entitle the holder thereof, by
trust, proxy or any other agreement, arrangement or understanding or
otherwise, to vote in the election of directors of the Corporation.
"Securities" shall also include any securities or instruments that entitle
the holder thereof to acquire, upon exercise, exchange or conversion
thereof, Securities of the Corporation.
(l) Adjustment Upon Change in Common Stock. Notwithstanding anything to
the contrary herein, the Annual Dividend and the Redemption Price Per Share
shall be proportionately adjusted as the Board of Directors of the
Corporation shall from time to time determine in its sole discretion to be
equitably required to exclude the effects of any stock dividends, stock
split-ups, or subdivisions or consolidations of shares of Common Stock of
the Corporation effected subsequent to January 1, 1997. Any determination
under this Section (1) shall be final and conclusive.
IN WITNESS WHEREOF, Kaneb Services, Inc. has caused its corporate seal to be
hereunto affixed and the certificate to be signed by Howard C. Wadsworth, its
vice president, and the same to be attested by Renata Fancher, its assistant
secretary, this 13th day of June, 1997.
KANEB SERVICES, INC.
By Howard C. Wadsworth, Vice President
[Corporate Seal]
ATTEST:
Renata Fancher, Assistant Secretary
AMENDMENT NO. 3 TO
AMENDED AND RESTATED LOAN AGREEMENT
AMENDMENT dated as of June 27, 1997 among FURMANITE PLC (formerly KANEB
UK PLC), a company incorporated under the laws of England and Wales (registered
number 2530049) (the "Borrower"), KANEB INTERNATIONAL INC., a Delaware
corporation ("Holding"), the financial institutions which are party to the Loan
Agreement hereinafter referred to (each a "Bank" and collectively, the "Banks"),
and BANK OF SCOTLAND, as agent for the Banks under such Loan Agreement (in such
capacity, the "Agent"), to the AMENDED AND RESTATED LOAN AGREEMENT dated as of
May 3, 1991 (as amended by an amendment thereto dated as of December 7, 1994,
and as further amended by an amendment thereto dated as of July 15, 1996, the
"Loan Agreement") among the Borrower, Holding, the Banks and the Agent.
W I T N E S S E T H :
WHEREAS, the Borrower and Holding have advised the Agent and the Banks
that they desire to enter into and consummate the Australian Transaction (as
defined below) and the Norwegian Transaction (as defined below);
WHEREAS, the Borrower and Holding have requested that the Revolving
Credit Loan Commitment be increased to $25,000,000 and that the Banks make
$5,475,047.86 in new term loans under the Loan Agreement;
WHEREAS, the Australian Transaction (the "Australian Transaction")
involves the following: (i) the establishment by Holding of Furmanite Offshore
Services Inc., a direct and wholly-owned Subsidiary of Holding incorporated
under the laws of the State of Delaware ("FOSI"); (ii) the establishment by FOSI
of Denon Pty Ltd. (ACN 078 420 112), a corporation incorporated under the laws
of Australia ("F-Australia"); (iii) the borrowing by F-Australia of A$5.0
million from BOS International (Australia) Limited ("BOS Australia"); (iv) the
lending by Holding to FOSI of A$1.1 million (the "Holding/FOSI (Australia)
Advance"); (v) the contribution of A$1.0 million by FOSI to the capital of
F-Australia; (vi) the lending by the Borrower of $5,475,047.86 million to
Holding (the "Borrower/Holding (Australia) Advance"); (vii) the acquisition by
F-Australia of certain assets from Furmanite Australia Pty Limited (ACN 004 792
312) (the "Australian Seller") for A$6.1 million pursuant to the Australian
Acquisition Agreement; (viii) the acquisition by Holding of certain intangible
assets from the Australian Seller for A$2.5 million pursuant to the Australian
Acquisition Agreement; (x) the issuance by the Issuer of a Letter of Credit for
the account of the Borrower in favor of BOS Australia in a Stated Amount of
A$5.0 million; (xi) the establishment by FOSI of V&P Engineering Ltd.
(AK/860-863), a corporation incorporated and the laws of New Zealand and "F-New
Zealand"; (xii) the contribution of A$100,000 by FOSI to the capital of F-New
Zealand and (xiii) the acquisition by Holding and F-New Zealand of certain
assets for A$300,000 pursuant to the New Zealand Acquisition Agreement;
WHEREAS, the Norwegian Transaction (the "Norwegian Transaction")
involves the following: (i) the establishment by FOSI of Furmanite Holding AS, a
corporation organized under the laws of Norway ("Norway Holdings"); (ii) the
establishment by Norway Holdings of Furmanite Norse Services AS, a corporation
organized under the laws of Norway ("Norway Opco"); (iii) the borrowing by
Holding from the Borrower of NOK4.0 million (the "Borrower/Holding (Norway)
Advance"), and on-lending by Holding to FOSI of NOK4.0 million (the
"Holding/FOSI (Norway) Advance"), and the contribution by FOSI to the capital of
Norway Holdings of NOK4.0 million; (iv) the borrowing by the Borrower under the
Agreement of the Dollar Equivalent of NOK4.0 million; (vi) the borrowing by
Norway Holdings of NOK17.0 million from Christiania Bank og Kreditkasse ASA
("Christiania"); (vi) the issuance by the Issuer of a Letter of Credit for the
account of the Borrower for the benefit of Christiania in a Stated Amount of
NOK17,700,000 million; (vii) the lending by Norway Holdings of NOK9.0 million to
Norway Opco (the "Norway Holding/Norway Opco Advance"); (viii) the purchase by
Norway Opco of certain assets from Norse Services AS pursuant to the Norwegian
Acquisition Agreement for NOK9.0 million; (ix) the purchase by Norway Holdings
from KOSI of 100% of the stock of Furmanite AS for NOK12.0 million in cash and
NOK2.0 million in the form of a promissory note; and (x) the purchase by Norway
Opco of all of the outstanding shares of Wachs Norge AS pursuant to the
Norwegian Acquisition Agreement;
WHEREAS, certain of the foregoing transactions and parts thereof are
prohibited by the Loan Agreement;
WHEREAS, Holding and the Borrower have asked the Agent and the Banks to
execute this Amendment and, subject to the terms and conditions contained
herein, the Agent and the Banks are amenable to doing so;
NOW, THEREFORE, it is agreed:
1. Definitions.
(1) All the terms used herein which are defined in the Loan Agreement
(including, to the extent any such terms are to be amended by this
Amendment, as if such terms were already amended by this Amendment,
unless the context shall indicate otherwise) shall have the same
meanings when used herein unless otherwise defined herein. All
references to Sections in this Amendment shall be deemed references to
Sections in the Loan Agreement unless otherwise specified.
(2) As used in this Amendment, the following terms shall have the
following meanings:
"A$" shall mean the lawful currency of Australia.
"NOK" shall mean the lawful currency of Norway.
2. Effect of Amendment. As used in the Loan Agreement (including all Exhibits
thereto), the Notes and the other Loan Documents and all other instruments and
documents executed in connection with any of the foregoing, on and subsequent to
the Amendment Closing Date (as hereafter defined), any reference to the Loan
Agreement shall mean the Loan Agreement as amended hereby.
3. Defined Terms.
(1) Annex I to the Loan Agreement is hereby amended by adding the
following paragraphs thereto in the appropriate alphabetical place:
"A$" shall mean the lawful currency of Australia.
"Australian Acquisition Agreement" shall mean the Asset
Purchase Agreement among Furmanite Australia Pty Ltd., Sierra Nominees
Pty Ltd., Crestside Pty Ltd., Anthony Edward Blackhouse, Andrew Turnour
and F-Australia dated as of June 30, 1997.
"Australian Transaction" shall mean (i) the establishment by
FOSI of F-Australia; (ii) the borrowing by F-Australia of A$5.0 million
from BOS Australia; (iii) the lending by Holding to FOSI of A$1.1
million (the "Holding/FOSI (Australia) Advance"); (iv) the contribution
of A$1.1 million by FOSI to the capital of F-Australia; (v) the lending
by the Borrower of $5,475,047.86 million to Holding (the
"Borrower/Holding (Australia) Advance"); (vi) the acquisition by
F-Australia of certain assets from Furmanite Australia Pty Limited (ACN
004 792 312) (the "Australian Seller") for A$6.1 million pursuant to
the Australian Acquisition Agreement; (vii) the acquisition by Holding
of certain intangible assets from the Australian Seller for A$2.5
million pursuant to the Australian Acquisition Agreement; (viii) the
issuance by the Issuer of a Letter of Credit for the account of the
Borrower in favor of BOS Australia in a Stated Amount of A$5.0 million;
(ix) the establishment by FOSI of F-New Zealand; (x) the contribution
of A$100,000 by FOSI to the capital of F-New Zealand and (xi) the
acquisition by Holding and F-New Zealand of certain assets for
A$300,000 pursuant to the New Zealand Acquisition Agreement;
"Borrower/Holding (Australia) Advance" - as defined in
"Australian Transaction".
"Borrower/Holding/ (Norway) Advance" - as defined in
"Norwegian Transaction"
"BOS Australia" shall mean BOS International (Australia)
Limited.
"BOS Australia Advances" - shall mean the loans in the
aggregate principal amount of approximately A$5,000,000 made by BOS
Australia pursuant to the BOS Australia Loan Documents.
"BOS Australia L/C" shall mean the letter of credit that may
issued by the Issuer in favor of BOS Australia pursuant to Section
2A.1(f) in the Stated Amount of A$5.0 million in connection with the
Australian Transaction.
"BOS Australia Loan Documents" shall mean the A$ Revolving
Loan Facility between BOS Australia and F-Australia, dated June 27,
1997 and security agreements and other agreements, documents and
instruments related thereto executed by F-Australia on or about the
NTAD.
"Christiania" shall mean Christiania Bank og Kreditkasse ASA.
<PAGE>
"Christiania Advance" shall mean the loan in the principal
amount of NOK17,000,000 which may made by Christiania pursuant to the
Christiania Loan Documents.
"Christiania L/C" shall mean the letter of credit that may be
issued by the Issuer pursuant to Section 2A.1(f) in favor of
Christiania in the Stated Amount of NOK17,700,000 in connection with
the Norwegian Transaction.
"Christiania Loan Documents" shall mean the letter agreement
between Christiania and Furmanite Holding AS dated May 23, 1997
relating to the borrowing by Norway Holdings of NOK17,000,000 and all
agreements, documents, notes and other instruments entered into
pursuant thereto or in connection therewith on or about the Norwegian
Closing Date.
"F-Australia" shall mean Denon Pty Ltd., a corporation
organized under the laws of Australia.
"F-New Zealand" shall mean V&P Engineering Ltd., a corporation
organized under the laws of New Zealand.
"Holding/FOSI (Australia) Advance" - as defined in "Australian
Transaction".
"Holding/FOSI (Norway) Advance" - as defined in "Norwegian
Transaction".
"New Third Amendment" shall mean the amendment to the
Agreement (as then in effect) designated as Amendment No. 3 to Amended
and Restated Loan Agreement and dated as of June 27, 1997.
"New Third Amendment Date" shall have the same meaning as the
term "Amendment Closing Date" in the New Third Amendment.
"New Zealand Acquisition Agreement" - shall mean the Asset
Purchase Agreement among Furmanite V&P Engineering Ltd., Furmanite
Australia Pty. Ltd., and F-New Zealand dated as of June 30, 1997.
"1997 Intercompany Notes" - Section 8.3(xxii).
"1997 Term Loans" - Section 2.4A.
"1997 Term Note" shall mean a promissory note of the Borrower
substantially in the form of Exhibit T-1 to the New Third Amendment as
such Note may be from time to time amended, supplemented, restated or
otherwise modified.
"NOK" shall mean the lawful currency of Norway.
<PAGE>
"Norway Holdings" shall mean Furmanite Holdings AS, a
corporation organized under the laws of Norway.
"Norway Holdings/KOSI Note" - as defined in "Norwegian
Transaction".
"Norway Holdings/Norway Opco Advance" - as defined in
"Norwegian Transaction".
"Norway Opco" shall mean Furmanite Norse Services AS, a
corporation organized under the laws of Norway.
"Norwegian Closing Date" - the date on which (i) all
conditions set forth in Section 23 of the NTA are satisfied and (ii)
the Christiania Advance is made.
"Norwegian Acquisition Agreement" shall mean the Asset
Purchase Agreement between Norse Services AS and Norway Opco in the
form of the draft therof dated June 18, 1997.
"Norwegian Transaction" shall mean (i) the establishment by
FOSI of Norway Holdings; (ii) the establishment by Norway Holdings of
Norway Opco; (iii) the borrowing by Holding from the Borrower of NOK4.0
million (the "Borrower/Holding (Norway) Advance"), and on-lending by
Holding to FOSI of NOK4.0 million (the "Holding/FOSI (Norway)
Advance"), and the contribution by FOSI to the capital of Norway
Holdings of NOK4.0 million; (iv) the borrowing by the Borrower under
the Agreement of the Dollar Equivalent of NOK4.0 million; (vi) the
borrowing by Norway Holdings of NOK17.0 million from Christiania; (vi)
the issuance by the Issuer of the Christiania L/C in a Stated Amount of
NOK17,700,000 million; (vii) the lending by Norway Holdings of NOK9.0
million to Norway Opco (the "Norway Holding/Norway Opco Advance");
(viii) the purchase by Norway Opco of certain assets from Norse
Services AS pursuant to the Norwegian Acquisition Agreement for NOK9.0
million; (ix) the purchase by Norway Holdings from KOSI of 100% of the
stock of Furmanite AS for NOK12.0 million in cash and NOK2.0 million in
the form of a promissory note (the "Norway Holding/KOSI Note"); and (x)
the purchase by Norway Opco of all of the outstanding shares of Wachs
Norge AS pursuant to the Norwegian Acquisition Agreement.
"NTA" - shall mean the New Third Amendment.
"NTAD" shall mean the New Third Amendment Date.
"Transactions" shall mean, individually and collectively, the
Australian Transaction and the Norwegian Transaction.
(2) The following defined terms in Annex I are hereby amended to read
in their entirety as follows:
"Base Rate (US) Differential" shall mean, from and after the
NTAD, 0.25%; provided that from and after the date subsequent to the
NTAD of delivery to the Agent of a certificate of Holding's chief
financial officer which states that (and provides calculations (using
the calculation method set forth in Section 8.22, but including 100% of
Long-Term Debt in such calculations) in form and substance satisfactory
to the Agent evidencing that) the ratio of Long-Term Debt of the
Consolidated Group at the end of the most recently completed four
fiscal quarter period to EBITDA of the Consolidated Group (as so
calculated) for such four fiscal quarter period was less than 2.5 to
1.0, Base Rate (US) Differential shall mean 0%, if and only if on the
date of delivery of such certificate and on the date of the last such
completed fiscal quarter, no Default or Event of Default exists.
"Commitments" shall mean each Term Loan Commitment, each 1997
Term Loan Commitment and each Revolving Credit Loan Commitment.
"Eurocurrency Differential" shall mean, from and after the
NTAD, 1.25%; provided that from and after the date subsequent to the
NTAD of delivery to the Agent of a certificate of Holding's chief
financial officer which states that (and provides calculations (using
the calculation method set forth in Section 8.22, but including 100% of
Long-Term Debt in such calculations) in form and substance satisfactory
to the Agent evidencing that) the ratio of Long-Term Debt of the
Consolidated Group at the end of the most recently completed four
fiscal quarter period to EBITDA of the Consolidated Group (as so
calculated) for such four fiscal quarter period was less than 2.5 to
1.0, Eurocurrency Differential shall mean 1.0%, if and only if on the
date of delivery of such certificate and on the date of the last such
completed fiscal quarter, no Default or Event of Default exits.
"Determination Date" shall mean the last Business Day of each
calendar quarter and, for purposes of Section 2.5(a), each such other
date or dates on which the Agent shall notify the Borrower that it has
calculated the Dollar Equivalent of the LC Obligations.
"Note" shall mean a Term Note, a Revolving Credit Note or a
1997 Term Note, and Notes shall mean Term Notes, Revolving Credit Notes
and 1997 Term Notes.
"Specified Percentage" shall mean (a) with respect to the
Stated Amount of the Carlisle LC, .75% (b) with respect to all other
Letters of Credit other than the BOS (Australia) Letter of Credit, the
Eurocurrency Differential then applicable with respect to LIBOR Loans,
and (c) with respect to the BOS (Australia) Letter of Credit, 0%.
"Term Loan" shall mean a Term Loan (as defined in Section
2.1(a)) and, for all purposes other than Section 2.1, 2.3 or 2.4(a), a
1997 Term Loan.
(3) The following defined terms in Annex I are hereby amended as
follows:
"Foreign Guarantor": to insert Denon Pty Limited and V&P
Engineering Ltd. and, after the occurrence of the Norwegian Closing
Date (unless excused pursuant to Section 23 of the NTA), Furmanite
Holdings AS and Furmanite Norse Services AS.
"Guarantee Agreements": to add the following at the end
thereof:
"Guarantee Agreements" shall also include each guaranty
delivered by any Subsidiary of Holdings or the Borrower pursuant to the
New Second Amendment or the New Third Amendment.
"Loan Party": to add the words "or FOSI" at the end thereof.
"Security Agreement": to add the following at the end thereof:
"Security Agreements" shall also include each security
agreement delivered pursuant to the New Third Amendment.
"Significant Subsidiary": to add the following at the end
thereof:
Notwithstanding anything to the contrary contained in this
Agreement or any other Loan Document (including, without
limitation, the definition of "Insignificant Subsidiary" in
this Annex I), (i) each of FOSI and F-Australia shall be a
Significant Subsidiary for so long as it is a Subsidiary of
Borrower or Holding; (ii) each of Norway Holdings and Norway
Opco shall be a Significant Subsidiary for so long as it is a
Subsidiary of Borrower or Holding, except that neither such
Subsidiary shall be a Significant Subsidiary for purposes of
Section 7.20 unless it shall have executed and delivered a
Guaranty Agreement, Security Agreement and Pledge Agreement
satisfactory to the Agent.
4. Section 2.3. The first sentence of Section 2.3(b) is hereby amended to read
as follows:
"The Term Note of each Bank shall be substantially in the form
of Exhibit P-1 to the New First Amendment and the Revolving Credit Note
of each Bank shall be substantially in the form of Exhibit RC-I to the
New Third Amendment."
5. Section 2.4A. A new Section, Section 2.4A, is added to the Loan Agreement,
immediately after Section 2.4 of the Loan Agreement, as follows:
"Section 2.4A. 1997 Term Loans. (a) Subject to the terms and
conditions set forth herein, on the NTAD each Bank severally agrees to
make a term loan to the Borrower (each a "1997 Term Loan") in the
amount set forth opposite its name under on Schedule 2.1 hereto under
the heading "1997 Term Loan Commitment" (for each Bank, its "1997 Term
Loan Commitment" and collectively for all Banks, the "1997 Term Loan
Commitments"). The borrowing from the Banks pursuant to this Section
2.4A shall be (1) in a single advance, (2) in an aggregate principal
amount not to exceed $5,475,047.86 and (3) made from each Bank pro rata
on the basis of the 1997 Term Loan Commitment of each Bank.
(b) The Banks shall not be required to make the 1997 Term
Loans unless such Loans are made, in accordance with the provisions of
this Agreement, on or prior to June 30, 1997 (or such later date as the
Agent agrees to in writing).
<PAGE>
(c) The Borrower shall give telephonic (confirmed on the same
date by telecopier or otherwise in writing) or written notice to the
Agent of the proposed borrowing of the 1997 Term Loans hereunder, which
notice shall specify the proposed Borrowing Date (which shall be a
Business Day); the total amount of the proposed borrowing; and shall be
given no later than 9:00 a.m., Closing Office Time on the proposed
Borrowing Date.
(d) (i) The Borrower's obligation to pay the principal of, and
interest on, the 1997 Term Loan of each Bank shall be evidenced by a
1997 Term Note payable to the order of such Bank.
(ii) The 1997 Term Note of each Bank shall be in
substantially the form of:
Exhibit T-1 to the New Third Amendment and be in an original
principal amount equal to such Bank's 1997 Term Loan
Commitment and shall be secured by the Security Documents.
(e) The Borrower shall repay the 1997 Term Loans on the last
Business Day of each month indicated below (each such date, a "1997
Term Loan Repayment Date") by the amount indicated along side each such
Repayment Date:
Last Business Day of Amount
December 1997 $300,000
June 1998 $300,000
December 1998 $300,000
June 1999 $300,000
December 1999 $300,000
June 2000 $300,000
December 2000 $675,047.86
June 2001 $1,500,000
December 2001 $1,500,000
On each 1997 Term Loan Repayment Date, an aggregate principal
amount of the 1997 Term Loans equal to the amount required to be paid
on such date shall mature and become due and payable. If for any reason
the Borrower borrows less than the full amount to the 1997 Term Loan
Commitment, amounts not borrowed will be deducted from the amount of
the 1997 Term Loan due at final maturity and thereafter from the
installments due on the 1997 Term Loans pursuant to this Section 2.4(e)
in inverse order of maturity.
(f) All amounts applied to the 1997 Term Loans under this
Section 2.4A and the other provisions of this Agreement shall be
applied ratably to the 1997 Term Loans then outstanding and shall be
applied first to the portion of principal thereof payable at final
maturity and thereafter to the installments due on the 1997 Term Loans
pursuant to Section 2.4A(e) in inverse order of maturity.
<PAGE>
(g) Amounts prepaid pursuant to this Section 2.4(A) may not be
reborrowed. All prepayments received by the Agent pursuant to this
Section 2.4A or pursuant to the other provisions Sections 2.5, 2.6 and
2.7 shall be distributed by the Agent in accordance with the provisions
of Section 5.3."
(h) The proceeds of the 1997 Term Loans will be used by the
Borrower solely to make the Borrower/Holding Australia Advance, and
used by Holding solely to consummate the Australian Transaction.
6. Section 2A. Section 2A of the Loan Agreement is amended by inserting therein
a new Section 2A.1(f) as follows:
"(f) (i) Notwithstanding any provision of this Section 2A.1 to
the contrary, the Borrower shall be permitted to request (by way of an
Issuance Request) that the Issuer issue the BOS Australia L/C, and,
subject to the terms and conditions of this Agreement (including,
without limitation, Section 6A and Section 2A but excluding Section
2A.1(b)(iv)), on the NTAD the Issuer shall issue the BOS Australia L/C,
and such letter of credit shall constitute a Letter of Credit for all
purposes of this Agreement; provided, however, that (i) all
reimbursements under Section 2A.4 for amounts disbursed under the BOS
Australia L/C shall be made in Dollars, in the Dollar Equivalent of
each disbursement thereunder, (ii) unpaid Reimbursement Obligations
thereunder pursuant to the fourth sentence of Section 2A.4 shall be
converted into Dollars and (iii) all Deemed Disbursements shall be
deemed to have been made in A$ and reimbursements in respect thereof
under Section 2A.6 shall be made in A$.
(ii) Notwithstanding any provision of this Section 2A.1
to the contrary, the Borrower shall be permitted to request (by way of
an Issuance Request) that the Issuer issue the Christiania L/C and,
subject to the terms and conditions of this Agreement (including,
without limitation, Section 6A and Section 2A but excluding Section
2A.1(b)(iv)), on the Norwegian Closing Date, provided that such date
occurs on or prior to July 31, 1997, the Issuer shall issue the
Christiania L/C, and such letter of credit shall constitute a Letter of
Credit for all purposes of this Agreement; provided, however, that (i)
all reimbursements under Section 2A.4 for amounts disbursed under the
Christiania L/C shall be made in Dollars, in the Dollar Equivalent of
each disbursement thereunder, (ii) unpaid Reimbursement Obligations
thereunder pursuant to the fourth sentence of Section 2A.4 shall be
converted into Dollars and (iii) all Deemed Disbursements shall be
deemed to have been made in NOK and reimbursements in respect thereof
under Section 2A.6 shall be made in NOK."
7. Section 4.1. Section 4.1 is amended by deleting the percentage A2 of 1% and
replacing such percentage with A0.35%".
8. Sections 4.7 and 4.8. Section 4 is amended by adding the following after
Section 4.6 therein:
<PAGE>
"4.7 Continuation Fee. The Borrower agrees to pay to the Agent
on the NTAD (for the account of the Banks party to this Agreement on
NTAD) a non-refundable continuation fee of $100,000. The Borrower's
obligation to pay this fee is an obligation of the Borrower under the
Agreement and is secured by the Security Documents and entitled to the
benefits of the Guarantee Agreements.
"4.8 Amendment Fee. The Borrower agrees to pay to the Agent on
the NTAD (for the account of the Banks party to this Agreement on the
NTAD), a non-refundable facility amendment fee of $35,000. The
Borrower's obligation to pay this fee is an obligation of the Borrower
under this Agreement and is secured by the Security Documents and
entitled to the benefits of the Guarantee Agreement."
9. Section 8.1. Section 8.1(b) is amended and restated in full as follows:
"(b) Holding will not enter into any business or activity
other than its ownership of the capital stock of the Borrower, FAI,
FOSI, KOSI and its ownership and licensing to its Subsidiaries of
intellectual property rights and, to the extent Holding's board of
directors directs, its participation in the management and business of
the Borrower, FAI, FOSI and KOSI."
10. Section 8.2. Section 8.2 is amended by adding a new subclause (j) at the end
thereof, as follows:
"(j) and Liens by Furmanite Australia in favor of BOS
Australia pursuant to the BOS Australia Loan Documents until all BOS
Australia Advances are paid in full;"
11. Section 8.3. Section 8.3 is amended by adding new clauses (xx), (xxi) and
(xxii) to the end thereof as follows:
"and
(xx) indebtedness of Furmanite Australia to BOS Australia
consisting of the BOS Australia Advances;
(xxi) provided that the Norwegian Closing Date occurs on or
prior to July 31, 1997 unsecured indebtedness of
Norway Holdings to Christiania consisting of the
Christiania Advance; and
(xxii) the following intercompany indebtedness: (A)(i) the
Holding/FOSI (Australia) Advance, and (ii) the
Borrower/Holding (Australia) Advance; and (B)
provided that the Norwegian Closing Date occurs on or
prior to July 31, 1997, (i) the Borrower/Holding
(Norway) Advance; (ii) the Holding/FOSI (Norway)
Advance, (iii) the Norway Holdings/Norway Opco
Advance, and (iv) the Norway Holdings/FOSI Note;
provided, that each such indebtedness referred to in
clause (A) and (B) above is evidenced by an
intercompany note in the form of Exhibit IC-I to the
New Third Amendment (all such notes, the "1997
Intercompany Notes") which is pledged to the Agent
pursuant to the Security Documents."
<PAGE>
12. Section 8.5. Section 8.5 of the Loan Agreement is amended by adding the
following at the end of the first proviso to such Section (after clause (f) of
such proviso):
"and, provided, further, that the Borrower, Holding and their
respective subsidiaries may make the advances referred to in clause
(xxii) of Section 8.3 to the extent permitted by said clause (xxii)."
13. Section 8.12. Section 8.12(a) of the Loan Agreement is amended by adding,
following clause (iv) thereof, the following clause:
"or (v) provided that the Norwegian Closing Date occurs on or
prior to July 31, 1997 the sale by KOSI to Norway Holdings of 100% of
the capital stock of Furmanite AS in connection with the consummation
of the Norwegian Transaction, on the terms provided in the definition
thereof;"
14. Section 8.13. The chart in Section 8.13 is amended to read in its entirety
as follows:
Calendar Year Amount
------------- ------
1993 $3,000,000
1994 3,560,000
1995 5,000,000
1996 5,000,000
1997 6,000,000
1998 6,000,000
1999 6,000,000
2000 6,000,000
2001 6,000,000
15. Section 8.10. Section 8.10 of the Loan Agreement is amended by adding the
following clause at the end thereof:
"provided that, (i) Holding, F-Australia and F-New Zealand
shall be permitted to purchase assets pursuant to the Australian
Acquisition Agreement provided that such purchases are made
substantially in accordance with the terms of the Australian
Acquisition Agreement and for consideration not in excess of that set
forth in the definition of "Australian Transaction", and (ii) Norway
Holdings and Norway Opco shall be permitted to purchase assets pursuant
to the Norwegian Acquisition Agreement, provided that (A) the Norwegian
Closing Date occurs on or prior to July 31, 1997, and (B) such
purchases are made substantially in accordance with the terms of the
Norwegian Acquisition Agreement and for consideration not in excess of
that set forth in the definition of "Norwegian Transaction"."
16. Section 8.27. Section 8.27 is amended by inserting after the words "the Tax
Allocation Agreement," in the third line thereof, the following words: "the
Christiania Loan Documents, the BOS (Australia) Loan Documents, the Australian
Acquisition Agreement, the New Zealand Acquisition Agreement the Norwegian
Acquisition Agreement".
<PAGE>
17. Consents. In reliance on the agreements and the accuracy of the
representations and warranties of Borrower and Holding contained elsewhere in
this Amendment, (i) the Agent and the Banks hereby consent, for purposes of
Section 8.12(b) and Section 8.14 of the Loan Agreement, to (A) the organization
by Holding of FOSI and (B) the organization by FOSI of F-Australia and F-New
Zealand; (ii) provided that the Norwegian Closing Date occurs on or prior to
July 31, 1997, the Agent and the Banks hereby consent to the organization by
FOSI of Norway Holdings, to the organization by Norway Holdings of Norway Opco
and to the acquisition by Norway Opco of Wachs Norge AS pursuant to the
Norwegian Acquisition Agreement; and (iii) the Agent and Required Banks hereby
consent to the change of Holding's name to Furmanite Worldwide Inc. (it being
agreed by the Borrower and Holding that from and after the date of such name
change, each reference to Holding in the Agreement and each other Loan Document
shall (unless the context otherwise requires in order to provide the Agent and
Banks with the intended benefits thereof) be deemed to refer to Holding with its
name so changed).
18. Section 10.5.Section 10.5 of the Loan Agreement is hereby amended by adding
the following as clause (h) at the end thereof:
"(h) On and after the Amendment Closing Date, Holding will own
100% of the issued and outstanding shares of capital stock of FOSI and
FOSI will own 100% of the issued and outstanding shares of capital
stock of F-Australia and of F-New Zealand. On and after the Norwegian
Closing Date, FOSI will own 100% of the issued and outstanding shares
of capital stock of Norway Holdings, Norway Holdings will own 100% of
the issued and outstanding shares of capital stock of Norway Opco and
Furmanite AS, and Norway Opco will own 100% of the issued and
outstanding shares of capital stock of Wachs Norge AS."
19. Schedules. Schedule 2.1 to this Amendment is hereby deemed to be Schedule
2.1 to the Agreement.
20. Representations. To induce the Agent and the Banks to enter into this
Amendment and to grant the consent contained herein, Holding and the Borrower
hereby jointly and severally represent and warrant to the Banks and the Agent as
follows (which representations and warranties shall survive the execution,
delivery and effectiveness of this Amendment):
(1) The execution and delivery by each Credit Party (to the
extent it is party thereto) of this Amendment, the Confirming Consent,
the Notes being delivered on the NTAD, and all other amendments and
agreements being delivered on the NTAD or pursuant thereto and such
Person's performance of such Loan Documents and the Agreement as
amended by this Amendment and the consummation of the transactions
contemplated under this Amendment and such other Loan Documents and the
use of the proceeds of the Loans have been duly authorized by all
necessary corporate and stockholder action.
<PAGE>
(2) This Amendment, the Agreement as amended by this
Amendment, the Confirming Consent, the US Pledge Agreement as amended
by Amendment No. 3 thereof and the Notes being delivered on the NTAD
and all other amendments and agreements delivered on the NTAD or
pursuant thereto are the legal, valid and binding obligations of the
Credit Parties party thereto, enforceable in accordance with their
respective terms subject, as to enforceability, to applicable
bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and to general principles of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(3) The Security Documents secure or guarantee, as the case
may be, all Loans whether made before, on or after the NTAD. No
amendments need to be made in any of the Security Documents, nor does
any action need to be taken, to effectuate the provisions of the
preceding sentence.
(4) The priority of all Liens in favor of the Agent and the
Banks under the Security Documents (whether in respect of Loans made
before, on or after the NTAD) shall be the same as the priority of all
Liens immediately prior to the NTAD with respect to Loans outstanding
immediately prior to the NTAD.
(5) No Default or Event of Default exists.
(6) All representations and warranties contained in the
Agreement and in the other Loan Documents or otherwise made by the
Borrower or any other Credit Party in connection with any of the
foregoing are true and correct in all material respects with the same
effect as though such representations and warranties were now being
made.
21. Effectiveness. This Amendment shall become effective when and as of the date
(the "Amendment Closing Date") that each of the following conditions have been
fulfilled to the satisfaction of the Agent (or waived by the Agent). The first
date on which all of the following conditions have been so satisfied (or so
waived) is herein referred to as the "Amendment Closing Date". If the Amendment
Closing Date shall not have occurred by the close of business (New York time) on
July 1, 1997 (or such later date as may be specified to by the Agent in
writing), this Amendment shall be deemed rescinded, null and void:
(1) The Borrower, Holding, and the Banks shall have executed a
copy hereof and delivered the same to the Agent at 565 Fifth Avenue,
New York, New York 10017 (Attention: John Kelly) or, in the case of the
Banks, shall have given to the Agent written notice (actually received)
that the same has been signed and is being sent to the Agent.
(2) The Borrower, KSI, FAI, FOSI, each UK Guarantor and each
Foreign Guarantor shall have each executed a confirming consent,
substantially in the form of Annex A hereto or otherwise satisfactory
to the Agent (each, a "Confirming Consent"), and delivered the same to
the Agent.
(3) There shall have been delivered to the Agent a certificate
of an authorized officer and of the secretary of each of the Borrower,
Holding, F-Australia, F-New Zealand and FOSI, with respect to the
various transactions referred to herein, along with resolutions
authorizing the same, specimen signatures and incumbency certificates,
in form and substance satisfactory to the Agent, certified copies of
the Charter Documents of each such Person (other than the Borrower) and
a short form and long-form good-standing certificate of FOSI, which in
each case, shall be satisfactory to the Agent in all respects.
(4) The Borrower shall have delivered the 1997 Term Note and
the Revolving Credit Note in the form of Exhibit RC-1 hereto to the
Agent.
<PAGE>
(5) Amendment No. 3 to the Pledge Agreement (adding, inter
alia FOSI as a Pledgor and referring to the pledge of stock of
F-Australia, F-New Zealand and FOSI and to the 1997 Intercompany Notes)
along with such shares of stock with accompanying stock powers endorsed
in blank and such 1997 Intercompany Notes, endorsed in blank, shall
have been delivered to the Agent.
(6) FOSI shall have executed and delivered to the Agent the
Security Agreement in the form of Exhibit S-1 hereto.
(7) Guaranty Agreements in the form of Exhibit G-1 hereto,
shall have been executed and delivered to the Agent by each of FOSI,
F-Australia and F-New Zealand.
(8) Each of F-Australia, F-New Zealand and FOSI shall have
appointed CT Corporation Systems, 1633 Broadway, New York, New York as
their agent for service of process.
(9) Borrower and Holding shall have delivered to the Agent
copies, certified by an officer of Holding, of the Australian
Acquisition Agreement, the New Zealand Acquisition Agreement and the
BOS Australia Loan Documents, and evidence satisfactory to the Agent
that the Australian Transaction shall have been consummated
substantially in accordance with the definition thereof, the Australian
Acquisition Agreement and the New Zealand Acquisition Agreement and
that no material provision of either such Acquisition Agreement shall
have been amended or waived by any party thereto (other than the
sellers, in the case of a waiver).
(10) The Borrower shall have requested the making of the 1997
Term Loans and the conditions of Section 6A of the Agreement shall have
been satisfied with respect thereto on such date (after giving effect
to the amendments and consent contained herein).
(11) Holding and the Borrower shall have delivered to the
Agent:
(a) a legal opinion from Michael Glazer, Esq., counsel for the
Credit Parties (or other counsel satisfactory to the Agent),
covering (x) the matters set forth in Annex B hereto, and (y)
such other matters as the Agent or any Bank shall reasonably
request;
(b) a legal opinion of Messrs. Herbert Smith, UK Counsel for the
Credit Parties, covering (x) the matters set forth in Annex C
hereto and (y) such other matters as the Agent or any Bank
shall reasonably request; and
(c) a legal opinion of Messrs. Coors, Chambers, Westgarth,
Australian counsel for the Credit Parties, covering (x) the
matters set forth on Annex D hereto and (y) such other matters
as the Agent or any Bank shall reasonably request.
(12) The continuation fee referred to in Section 4.7 of the
Agreement and the Amendment fee referred to in Section 4.8 of the
Agreement shall have been paid to the Agent.
(13) The Borrower's shall have delivered a solvency
certificate in the form of Exhibit SC-1 hereto to the Agent.
All agreements, documents, and other instruments required to be
delivered to the Agent pursuant to this Section 21 shall be in form and
substance satisfactory to the Agent.
22. Post-Closing Obligations. To induce the Agent and the Banks to enter into
this Amendment and to grant the consent contained herein, Holding and the
Borrower hereby jointly and severally agree to deliver (or cause to be
delivered) to the Agent (unless the Agent shall have agreed otherwise in
writing):
(1) on or before July 10, 1997 (or such later date as the
Agent shall have consented to in writing), the items listed below:
(a) Such Form UCC-1 financing statements executed by FOSI and
Holding as Agent shall request;
(b) Evidence of all recordations necessary or requested by Agent
to perfect security interests granted by F-Australia and F-New
Zealand to BOS Australia;
(c) Such agreements, instruments, documents and papers as the
Agent may reasonably request to evidence the security interest
in all intellectual property acquired by Holding pursuant to
the Australian Transaction in form appropriate for recordation
in the U.S. Patent and Trademark Office (if applicable) and
such other offices as the Agent shall designate, executed by
Holding; and
(d) A confirming consent (in form acceptable to the Agent)
executed by Furmanite East Asia Limited and Furmanite SA.
(e) An acceptance by CT Corporations Systems, satisfactory to the
Agent, of its appointments as agent for service of process of
FOSI, F-Australia and F-New Zealand.
(f) 100% of the issued and outstanding shares of capital stock of
Norway Holdings along with stock powers duly executed in
blank, unless the Borrower delivers an opinion of Norwegian
counsel to the Borrower to the effect that the pledge by FOSI
of such shares of capital stock would violate Norwegian law;
(g) To the extent any filings or actions not referred to in clause
(A) above are required or, in the reasonable opinion of Agent,
desirable, as a result of this Amendment or with respect to
the transactions contemplated hereby, evidence that all such
filings and all other actions with respect to the Liens or
maintenance of the priority or perfection thereof created by
the Security Documents (including, without limitation, any
notations on the books and records of any Credit Party or any
public register and whether in respect of Loans or other
extensions of credit made before, on or after the NTAD), have
been taken or made;
(h) Charter Documents of F-Australia and F-New Zealand and officer
and secretary certificates thereof (to the extent not provided
pursuant to Section 21), satisfactory to the Agent;
(i) Originals of the 1997 Intercompany Notes in form satisfactory
to the Agent and share certificates of F-Australia and F-New
Zealand (to the extent not provided pursuant to Section 21;
(j) An opinion of UK counsel to Holding satisfactory to the Agent
supplementing the opinion by such counsel previously
delivered;
(2) On or before July 3, 1997, (A) copies of all filings made
by Holding with the Secretary of State of Delaware with respect to the
change of name of Holding to Furmanite Worldwide, Inc. and (B) a
certificate, reasonably satisfactory to the Agent, of a senior officer
of the Borrower and Holding to the effect set forth in Section 21
(i)[and (c) to the extent not delivered pursuant to Section 21(m), the
solvency certificate referred to therein].
(3) On or before August 15, 1997 (or such later date as the
Agent may in writing specify), an amendment and restatement of the Loan
Agreement as prepared by the Agent, which takes account of this and
prior amendments and includes such conforming changes as are required
by the Agent and other changes as may be agreed upon between the
parties.
The failure by the Borrower or Holding to comply with any of
the provisions of this Section on or before such date (or such later
date as the Agent shall have consented to in writing) shall be an Event
of Default (without any "grace period") as fully as if same were set
forth in full in Section 9 of the Loan Agreement.
(4) Conditions to Extensions of Credit for the Norwegian
Transaction. The Banks shall not be required to make any Loans in
connection with the Norwegian Transaction and the Issuer shall not be
required to issue the Christiania LC unless, at the time of the making
of such Loan or the issuing of such letter of credit, the following
conditions shall have been satisfied (waived in writing by the Required
Banks):
(a) All conditions set forth in Section 6A of the Loan
Agreement shall be satisfied;
(b) There shall have been delivered to the Agent a
certificate of an authorized officer and of the
secretary of each of the Borrower, Norway Holdings,
Norway Opco and FOSI with respect to the various
credit events relating to the Norwegian Transaction
and the other aspects of the Norwegian Transaction,
along with resolutions authorizing the same, specimen
signatures and incumbency certificates, in form and
substance satisfactory to the Agent, and certified
copies of the Charter Documents of Norway Holdings
and Norway Opco;
(c) Norway Holdings and Norway Opco shall have executed
and delivered to the Agent a Security Agreement in
form of Exhibit S-1 hereto (with such modifications
as are required by Norwegian law) unless the Borrower
shall have delivered an opinion of Norwegian counsel
that no such agreement may be delivered by such
Person under Norwegian law, notwithstanding
modification of the form of such agreement and Norway
Holdings, the Borrower and Holding (and such other
Persons as the Agent shall require) shall have
executed an amendment to the Pledge Agreement
pursuant to which Norway Holding becomes a party
thereto and pledges and delivers to the Agent 100% of
the outstanding shares of stock of Norway Opco (along
with stock powers endorsed in blank) unless the
Borrower shall have delivered an opinion of Norwegian
counsel that no such agreement may be delivered by
such Person under Norwegian law, notwithstanding
modification of the form of such agreement ;
(d) Norway Holdings and Norway Opco shall have executed
and delivered to the Agent Guaranty Agreements in the
form of Exhibit __ hereto (with such modifications as
are required by Norwegian law) unless the Borrower
shall have delivered an opinion of Norwegian counsel
that no such agreement may be delivered by such
Person under Norwegian law, notwithstanding
modification of the form of such agreement, and
appointed CT Corporation Systems, 1633 Broadway, as
their agent for service of process and shall have
delivered to the Agent CT Corporation Systems'
acceptance of such appointment;
(e) Borrower and Holding shall have delivered to the
Agent copies, certified by an officer of Holding, of
the Norwegian Acquisition Agreement and the
Christiania Loan Documents and evidence satisfactory
to the Agent that the Norwegian Transaction shall
have been consummated substantially in accordance
with the definition thereof and the Norwegian
Acquisition Agreement and that no provision of such
Acquisition Agreement shall have been amended, or
waived by any Loan Party or Subsidiary thereof, along
with a certificate of a senior officer of the
Borrower and Holding to such effect;
(f) Holding and Borrower shall have delivered to the
Agent a legal opinion of Norwegian counsel to the
Borrower, covering such matters as the Agent or any
Bank shall reasonably request;
(g) Holding and Borrower shall have delivered to the
Agent evidence of all recordations necessary or
requested by the Agent to perfect security interests
granted by Norway Holding and Norway Opco (if such
interests are granted); and
(h) Holding and the Borrower shall have delivered or
caused to be delivered such other agreements,
instruments and documents as are reasonably requested
by the Agent.
All agreements, documents and other instruments required to be
delivered to the Agent pursuant to this Section 23 shall be in form and
substance satisfactory to the Agent.
(5) Limited Nature of Amendments. The amendments, waivers (if
any) and consents (if any) set forth herein are limited precisely as
written and shall not be deemed to (a) be a consent to any waiver of,
or modification of, any other term or condition of the Loan Agreement
or any of the documents referred to therein or (b) prejudice any right
or rights which the Banks or the Agent may now have or may have in the
future under or in connection with the Loan Agreement or any of the
documents referred to therein. Except as expressly amended hereby, the
terms and provisions of the Loan Agreement shall remain in full force
and effect.
(6) Integration. THIS AMENDMENT, THE LOAN AGREEMENT (AS
AMENDED BY THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS
COVERED HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
(7) Governing Law. THIS AMENDMENT, INCLUDING THE VALIDITY
THEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL
BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
(8) Counterparts. This Amendment may be executed in any number
of counterparts by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all the counterparts shall together constitute one and
the same instrument. Telecopied signatures hereto shall be of the same
force and effect as an original of a manually signed copy.
(9) Headings. The descriptive headings of the various
provisions of this Amendment are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
BANK OF SCOTLAND,
individually and as Agent
By: //s//
FURMANITE PLC
(formerly KANEB UK plc)
By: //s//
KANEB INTERNATIONAL INC.
By: //s//
AMENDMENT NO. 4 TO
AMENDED AND RESTATED LOAN AGREEMENT
AMENDMENT dated as of December 15, 1997 among FURMANITE PLC (formerly
KANEB UK PLC), a company incorporated under the laws of England and Wales
(registered number 2530049) (the "Borrower"), FURMANITE WORLDWIDE INC. (formerly
KANEB INTERNATIONAL INC.), a Delaware corporation ("Holding"), the financial
institutions which are party to the Loan Agreement hereinafter referred to (each
a "Bank" and collectively, the "Banks"), and BANK OF SCOTLAND, as agent for the
Banks under such Loan Agreement (in such capacity, the "Agent"), to the AMENDED
AND RESTATED LOAN AGREEMENT dated as of May 3, 1991 (as amended by an amendments
thereto dated as of December 7, 1994, July 15, 1996, and June 27, 1997, the
"Loan Agreement") among the Borrower, Holding, the Banks and the Agent.
W I T N E S S E T H :
WHEREAS, the Borrower and Holding have advised the Agent and the Banks
that they desire that KOSI, or after the KOSI/FOSI Merger, FOSI, sell the shares
of stock of Furmanite AS owned by it to Furmanite Holding A/S ("Norway
Holdings");
WHEREAS, in connection with such sale, the Borrower and Holding desire
that Norway Holdings borrow NOK 10,000,000 from Christiania Bank og Kreditkasse
ASA ("Christiania") and that Bank of Scotland issue a Letter of Credit in a
stated amount of NOK10,225,000 in favor of Christiana;
WHEREAS, the Norwegian Transaction (as defined in Amendment No. 3 to
Amended and Restated Loan Agreement dated as of June 27, 1997 ("Amendment No.
3")) did not occur;
WHEREAS, the Borrower and Holding desire to amend certain references
and provisions that were added to the Loan Agreement by Amendment No. 3;
WHEREAS, the Borrower and Holding have advised the Agent and the Banks
that KOSI and FOSI desire to enter into a merger transaction whereby KOSI would
be merged into FOSI;
WHEREAS, certain of the foregoing transactions and parts thereof are
prohibited by the Loan Agreement unless permitted by this Amendment;
WHEREAS, Holding and the Borrower have asked the Agent and the Banks to
execute this Amendment and, subject to the terms and conditions contained
herein, the Agent and the Banks are amenable to doing so;
NOW, THEREFORE, it is agreed:
23. Definitions.
(1) All the terms used herein which are defined in the Loan
Agreement (including, to the extent any such terms are to be amended by
this Amendment, as if such terms were already amended by this
Amendment, unless the context shall indicate otherwise) shall have the
same meanings when used herein unless otherwise defined herein. All
references to Sections in this Amendment shall be deemed references to
Sections in the Loan Agreement unless otherwise specified.
(2) As used in this Amendment, the term "NOK" shall mean the
lawful currency of Norway.
24. Effect of Amendment. As used in the Loan Agreement (including all Exhibits
thereto), the Notes and the other Loan Documents and all other instruments and
documents executed in connection with any of the foregoing, on and subsequent to
the applicable effectiveness date set forth herein any reference to the Loan
Agreement shall mean the Loan Agreement as amended hereby.
25. Defined Terms.
(1) Annex I to the Loan Agreement is hereby amended by adding
the following paragraphs thereto in the appropriate alphabetical place:
(a) "FOSI" shall mean Furmanite Offshore Services, Inc., a wholly
owned subsidiary of Holding incorporated under the laws of
Delaware.
(b) "Furmanite AS Closing Date" shall mean the date on which each
of the following has been satisfied (i) all aspects of
Furmanite AS Transaction shall have occurred; and (ii) all
conditions set forth in Section 21 of the NFTA shall have been
satisfied or waived by the Agent.
(c) "Furmanite AS Transaction" shall mean (i) the establishment by
FOSI of Norway Holdings; (ii)the contribution by FOSI to the
capital of Norway Holdings of NOK4.0 million from the proceeds
of the Holding/FOSI (Australia) Advance; (iii) the borrowing
by Norway Holdings of the Christiania Advance; (iv) the
issuance by the Issuer of the Christiania L/C in a Stated
Amount of NOK10,225,000 million; and (v) the purchase by
Norway Holdings from KOSI, or if after the KOSI/FOSI merger,
FOSI, of 100% of the stock of Furmanite AS for NOK14.0 million
in cash.
(d) "KOSI/FOSI Merger" shall have the meaning assigned to such
term in Section 18(b) of the NFTA.
(e) "New Fourth Amendment" shall mean the amendment to the
Agreement (as then in effect) designated as Amendment No. 4 to
Amended and Restated Loan Agreement and dated as of December
15, 1997.
(f) "New Fourth Amendment Date" shall have the same meaning as the
term AAmendment Final Closing Date" in the New Fourth
Amendment.
(g) "NFTA" - shall mean the New Fourth Amendment.
(h) "NFTAD" shall mean the New Fourth Amendment Date.
(2) The following defined terms in Annex I are hereby amended
to read in their entirety as follows:
(a) "Australian Transaction" shall mean (i) the establishment by
FOSI of F-Australia; (ii) the borrowing by F-Australia of
A$5.0 million from BOS Australia; (iii) the lending by Holding
to FOSI of $1,380,068 (the AHolding/FOSI (Australia)
Advance"); (iv) the contribution of A$1,000,000 by FOSI to the
capital of F-Australia; (v) the lending by the Borrower of
,1,961,257 to Holding (the ABorrower/Holding (Australia)
Advance"); (vi) the acquisition by F-Australia of certain
assets from Furmanite Australia Pty Limited (ACN 004 792 312)
(the "Australian Seller") for A$6.1 million pursuant to the
Australian Acquisition Agreement; (vii) the acquisition by
Holding of certain intangible assets from the Australian
Seller for A$2.5 million pursuant to the Australian
Acquisition Agreement; (viii) the issuance by the Issuer of a
Letter of Credit for the account of the Borrower in favor of
BOS Australia in a Stated Amount of A$5.0 million; (ix) the
establishment by FOSI of F-New Zealand; (x) the contribution
of A$100,000 by FOSI to the capital of F-New Zealand and (xi)
the acquisition by Holding and F-New Zealand of certain assets
for A$300,000 pursuant to the New Zealand Acquisition
Agreement;
(b) "Christiania Advance" shall mean an unsecured loan to Norway
Holdings in a principal amount not exceeding NOK10,000,000
which may made by Christiania pursuant to the Christiania Loan
Documents.
(c) "Christiania L/C" shall mean the letter of credit that may be
issued by the Issuer pursuant to Section 2A.1(f) in favor of
Christiania in the Stated Amount of NOK10,225,000 million in
connection with the Furmanite AS Transaction.
(d) "Christiania Loan Documents" shall mean the letter agreement
between Christiania and Norway Holdings dated November 17,
1997 relating to the borrowing by Norway Holdings of up to
NOK10,000,000 and all agreements, documents, notes and other
instruments entered into pursuant thereto or in connection
therewith which were delivered to the Agent pursuant to
Section 21(d)(i)(B) of the New Fourth Amendment.
(e) "Combined Group" shall mean, collectively, the Borrower, KOSI,
FOSI and their respective Subsidiaries, on a consolidated
basis.
(f) "Loan Parties": shall mean, individually and collectively,
Holding, the Borrower, Furmanite, each Subsidiary of
Furmanite, KOSI, each Subsidiary of KOSI, FOSI and each
Subsidiary of FOSI.
(3) The following defined terms in Annex I are amended as
follows:
(a) "Consolidated Group": to add the word "FOSI," after the word
"Furmanite" therein.
(b) "Significant Subsidiary": (x) to add the word "or FOSI" after
the word "KOSI" in the clause (b) thereof; and (y) to restate
the final sentence thereof in its entirety as follows:
Notwithstanding anything to the contrary contained in this
Agreement or any other Loan Document (including, without
limitation, the definition of "Insignificant Subsidiary" in
this Annex I) each of F-Australia and Norway Holdings shall be
a Significant Subsidiary for so long as it is a Subsidiary of
Borrower or Holding, except that no such company shall be a
Significant Subsidiary for purposes of Section 7.20 unless it
shall have executed and delivered a Guarantee Agreement,
Security Agreement, Pledge Agreement (or supplement or
amendment thereto) satisfactory to the Agent and such other
agreements and instruments as are required in accordance with
such Section.
(4) The defined terms "Borrower/Holding (Norway) Advance",
"Norway Holdings/Norway Opco Advance" and "Holding/FOSI (Norway)
Advance" are deleted from Annex I.
(5) Section 2.4A. Section 2.4A is amended by restating Section
2.4A(h) as follows:
"(h) The proceeds of the 1997 Term Loans will be used by the
Borrower to make the Borrower/Holding (Australia) Advance and
for general corporate purposes, and the proceeds of the
Borrower/Holding (Australia) Advance will be used by Holding
solely to consummate the Australian Transaction and to make
the Holding/FOSI (Australia) Advance."
(6) Section 2A.
(1) Section 2A of the Loan Agreement is amended by
restating Section 2A.1(f)(ii) as follows:
"(ii) Notwithstanding any provision of this Section
2A.1 to the contrary, the Borrower shall be permitted
to request (by way of an Issuance Request) that the
Issuer issue the Christiania L/C in the form of
Exhibit A to the New Fourth Amendment and, subject to
the terms and conditions of this Agreement
(including, without limitation, Section 6A and
Section 2A but excluding Section 2A.1(b)(iv)), on or
promptly after all conditions (other than the
issuance of such Letter of Credit) to the Furmanite
AS Closing Date shall have been satisfied (or
waived), provided that such date occurs on or prior
to December 31, 1997, the Issuer shall issue the
Christiania L/C, and such letter of credit shall
constitute a Letter of Credit for all purposes of
this Agreement; provided, however, that (i) all
reimbursements under Section 2A.4 for amounts
disbursed under the Christiania L/C shall be made in
Dollars, in the Dollar Equivalent of each
disbursement thereunder, (ii) unpaid Reimbursement
Obligations thereunder pursuant to the fourth
sentence of Section 2A.4 shall be converted into
Dollars, (iii) all Deemed Disbursements shall be
deemed to have been made in NOK and reimbursements in
respect thereof under Section 2A.6 shall be made in
NOK, and (iv) in the event that the Christiania L/C
is issued without Borrower having submitted any
Issuance Request therefor, Borrower shall nonetheless
be deemed to have submitted an Issuance Request for
the issuance thereof."
(2) Section 2A to the Loan Agreement is further amended
by inserting the following subsection as a new
subsection 2A.1(g):
"(g) Notwithstanding any other provision of this
Section 2A.1 to the contrary, (i) the BOS Australia
L/C may be issued in support of the obligations of
BOS Australia under the BOS Australia Loan Documents;
and (ii) the Christiania L/C may be issued in support
of the obligations of Norway Holdings under the
Christiania Loan Documents."
(3) Section 2A of the Loan Agreement further is amended
by inserting the number "(i)" after the words
"Notwithstanding the foregoing" in the final sentence
of Section 2A.3(a) thereof, and deleting the period
at the end of such sentence and inserting the
following at the end of such sentence:
"and (ii) the Letter of Credit fee with respect to
the Christiania L/C (other than the aforesaid $500
fee) may be paid by the Borrower quarterly in
advance, on the NFTAD and every three months
thereafter, and, if so paid, shall be based on the
Stated Amount of the Christiania L/C on the NFTAD and
on the quarterly date that such fee is required to be
paid."
(7) Section 7.11. Section 7.11 of the Loan Agreement is
amended by inserting the words "or FOSI" after the word "KSI" therein.
(8) Section 7.19. Section 7.19 is amended by
(a) replacing the Dollar amount "$500,000" in Subsection (a)
thereof with the Dollar amount "$1,000,000";
(b) replacing the Dollar amount "$100,000" in clause (b) thereof
with the Dollar amount "$500,000"; and
(c) adding a new subsection (c) thereto as follows:
"(c) Holding shall cause FOSI to pay dividends to
Holding, semiannually within 20 days after the end of each
fiscal half-year of FOSI, in an aggregate amount so that the
aggregate amount of cash and cash equivalents retained by FOSI
after payment of such dividend does not exceed $500,000;
provided, that nothing contained herein shall require FOSI to
pay dividends to Holding if and to the extent that FOSI is
prohibited by statute from doing so."
(9) Section 7.20. Section 7.20(b) is amended by deleting the
words "Borrower and of KOSI" each time they appear therein and
inserting, in each such place in lieu of such words, the words
"Borrower, of KOSI and of FOSI".
(10) Section 8.1. Section 8.1 is amended by adding a new
subsection (d) thereto as follows:
"(d) FOSI will not enter into any business or activity other
than its ownership of the capital stock of Foreign
Subsidiaries."
(11) Section 8.3. Section 8.3 is amended by restating new
clauses (xxi) and (xxii) as follows therewith:
"(xxi) provided that the Furmanite AS Closing Date occurs on
or prior to December 31, 1997, unsecured indebtedness of
Norway Holdings to Christiania consisting of the Christiania
Advance;" and
"(xxii) the following intercompany indebtedness: (i) the
Holding/FOSI (Australia) Advance, and (ii) the
Borrower/Holding (Australia) Advance; provided, that each such
Advance is evidenced by a subordinated intercompany note in
form and substance satisfactory to the Agent (such notes,
collectively, the "1997 Intercompany Notes") each of which is
pledged to the Agent pursuant to the Security Documents; and
provided further that if the Furmanite AS Closing Date does
not occur on or prior to December 31, 1997, FOSI shall
promptly repay to Holding the portion of the Holding/FOSI
(Australia) Advance (equal to NOK 4,000,000) intended to be
used by FOSI in connection with the Furmanite AS Transaction;
(12) Section 8.5. Section 8.5 of the Loan Agreement is amended
by:
(a) restating the proviso (which was added to Section 8.5 by the
New Third Amendment) at the end of the first proviso to such
Section as follows:
"and, provided further, that the Borrower and Holding shall be
permitted to make the applicable advances referred to in
clause (xxii) of Section 8.3;" and
"inserting the words "FOSI, Subsidiaries of FOSI," after the
words "thereunder to" in clause (d) of the fourth proviso to
Section 8.5 (relating to the CMA Account);
(13) Section 8.10. Section 8.10 of the Loan Agreement is
amended by deleting all of clause (ii) to the proviso at the end
thereof and deleting the word "and" appearing immediately prior to said
clause (ii).
(14) Section 8.12. Section 8.12(a) of the Loan Agreement is
amended by deleting the existing clause (v) thereto and replacing said
clause with the following clause:
"or (v) provided that the Furmanite AS Closing Date occurs on
or prior to December 31, 1997, the sale by KOSI, or if after
the KOSI/FOSI Merger, FOSI, to Norway Holdings of 100% of the
capital stock of Furmanite AS in connection with the
consummation of the Furmanite AS Transaction on the terms
provided in the definition thereof;"
(15) Section 10.1. Section 10.1(a) is amended by adding the
word AFOSI," after the word "KOSI" in the second sentence thereof.
(16) Section 10.5. Section 10.5(h) of the Loan Agreement is
hereby restated as follows:
"(h) On and after the NTA, Holding will own 100% of the issued
and outstanding shares of capital stock of FOSI and FOSI will
own 100% of the issued and outstanding shares of capital stock
of F-Australia and F-New Zealand. On and after the Furmanite
AS Closing Date, FOSI will own 100% of the issued and
outstanding shares of capital stock of Norway Holdings, and
Norway Holdings will own 100% of the issued and outstanding
shares of capital stock of Furmanite AS."
(17) Section 10.11. Section 10.11 is amended by adding the
words "and (vi) FOSI" after the words "(v) KOSI" in subsection (d)
thereof.
(18) Section 10.20. Section 10.20 of the Loan Agreement is
amended by (i) inserting in the first sentence thereof after the words
"all Subsidiaries of KOSI that are not Significant Subsidiaries," the
words "and all Subsidiaries of FOSI that are not Significant
Subsidiaries"; and (ii) inserting in the second sentence thereof, after
the words "all Subsidiaries of KOSI that are not Significant
Subsidiaries", the words "and for all Subsidiaries of FOSI that are not
Significant Subsidiaries".
(19) Consents.
(1) In reliance on the agreements and the accuracy of the
representations and warranties of Borrower and Holding
contained elsewhere in this Amendment, and provided that the
Furmanite AS Closing Date occurs on or prior to December 31,
1997, (x) the Agent and the Banks hereby consent (i) for
purposes of Section 8.12(b) and Section 8.14 of the Loan
Agreement to the organization by FOSI of Norway Holdings and
to the contribution by FOSI of NOK 4.0 million to the capital
of Norway Holdings and (ii) for purposes of any provisions of
the Security Documents executed by KOSI (and if such sale
occurs after the KOSI/FOSI Merger, by FOSI) which are
analogous to Section 8.12(a) of the Loan Agreement, to the
sale by KOSI or, if after the KOSI/FOSI merger, by FOSI, of
the stock of Furmanite AS pursuant to the Furmanite AS
Transaction; and (y) the Agent and the Banks hereby release
from the lien of the U.S. Pledge Agreement the shares of stock
of Furmanite AS pledged thereunder, such release being made
without representation or warranty by, or recourse to, the
Agent or any Bank.
(2) (i) In reliance on the agreements and the accuracy of the
representations and warranties contained in clause (ii) below
and elsewhere in this Amendment, and provided that (x) the
merger of KOSI into FOSI (the "KOSI/FOSI Merger") pursuant to
the Merger Agreement (as defined below) becomes effective on
or prior to December 31, 1997 and (y) on or prior to the
effectiveness of the KOSI/FOSI Merger the conditions to this
consent set forth in clause (iii) below are satisfied, the
Agent and the Banks hereby consent, for purposes of Sections
7.6, 7.13, 8.8, 8.9(a), 8.10., 8.11(a) and 8.12(a) of the Loan
Agreement, and those provisions of the Security Documents
executed by Holding, KOSI or FOSI analogous to those Sections
of the Loan Agreement specified above, to the KOSI/FOSI
Merger.
(ii) In addition to the other agreements, representations and
warranties of Borrower and Holding contained elsewhere in this
Amendment, to induce the Agent and the Banks to enter into
this Amendment and grant the consents contained herein, the
Borrower and Holding hereby jointly and severally represent
and warrant to, and agree for the benefit of, the Agent and
the Banks that (x) upon the effectiveness of the KOSI/FOSI
Merger, (A) FOSI will possess all of the properties, rights,
powers and privileges of KOSI; (B) FOSI will be subject to all
of the debts, obligations and liabilities of KOSI and will
have acquired all of KOSI's properties subject to all Liens
thereon created by KOSI in favor of the Agent and the Banks,
which Liens shall be first priority perfected Liens which
secure the Obligations as fully as they had immediately prior
to the effectiveness of the KOSI/FOSI Merger; (C) all
representations and warranties set forth in this Amendment,
the Agreement and the other Loan Documents will be true and
correct as if made on such date of effectiveness (with all
references in the representations and warranties contained in
this Agreement to the NFTAD being deemed, for these purposes,
to include a reference to such merger effectiveness date); (y)
on or prior to the effectiveness of the KOSI/FOSI Merger, each
of the Borrower, Holding, KOSI, FOSI, each Subsidiary of KOSI
immediately prior to the KOSI/FOSI Merger and each other
Credit Party shall have taken such action as is necessary to
ensure that FOSI is possessed of all of the properties,
rights, powers and privileges of KOSI, and bound by all of the
debts, obligations and liabilities of KOSI, and that all
property that had been property of KOSI remains subject to
existing Liens in favor of the Agent and the Banks, and (z)
the Borrower, Holding, KOSI, FOSI, each Subsidiary of KOSI
(immediately prior to the merger) and each other Credit Party
shall take all other action, and execute and/or deliver all
agreements, instruments and other documents, necessary or
reasonably requested by the Agent to give effect to the
foregoing;
(iii) It shall be a condition precedent to the effectiveness
of the consent set forth in subsection 18(b)(i) above that on
or prior to the effectiveness of the KOSI/FOSI Merger there
shall have been delivered to the Agent each of the following:
(1) a copy of the merger agreement between KOSI and FOSI
(the "Merger Agreement"), certified by senior
officers of each of KOSI and FOSI as being a complete
and true copy, which merger agreement shall be
satisfactory in all respects to the Agent and the
Banks;
(2) an acknowledgment by FOSI, satisfactory to the Agent,
that upon effectiveness of the KOSI/FOSI Merger, all
property which had been owned by KOSI immediately
prior to the merger will be owned by FOSI subject to
existing Liens in favor of the Agent and the Banks;
(3) a legal opinion from Farara, George-Creque & Kerins,
British Virgin Islands ("BVI") counsel to the
Borrower and Holding, satisfactory to the Agent, to
the effect set forth on Exhibit D hereto and covering
such other matters as the Agent shall reasonably
request;
(4) a legal opinion from Michael Glazer, Esq., counsel to
the Credit Parties, with respect to the KOSI/FOSI
Merger, in form and substance satisfactory to the
Agent;
(5) Undated stock powers, satisfactory to the Agent, duly
executed in blank by FOSI with respect to the shares
of stock and other equity interests of each company
that immediately prior to the merger was a Subsidiary
of KOSI;
(6) A certificate from a senior officer of Borrower,
dated the merger effective date, that all
representations and warranties set forth in Section
18(b)(ii) and Section 19 of this Agreement are true
and correct as of such date as though such
representations and warranties had been made at and
as of such time; and
(7) Such other agreements, instruments and documents as
the Agent may reasonably request in connection with
the merger.
(20) Representations. To induce the Agent and the Banks to enter into this
Amendment and to grant the consents contained herein, Holding and the Borrower
hereby jointly and severally represent and warrant to the Banks and the Agent as
follows (which representations and warranties are made as of the date hereof, as
of the date the Merger Agreement is executed, as of the date of effectiveness of
the KOSI/FOSI Merger and as of the Amendment Final Closing Date, and shall
survive the execution, delivery and effectiveness of this Amendment):
(A) The execution and delivery by each Credit Party (to the
extent it is party thereto) of this Amendment, and all other amendments
and agreements being delivered on the NFTAD or pursuant thereto and
such Person's performance of such Loan Documents and the Agreement as
amended by this Amendment and the consummation of the transactions
contemplated under this Amendment and such other Loan Documents have
been duly authorized by all necessary corporate and stockholder action.
(B) This Amendment, the Agreement as amended by this
Amendment, the U.S. Pledge Agreement as amended by Amendment No. 4
thereof, and all other amendments and agreements delivered on the NFTAD
or pursuant thereto are the legal, valid and binding obligations of the
Credit Parties party thereto, enforceable in accordance with their
respective terms subject, as to enforceability, to applicable
bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and to general principles of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(C) The Security Documents secure or guarantee, as the case
may be, all Loans and Letters of Credit whether made or issued before,
on or after the NFTAD. No amendments need to be made in any of the
Security Documents, nor does any action need to be taken, to effectuate
the provisions of the preceding sentence.
(D) The priority of all Liens in favor of the Agent and the
Banks under the Security Documents (whether in respect of Loans or
Letters of Credit made or issued before, on or after the NFTAD) shall
be the same as the priority of all Liens immediately prior to the NFTAD
with respect to Loans and Letters of Credit outstanding immediately
prior to the NFTAD.
(E) No Default or Event of Default exists.
(F) All representations and warranties contained in the
Agreement and in the other Loan Documents or otherwise made by the
Borrower or any other Credit Party in connection with any of the
foregoing are true and correct in all material respects with the same
effect as though such representations and warranties were now being
made.
(G) The Borrower confirms that it requested the issuance of
the BOS (Australia) L/C in the form attached as Exhibit B hereto and
reaffirms all of its obligations to reimburse the Issuer for all
drawings thereunder and all of its other obligations under Section 2.4A
of the Loan Agreement with respect thereto.
(H) The chief executive office of Holding is located at 2435
North Central Expressway, Richardson, Texas 75080. The major executive
office of the Borrower in the United States is located at 2435 North
Central Expressway, Richardson, Texas, 75080.
(21) Effectiveness of Section 18(b) and Related Sections. Sections 1, 2, 3(a),
3(b)(i), 3(b)(v), 3(b)(vi), 4, 6-9, 12-14, 16,17, 18(b), 19, 22(b), 22(c), and
24-28 of this Amendment shall become effective on and as of the date that the
Borrower, Holding and the Banks shall have executed a copy of this Amendment and
delivered the same to the Agent at 565 Fifth Avenue, New York, New York 10017
(Attention: John Kelly) or, in the case of the Banks, shall have given to the
Agent written notice (actually received) that the same has been signed and is
being sent to the Agent.
(22) Effectiveness of Other Sections of this Agreement. The Sections of this
Amendment which have not become effective pursuant to Section 20 hereof shall
become effective when and as of the date that each of the following conditions
have been fulfilled to the satisfaction of the Agent (or waived by the Agent).
The first date on which all of the following conditions have been so satisfied
(or so waived) is herein referred to as the "Amendment Final Closing Date". If
the Amendment Final Closing Date shall not have occurred by the close of
business (New York time) on December 31, 1997 (or such later date as may be
specified to by the Agent in writing), the Sections of this Amendment which
shall not have become effective pursuant to Section 20 hereof shall be deemed
rescinded, null and void.
(A) [Intentionally omitted]
(B) There shall have been delivered to the Agent a certificate
of an authorized officer and of the secretary of each of the Borrower,
Holding, KOSI, FOSI and Norway Holdings, with respect to the various
transactions referred to herein, along with resolutions authorizing the
same, specimen signatures and incumbency certificates, in form and
substance satisfactory to the Agent, and certified copies of the
Charter Documents of Norway Holdings, which in each case shall be
satisfactory to the Agent in all respects.
(C) The Borrower shall have delivered to the Agent Amendment
No. 4 to Pledge Agreement (referring, inter alia to the pledge of stock
of Norway Holdings) in the form of Exhibit E hereto executed by all
Loan Parties party thereto.
(E) The Borrower shall have delivered to the Agent (i) copies
of (A) the agreement between KOSI or FOSI and Norway Holdings regarding
the transfer of the Furmanite AS shares to Norway Holdings in the form
of Exhibit C hereto (the "Furmanite AS Share Sale Agreement"), and (B)
the Christiana Loan Documents in the form of Exhibit F hereto, in each
case, certified as true and complete by an authorized officer of the
Borrower, (ii) evidence satisfactory to the Agent (including a
certificate of a senior officer of Borrower to such effect) that the
Furmanite AS Transaction shall have been consummated substantially in
accordance with the definition thereof and the Furmanite AS Share Sale
Agreement and (iii) a certificate of a senior officer of Borrower that
the representations and warranties set forth in Section 19 hereof are
true and correct as of the Amendment Final Closing Date, as though such
representations and warranties had been made at and as of such time.
(F) Holding and the Borrower shall have delivered to the
Agent:
(1) a legal opinion (the "Norway Opinion") from Advokat
Thomas Smedsvig, Norwegian counsel for the Credit
Parties (or other counsel satisfactory to the Agent),
covering the matters previously agreed to by the
Agent and the Borrower; and
(2) a legal opinion from Michael Glazer, Esq., counsel to
the Credit Parties, covering the matters previously
agreed to by the Agent and the Borrower;
(G) [Intentionally deleted]
(H) Norway Holdings shall have executed and delivered to the
Agent a Security Agreement, Guarantee and amendment to the U.S. Pledge
Agreement (with respect to the shares of Furmanite AS)(in each case, in
form and substance satisfactory to the Agent) unless, in any such case,
the Norway Opinion advises that the execution of such agreement would
be unlawful under the laws of Norway;
(I) Holding shall have delivered to Agent stock powers duly
executed in blank by Holding (under its current name (Furmanite
Worldwide, Inc.)) with respect to the shares of stock of the Borrower,
FAI, KOSI (unless the KOSI/FOSI Merger shall have occurred) and FOSI;
and endorsements duly executed in blank by Holding (under its current
name (Furmanite Worldwide, Inc.)) with respect to all notes pledged by
Holding to the Agent;
(J) Norway Holdings shall have appointed CT Corporation
Systems, 1633 Broadway, as its agent for service of process and shall
have delivered to the Agent CT Corporation Systems' acceptance of such
appointment; and
(K) Holding and the Borrower shall have delivered or caused
to be delivered such other agreements, instruments and documents as are
reasonably requested by the Agent.
All agreements, documents, and other instruments required to
be delivered to the Agent pursuant to this Section 21 shall be in form
and substance satisfactory to the Agent.
(23) Post-Closing Obligations. Holding and the Borrower hereby jointly and
severally agree to deliver (or cause to be delivered):
(A) to the Agent (unless the Agent shall have agreed otherwise
in writing) on or before the day which is 30 days after the
consummation of the Furmanite AS Transaction, all stock certificates
issued by Norway Holding to FOSI, accompanied by stock powers, duly
executed in blank;
(B) to the Agent (unless the Agent shall have agreed otherwise
in writing), on or before January 31, 1998, the following in form and
substance satisfactory to the Agent:
(1) amendments (and filings and recordations applicable
thereto) required by the Agent of such Pledge
Agreements, Security Agreements, Security Documents
and Foreign Guarantees as are specified by the Agent;
and
(2) certified copies of resolutions adopted by each
Credit Party with respect to such Credit Party's
execution and delivery of the Confirming Consent
delivered in connection with the New Third Amendment;
and
(3) to the Agent (unless the Agent shall have agreed
otherwise in writing) within 30 days following the
effectiveness of the KOSI/FOSI Merger, certificates,
satisfactory to the Agent, (i) from a senior officer
of each company that immediately prior to the merger
was a Subsidiary of KOSI, to the effect that such
Subsidiary has noted on its books and records,
including, without limitation, its stock register,
(A) the KOSI/FOSI Merger and the change in ownership
of its stock and other equity interests resulting
therefrom and (B) the pledge by FOSI, as surviving
corporation of the merger, to the Agent and the Banks
of all stock and other equity interests in such
Subsidiary and (ii) from a senior officer of each
company the pledge of the stock of which by KOSI to
the Agent is noted in any public register, a
certificate that such public register reflects the
pledge of such stock by FOSI as successor to KOSI to
the Agent;
(4) to the Agent on or before the day which is 30 days
after the consumation of the Furmanite AS
Transaction, evidence satisfactory to the Agent, of
all recordation and other actions (including, without
limitation, any notations on the books and records of
any Credit Party or other Persons or any public
register and whether in respect of Loans or other
extensions of credit made before, on or after the
NFTAD) necessary or requested by Agent to perfect
security interest granted by FOSI and KOSI and the
security interest (if any) granted by Norway
Holdings, to the Agent and the Banks, or to maintain
the perfection or priority thereof;
The failure by the Borrower or Holding to comply with the
provisions of this Section on or before such applicable date (or such
later date as the Agent shall have consented to in writing) shall be an
Event of Default (without any "grace period") as fully as if same were
set forth in full in Section 9 of the Loan Agreement.
(24) Waiver. The Agent hereby waives (i) the requirement set forth in Section
22(ii)(c) of the New Third Amendment that the solvency certificate referred to
therein be delivered to the Agent, and (ii) the requirement set forth in Section
22(iii) of the New Third Amendment that an amended and restated Loan Agreement
be delivered to the Agent.
(25) Limited Nature of Amendments. The amendments, waivers (if any) and consents
(if any) set forth herein are limited precisely as written and shall not be
deemed to (a) be a consent to any waiver of, or modification of, any other term
or condition of the Loan Agreement or any of the documents referred to therein
or (b) prejudice any right or rights which the Banks or the Agent may now have
or may have in the future under or in connection with the Loan Agreement or any
of the documents referred to therein. Except as expressly amended hereby, the
terms and provisions of the Loan Agreement shall remain in full force and
effect.
(26) Integration.
(A) THIS AMENDMENT, THE LOAN AGREEMENT (AS AMENDED BY THIS
AMENDMENT) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED HEREBY AND
THEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
(27) Governing Law. THIS AMENDMENT, INCLUDING THE VALIDITY THEREOF AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(28) Counterparts. This Amendment may be executed in any number of counterparts
by the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. Telecopied signatures hereto
shall be of the same force and effect as an original of a manually signed copy.
(29) Headings. The descriptive headings of the various provisions of this
Amendment are inserted for convenience of reference only and shall not be deemed
to affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
BANK OF SCOTLAND,
individually and as Agent
By: //s//
FURMANITE PLC
(formerly KANEB UK plc)
By: //s//
FURMANITE WORLDWIDE INC., (formerly KANEB INTERNATIONAL INC.)
By: //s//
KANEB SERVICES, INC.
CORPORATE INSURERS LTD
KANEB INVESTMENT MANAGEMENT, INC.
Kaneb Investment, L.L.C.
KANEB (BVI) CORP.
FURMANITE GERMANY, INC.
Management Services Furmanite Holding GmbH
Furmanite Technische Dienstleisfungen GmbH (formerly
Zweipack GmbH)
Furmanite Pipeline Ingenieur - Team GmbH
Furmanite Industrie Service GmbH
KANEB EQUIPMENT LEASING COMPANY, INC.
Furmanite Equipment Leasing Company, Inc.
KANEB INFORMATION SERVICES, INC.
InformaTech, Inc.
National Asset Acceptance, Inc.
National Asset Information Services, Inc.
Fields Financial Services, Inc. (formerly Kaneb Metering Corp.)
Fields Data Management
Viata Corporation
Greentree Software and Services, Inc.
FURMANITE WORLDWIDE, INC. (formerly Kaneb International, Inc.)
Furmanite America Inc.
Kaneb Energy Canada, Ltd.
Furmanite Canada Ltd
Furmanite Offshore Services, Inc.
Furmseal (pty) Limited
Furmanite Australia Pty Ltd (formerly Denon Pty Ltd)
Furmanite V & P Engineering Ltd (formerly V & P Engineering Ltd)
Furmanite Holding AS
Furmanite AS (Norway)
CMS: Corrision Monitoring Services AS
Furmanite SA
Furmanite NV
Metalock NV (Belgium)
Furmeta Holding BV
Metaholding BV
Furmanite BV
Metalock BV
Furmanite East Asia Ltd (Hong Kong)
Furmanite Singapore PTE Ltd.
Furmanite plc (formerly Kaneb UK plc)
Furmanite 1986 LTD
Furmanite International LTD
KANEB PIPE LINE COMPANY
Kaneb Pipe Line Partners, L.P.
Kaneb Pipe Line Operating Partnership, L.P.
Support Terminal Operating Partnership, L.P.
Support Terminal Services, Inc.
StanTrans, Inc.
StanTrans Holding, Inc.
StanTrans Partners, L.P.
Kaneb Management Company, Inc.
Diamond K Limited
Kaneb Management, L.L.C.
Martin Oil Corporation
SUSSEX INTERNATIONAL LIMITED
TEXAS ENERGY SERVICES, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-90929), (No. 33-41295), (No. 33-54027), (No.
333-14067), (No. 333-08725), (No. 333-08727), (No. 33-58981), (No. 333-14069),
(No. 333-14071), (No. 333-22109) and (No. 333-08723) of Kaneb Services, Inc. of
our report dated February 19, 1998 appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
March 23, 1998
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