<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION NO. 333-60759
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AQUA-CHEM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3443 39-1900496
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Number)
Code Number)
</TABLE>
7800 NORTH 113TH STREET
P.O. BOX 421
MILWAUKEE, WISCONSIN, 53201
(414) 359-0600
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
JEFFREY A. MILLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AQUA-CHEM, INC.
7800 NORTH 113TH STREET
P.O. BOX 421
MILWAUKEE, WISCONSIN, 53201
(414) 359-0600
(Address, including zip code, and telephone number, including area code, of
agent for service of process)
Please address a copy of all communications to:
ANDREW J. GUZIKOWSKI, ESQ.
WHYTE HIRSCHBOECK DUDEK S.C.
111 EAST WISCONSIN AVENUE
SUITE 2100
MILWAUKEE, WISCONSIN 53202
(414) 273-2100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
[AQUA-CHEM LOGO]
AQUA-CHEM, INC.
OFFER TO EXCHANGE 11 1/4% SENIOR NOTES DUE 2008 FOR ANY AND ALL EXISTING NOTES
(AS DEFINED) AS DESCRIBED HEREIN. WITHDRAWAL RIGHTS WITH RESPECT TO THE EXCHANGE
OFFER (AS DEFINED) ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE EXCHANGE
OFFER.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Aqua-Chem, Inc., a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this prospectus (the "Prospectus") and the accompanying letter of transmittal
(the "Letter of Transmittal"), to exchange up to $125,000,000 aggregate
principal amount of its 11 1/4% Senior Subordinated Notes Due 2008 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined) of which this Prospectus is a part, for a like principal amount of its
outstanding 11 1/4% Senior Subordinated Notes Due 2008 (the "Existing Notes"
and, together with the Exchange Notes, the "Notes"). The Existing Notes were
originally issued in a transaction that was exempt from registration under the
Securities Act (the "Private Offering") and since such issuance have been resold
to (i) qualified institutional buyers ("QIBs") in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A") and (ii) non-U.S. persons outside the United States of America in
accordance with Regulation S under the Securities Act ("Regulation S"). The
terms of the Exchange Notes are identical in all material respects to the terms
of the Existing Notes that are to be exchanged therefor, except that the
Exchange Notes have been registered under the Securities Act and will not bear
legends restricting the transferability thereof, certain registration rights
relating to the Existing Notes will terminate upon completion of the Exchange
Offer, and, if the Exchange Offer is not consummated by December 21, 1998,
additional interest will accrue at the rate of 0.50% per annum until but not
including the date the Exchange Offer is consummated. See "Description of the
Notes" and "The Exchange Offer." For federal income tax purposes, an exchange
made pursuant to the Exchange Offer should not constitute a taxable exchange.
See "The Exchange Offer -- Certain Effects of the Exchange Offer."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission" or "SEC"), as set forth in no-action letters issued
to third parties, the Company believes the Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders are not engaged in and do not
intend to engage in, a distribution of such Exchange Notes and such holders have
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action letter and therefore there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
SEE "RISK FACTORS" ON PAGE 15 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE EXCHANGE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 3
Each holder of Existing Notes that desires to participate in the Exchange
Offer, other than a broker-dealer, must acknowledge that it is not engaged in,
and does not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Existing Notes where such Existing Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
EXCEPT AS DESCRIBED IN THE PRECEDING PARAGRAPH, THIS PROSPECTUS MAY NOT BE
USED FOR AN OFFER TO RESELL, A RESALE OR ANY OTHER RETRANSFER OF EXCHANGE NOTES.
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes being tendered. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, unless extended (the "Expiration Date"). Subject to
the terms and conditions of the Exchange Offer, including the reservation of
certain rights by the Company and the right of holders of Existing Notes to
withdraw tenders prior to the acceptance thereof, Existing Notes validly
tendered prior to the Expiration Date will be accepted on or promptly after the
Expiration Date. Exchange Notes to be issued in exchange for properly tendered
Existing Notes will be mailed by the Exchange Agent (as defined) promptly after
the acceptance thereof. In the event the Company terminates the Exchange Offer
and does not accept for exchange any Existing Notes, the Company will promptly
return the Existing Notes to the holders thereof. See "The Exchange Offer."
The Notes will mature on July 1, 2008. Interest on the Notes will be
payable semiannually on January 1 and July 1 of each year, commencing January 1,
1999. The Existing Notes are not, and the Exchange Notes will not be, redeemable
at the option of the Company, prior to July 1, 2003, except that, until July 1,
2001, the Company may redeem, at its option, up to an aggregate of 20% of the
original principal amount of the Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined) at a redemption price equal to 111.25% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption; provided, however, that at least $100.0 million principal
amount of the Notes originally issued remains outstanding immediately after any
such redemption. On or after July 1, 2003, the Notes may be redeemed at the
option of the Company, in whole or in part, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption.
Upon a Change of Control (as defined), each holder of Notes will have the right
to require the Company to purchase all or a portion of such holder's Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. See "Description of the
Notes -- Optional Redemption" and "-- Change of Control."
The Existing Notes are, and the Exchange Notes will be, general unsecured
senior subordinated obligations of the Company and subordinate in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. The Existing Notes rank, and the Exchange Notes will rank, pari passu
in right of payment to all existing and future Senior Subordinated Indebtedness
(as defined) of the Company and senior to any future subordinated indebtedness
of the Company.
As of June 30, 1998, the Company had no outstanding Senior Indebtedness,
and $45.0 million of borrowing availability under the Company's credit facility
entered into with Comerica Bank as of June 23, 1998 (the "New Credit Facility"),
which, when borrowed, will be Senior Indebtedness, and will be secured by
substantially all of the assets of the Company.
There has not previously been any public market for the Existing Notes or
the Exchange Notes. The Company does not intend to list the Exchange Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market for
the Notes; Volatility; Restrictions on Resale." Moreover, to the extent that
Existing Notes are tendered and accepted in the
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<PAGE> 4
Exchange Offer, the trading market, if any, for untendered and tendered but
unaccepted Existing Notes could be adversely affected.
The Company will not receive any proceeds from the Exchange Offer, but will
bear certain offering expenses pursuant to the Registration Rights Agreement,
dated June 18, 1998 (the "Registration Agreement"), among the Company and the
Initial Purchasers (as defined) of the Existing Notes. The Exchange Offer is
intended to satisfy certain of the Company' obligations under the Registration
Agreement, including the obligation to register the Existing Notes under the
Securities Act. See "The Exchange Offer -- Registration Agreement." Upon the
completion of the Exchange Offer, certain special rights under the Registration
Agreement will terminate with respect to Existing Notes, and holders of Exchange
Notes will not be entitled to such rights. See "The Exchange
Offer -- Termination of Certain Rights." No dealer manager is being utilized in
connection with the Exchange Offer.
------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including, without limitation,
such statements under "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Aqua-Chem," "Business of the
Company," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of NDC," and located elsewhere herein, regarding the
financial position and capital expenditures of the Company are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations ("Cautionary
Statements") are disclosed in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements included in this Prospectus
and/or under "Risk Factors." All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on behalf of the
Company are expressly qualified in their entirety by the Cautionary Statements.
------------------------
The industry size and growth, market share and competitive position data
contained in this Prospectus are based on internal, industry and other sources
that are believed to be reliable. Such data are inherently imprecise, but the
Company believes that such data are generally indicative of industry size and
growth and the Company's relative market share and competitive position.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements contained elsewhere in this Prospectus. Unless the
context requires otherwise, as used in this Prospectus: (i) "Aqua-Chem" refers
to Aqua-Chem, Inc., a Delaware corporation, and its predecessors and
subsidiaries on a historical basis prior to the Acquisition; (ii) "NDC" refers
to National Dynamics Corporation, a Nebraska corporation, and its predecessors
on a historical basis prior to the Acquisition; (iii) "Acquisition" refers to
the acquisition of substantially all of the assets of NDC by Aqua-Chem which was
consummated on June 23, 1998; (iv) "Company" refers to the combined businesses
of Aqua-Chem and NDC following the Acquisition; (v) "Management Buy-Out" refers
to the July 31, 1997 acquisition of Aqua-Chem by certain members of its
management and Whitney Equity Partners, L.P.; and (vi) "twelve months ended
December 31, 1997" refers to Aqua-Chem's seven-month period ended July 31, 1997
and its five-month period ended December 31, 1997 on a combined basis (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aqua-Chem").
THE COMPANY
The Company is the world's leading manufacturer of commercial and
industrial boilers, burners, related equipment and aftermarket parts. The
Company believes that in the U.S. market for each of its three principal boiler
product lines it enjoys the #1 or #2 market position. In addition, management
believes that the Company has the largest installed base of boilers in the world
(estimated at over 80,000 boilers), which facilitates the Company's sale of
higher margin aftermarket parts. Management attributes the Company's leading
market positions to its extensive global distribution network, well-recognized
Cleaver-Brooks and Nebraska Boiler brand names, and its reputation for providing
high-quality, energy-efficient, low-emission boilers with a demonstrated record
of safety and durability.
The Company is also a world leader in the design and production of water
purification and treatment products and systems sold under the Aqua-Chem brand
name for selected commercial, government, military, and industrial applications.
On a pro forma basis for the twelve months ended December 31, 1997, the Company
generated net sales and Adjusted EBITDA (as defined) of $250.5 million and $26.8
million, respectively, of which approximately 82% and 90%, respectively, were
attributable to the Company's boiler business and related product lines.
COMPETITIVE STRENGTHS
The Company believes it has a strong competitive position attributable to a
number of factors, including the following:
Leading Market Positions and Recognized Brands. The Company believes it has
the #1 or #2 market position in North America in each of its three principal
boiler product lines and the largest installed base of commercial and industrial
boilers in the industry. The Company believes that its Cleaver-Brooks and
Nebraska Boiler products (manufactured by the Company's Cleaver-Brooks Division
("Cleaver-Brooks") and National Dynamics Division ("National Dynamics"),
respectively) enjoy industry-leading brand recognition, as well as estimated
combined market shares of approximately 25% to 85%.
Extensive Global Boiler Distribution Network. Management believes that the
Company has the most extensive global distribution network for commercial and
industrial boilers, with 50 sales representatives in North America and 43
independent international sales representatives representing Cleaver-Brooks
product lines, and an additional 46 independent sales representatives in North
America who represent Nebraska Boiler product lines. The Company enjoys
longstanding relationships with its sales representatives, many of whom have
sold the Company's products for more than 25 years, and the majority of whom do
not sell competing products.
Large Installed Product Base. The Company has an installed base estimated
at over 80,000 boilers. The Company believes that this large installed product
base provides a significant competitive advantage in obtaining orders to
refurbish, repair or replace boilers, principally because customers tend to
purchase equipment and parts from the original supplier. The installed product
base also provides the Company with a
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recurring source of demand for aftermarket boiler parts, which generally carry
higher margins than new boilers. Aftermarket parts accounted for approximately
20% of Cleaver-Brooks' net sales for the twelve months ended December 31, 1997,
as compared with approximately 3% of NDC's net sales for fiscal 1997. Management
intends to implement initiatives to increase the sale of aftermarket parts to
existing Nebraska Boiler customers.
Diverse Customer Base. The Company sells its products to over 2,000
customers annually in a wide variety of industries with no significant customer
concentration. The Company believes that its broad, diverse customer base
mitigates its exposure to economic dislocations in any particular industry or
geographic region.
Commitment to Quality and Service. The Company believes that its strong
customer relationships result from its demonstrated commitment to provide
high-quality, energy-efficient, low-emission products with a demonstrated record
of safety and durability. The Company employs a staff of highly-trained
engineers and constantly strives to improve product quality. Although its
customers vary from year to year, the Company believes that a substantial
portion of annual net sales are generally to repeat customers, such as Ford,
Cargill, Coca-Cola, Weyerhaeuser, Anheuser-Busch, Baxter Healthcare,
Ralston-Purina, Hewlett-Packard, Georgia Pacific, Chrysler-Jeep, Wrigley,
Sheraton, IBM, and NASA.
Experienced Management Team with Significant Equity Ownership. Led by
Chairman and CEO Jeffrey A. Miller, the Company has an experienced senior
management team with strong manufacturing, marketing, and general management
skills and significant equity ownership. A group consisting primarily of senior
management collectively owns 49% of the common equity of the Company, including
34% owned by Mr. Miller.
BUSINESS STRATEGY
The Company intends to enhance its leading market positions and to increase
net sales and profitability by pursuing the following business strategies:
Achieve Integration of NDC. Management is focused on achieving the
successful integration of NDC and believes that there are numerous opportunities
to achieve annual cost savings and synergies totaling over $3.1 million as a
result of the combination of Aqua-Chem and NDC. See "-- Acquisition Rationale"
and "Unaudited Pro Forma Financial Data."
Leverage Leading Market Positions. Management believes it can grow its core
boiler business by capitalizing on the Company's leading market positions to
increase net sales and profitability by, among other things: (i) leveraging its
extensive global distribution network, brand recognition, and longstanding
customer relationships to sell new and enhanced products through established
channels; and (ii) taking increased advantage of its large installed base of
equipment to generate incremental sales of replacement products and higher
margin aftermarket parts.
Continue to Improve Manufacturing Efficiency. Senior management is
instilling a culture of continuous improvement intended to make the Company a
world-class manufacturer. Due in part to the implementation of a variety of
modern manufacturing practices, Aqua-Chem improved its gross profit margin from
approximately 19% for fiscal 1995 to approximately 27% for the twelve months
ended December 31, 1997. These new manufacturing practices, which have been
implemented at certain of the Company's manufacturing facilities, have improved
throughput, reduced production cycle times and inventory levels, and improved
the Company's ability to respond to customer needs. Management believes that it
can further improve manufacturing efficiency and reduce production costs by
continuing to implement these processes on a Company-wide basis.
Enhance and Extend Product Lines. Historically, Aqua-Chem has established
its leading market positions by enhancing its principal products and by
designing and developing new and complementary products. Management believes
that pursuing this strategy will generate continued growth within its core
product lines. The Acquisition also expands Aqua-Chem's product offerings and
improves its overall market position. The Company will continue to evaluate
opportunities to expand product lines, increase market shares, and develop
complementary products internally and through selective strategic acquisitions.
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Increase International Penetration. Overseas markets are generally expected
to experience greater long-term growth than the U.S. market, and the Company
intends to leverage its strong global distribution network and focus on further
penetrating international markets, including Central and South America, Europe,
the Middle East, Russia, China and other Asian markets. In addition to directly
marketing its products to international customers, the Company will market its
products to domestic customers that are developing foreign production
facilities.
THE ACQUISITION
On June 23, 1998, Aqua-Chem completed the acquisition of substantially all
of the assets of National Dynamics Corporation ("NDC") for a purchase price of
$47.0 million plus the assumption of certain liabilities and subject to certain
post-closing adjustments. The Company used a portion of the proceeds of the
Private Offering to finance the Acquisition. See "The Exchange Offer -- Use of
Proceeds" and "The Acquisition." Since the consummation of the Acquisition, the
former business of NDC has been operated as the Company's National Dynamics
Division. There can be no assurance that the expected benefits of the
Acquisition will be realized. See "Risk Factors -- Realization of the Benefits
of the Acquisition."
ACQUISITION RATIONALE
Cleaver-Brooks sells firetube boilers, commercial and industrial watertube
boilers, and related boiler room accessories and aftermarket parts. National
Dynamics' principal product line is industrial watertube boilers with larger
capacities than those manufactured by Cleaver-Brooks. The Acquisition creates
the largest global manufacturer of industrial watertube boilers and will provide
the Company with (i) a broader, more diverse product portfolio and an enhanced
market position; (ii) significant cost savings and operating efficiencies; (iii)
increased aftermarket parts sales opportunities; and (iv) the ability to
leverage its extensive sales and distribution channels.
Enhanced Product Portfolio and Market Position. With the Acquisition, the
Company has become the #1 global producer of industrial watertube boilers, with
the broadest product line available in the market. In addition to producing
boilers with higher capacities than Cleaver-Brooks boilers, National Dynamics
manufactures boilers that incorporate certain design features not available from
Cleaver-Brooks. For example, National Dynamics offers an "O" design boiler,
which is used primarily in the rental boiler industry, a customer base
Cleaver-Brooks does not currently focus on.
Cost Savings and Operating Efficiencies. Management believes that the
Company can achieve annual cost savings of more than $3.1 million by (i) closing
a redundant manufacturing facility; (ii) rationalizing duplicative corporate,
general and administrative functions; (iii) in-sourcing certain components
currently procured from third parties that either Cleaver-Brooks or National
Dynamics already produces; and (iv) realizing additional advantages resulting
from increased scale (e.g., enhanced purchasing power). See "-- Summary
Unaudited Pro Forma Financial Data" and "Unaudited Pro Forma Financial Data."
Penetration of Aftermarket Parts Market. In recent years aftermarket boiler
parts and accessories have accounted for approximately 20% of Cleaver-Brooks'
net sales as compared to approximately 3% of NDC's net sales. Aqua-Chem
attributes its relative success in selling aftermarket parts to management's
focus on this higher margin business and its policy of requiring sales
representatives to stock and sell Cleaver-Brooks brand parts. By extending these
practices to National Dynamics' business, management expects to increase the
Company's penetration of aftermarket parts sales among the installed base of
Nebraska Boiler customers.
Sales and Distribution Leverage. Cleaver-Brooks has the most extensive
global distribution network in the boiler industry, with international sales
accounting for approximately 23% of its total net sales for the twelve months
ended December 31, 1997. Although NDC had an effective domestic distribution
system, international sales only accounted for approximately 12% of NDC's total
fiscal 1997 net sales due, in part, to its lack of an effective international
distribution system. Management intends to sell Nebraska Boiler products through
Cleaver-Brooks' established international distribution network to increase the
Company's overseas sales.
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RECENT HISTORY
The 1994 and 1996 Restructurings. Prior to recruiting Jeffrey A. Miller as
Chief Executive Officer in July 1996, Aqua-Chem had undertaken two separate
restructurings. In December 1994, Aqua-Chem announced a plan (the "1994
Restructuring") to consolidate its boiler manufacturing operations. Aqua-Chem
closed its high-cost facility in Lebanon, Pennsylvania in the first half of 1995
and consolidated its large firetube boiler production in its Thomasville,
Georgia plant and its smaller firetube boiler production in its Stratford,
Ontario facility. Manufacturing costs were initially higher than anticipated as
these facilities absorbed the increased production and due to additional
training costs for new employees required to handle the increase in volume;
however, in 1996 Aqua-Chem began to resolve these issues, and manufacturing
efficiency improved accordingly. In November 1995, Aqua-Chem hired Mr. Miller's
predecessor, who initiated a second restructuring program in 1996 (the "1996
Restructuring") that was designed to dramatically reduce Aqua-Chem's cost
structure. The 1996 Restructuring consisted principally of across-the-board
reductions in salaried personnel and other selling, general and administrative
expenses.
Recruitment of Jeffrey A. Miller as CEO. The 1996 Restructuring achieved a
reduction of selling, general and administrative expenses; however, Aqua-Chem's
board of directors determined that its business was being adversely affected
and, consequently, the board recruited Mr. Miller as Chief Executive Officer in
July 1996. Mr. Miller has over 20 years of experience in a broad range of
positions managing manufacturing companies, including 19 years in numerous
managerial and executive positions with The General Electric Company. Eschewing
short-term approaches to increasing profits, Mr. Miller began implementing a
long-term strategy designed to improve competitiveness, productivity and
quality, increase manufacturing efficiency, and leverage Aqua-Chem's market
positions. Mr. Miller has recruited certain new senior managers and introduced
more focused and innovative management, manufacturing and purchasing practices.
The 1998 Restructuring. The Company has determined that it will close its
Greenville, Mississippi manufacturing facility and relocate the manufacturing
operations currently located there to other Company facilities, including the
Lincoln, Nebraska facility acquired from NDC as part of the Acquisition (the
"1998 Restructuring"). A portion of the anticipated $3.1 million of annual cost
savings discussed under "--Acquisition Rationale -- Cost Savings and Operating
Efficiencies" are attributable to the 1998 Restructuring. The Company has
reached an agreement with the union representing production workers at the
Greenville facility with respect to the closure of that facility and severance
and other benefits payable to union workers displaced as a result. The Company
is currently in the planning stages of transferring production to other
facilities. This process is expected to be completed within approximately one
year, at which time the Greenville plant will be closed.
COMPANY OWNERSHIP
On July 31, 1997, Aqua-Chem management, led by Chairman and CEO Jeffrey A.
Miller, and Whitney Equity Partners, L.P. (a fund managed by J. H. Whitney &
Co.) acquired Aqua-Chem (the "Management Buy-Out") from its former owners, a
French conglomerate that owned 80% of Aqua-Chem and a privately held company
that owned 20%. As of the date of this Prospectus, all of the common equity of
the Company is held by Rush Creek LLC ("Rush Creek"), a holding company whose
only asset is the capital stock of the Company. Through Rush Creek, Whitney
Equity Partners L.P. and Jeffrey A. Miller own approximately 51% and 34%,
respectively, of the common equity of the Company, with the remainder owned
primarily by certain other members of senior management. See "Capital Stock and
Principal Stockholders." J. H. Whitney & Co., founded by Jock Whitney in 1946,
is a private equity investment firm headquartered in Stamford, Connecticut.
RISK FACTORS
Before exchanging Existing Notes for the Exchange Notes offered hereby,
holders of Existing Notes should consider carefully the factors described in
"Risk Factors" and all other information set forth in this Prospectus.
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<PAGE> 9
SUMMARY OF TERMS OF THE EXCHANGE OFFER
Registration Agreement..... The Existing Notes were sold by the Company on June
23, 1998 (the "Issue Date") to Credit Suisse First
Boston Corporation and Bear, Stearns & Co. Inc.
(the "Initial Purchasers"), which resold the
Existing Notes to certain QIBs in reliance on Rule
144A and to certain non-U.S. persons in accordance
with Regulation S. In connection therewith, the
Company executed and delivered, for the benefit of
the holders of the Existing Notes, the Registration
Agreement providing for, among other things, the
Exchange Offer. See "The Exchange
Offer -- Registration Agreement" and "Plan of
Distribution."
The Exchange Offer......... The Company is offering to exchange up to
$125,000,000 aggregate principal amount of Exchange
Notes for a like principal amount of Existing
Notes. The Company will issue the Exchange Notes on
the earliest practicable date following the
Expiration Date.
Based on interpretations by the staff of the
Commission, as set forth in several no-action
letters issued to third parties, the Company
believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Existing Notes
may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business
and that such holder is not engaged in, and does
not intend to engage in, a distribution of such
Exchange Notes and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes. The
Commission, however, has not considered the
Exchange Offer in the context of a no-action letter
and there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Offer as in such other
circumstances.
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes
pursuant to the Exchange Offer must acknowledge
that such Existing Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities and that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes
received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The Company has agreed that,
for a period of 180 days after the Expiration Date,
it will make this Prospectus available to any
broker-dealer (which may include the Initial
Purchasers) that elects to exchange Existing Notes,
acquired for its own account as a result of
market-making activities or other trading
activities, for Exchange Notes (collectively,
"Participating Broker-Dealers") for use in
connection with any such resale. See "Plan of
Distribution."
5
<PAGE> 10
Each holder of Existing Notes that desires to
participate in the Exchange Offer, other than a
broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no
arrangement or understanding to participate in a
distribution of Exchange Notes. See "The Exchange
Offer" and "Plan of Distribution."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and Existing
Notes...................... Holders of Existing Notes that are accepted for
exchange will not receive any accrued interest
thereon. However, each Exchange Note will bear
interest from the most recent date on which
interest has been paid on the corresponding
Existing Note, or, if no interest has been paid,
from June 23, 1998.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions." The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Existing Notes being tendered
for exchange.
Withdrawal Rights.......... Subject to the conditions set forth herein, tenders
of Existing Notes may be withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal Rights."
Acceptance of Existing
Notes
and Delivery of Exchange
Notes...................... Subject to the terms and conditions of the Exchange
Offer, including the reservation of rights by the
Company, the Company will accept for exchange any
and all Existing Notes that are properly tendered
in the Exchange Offer, and not withdrawn, prior to
5:00 p.m., New York City time, on the Expiration
Date. Subject to such terms and conditions, the
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable
date following the Expiration Date. Any Existing
Notes not accepted for exchange for any reason will
be returned without cost to the tendering holder
thereof promptly after the Expiration Date. See
"The Exchange Offer -- Acceptance of Tenders."
Certain Federal Income Tax
Consequences............... For federal income tax purposes, the exchange of an
Existing Note for a Exchange Note should not
constitute a taxable exchange by its holder.
Accordingly, the holders should not recognize any
taxable gain or loss upon such exchange. See "The
Exchange Offer -- Certain Effects of the Exchange
Offer."
Untendered Existing
Notes...................... Holders of Existing Notes who do not tender their
Existing Notes in the Exchange Offer or whose
Existing Notes are not accepted for exchange will
continue to hold such Existing Notes and will be
entitled to all the rights and preferences and will
be subject to the limitations applicable thereto
under the Indenture (as defined), except for any
such rights, preferences or limitations which, by
their terms, terminate or cease to be
6
<PAGE> 11
effective as a result of this Exchange Offer. All
untendered and tendered but unaccepted Existing
Notes will continue to be subject to certain
restrictions on transfer provided therein. See
"Risk Factors -- Consequences of Failure to
Exchange." To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for untendered and tendered
but unaccepted Existing Notes could be adversely
affected. See "Risk Factors -- Absence of a Public
Market for the Notes; Volatility; Restrictions on
Resale" and "The Exchange Offer -- Certain Effects
of the Exchange Offer."
Broker-Dealers............. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Existing Notes,
where such Existing Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Exchange Agent/Trustee..... United States Trust Company of New York is serving
as Exchange Agent (the "Exchange Agent") in
connection with the Exchange Offer and as Trustee
("Trustee") under the Indenture (as defined).
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The terms of the Exchange Notes and the Existing Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Existing Notes and except that, if the Exchange Offer is
not consummated by December 21, 1998, additional interest will accrue at the
rate of 0.50% per annum until but not including the date the Exchange Offer is
consummated.
Indenture.................. The Existing Notes were, and the Exchange Notes
will be, issued pursuant to an indenture dated as
of June 23, 1998 between the Company and the
Trustee (the "Indenture").
Exchange Notes............. $125,000,000 in aggregate principal amount of
11 1/4% Senior Subordinated Notes Due 2008 of
Aqua-Chem, Inc. which have been registered under
the Securities Act.
Maturity Date.............. July 1, 2008.
Interest Payment Dates..... Each January 1 and July 1, commencing January 1,
1999.
Ranking; Guarantees........ The Existing Notes are, and the Exchange Notes will
be, general unsecured senior subordinated
obligations of the Company and subordinate in right
of payment to all existing and future Senior
Indebtedness (as defined) of the Company. The
Existing Notes rank, and the Exchange Notes will
rank, pari passu in right of payment to all
existing and future Senior Subordinated
Indebtedness (as defined) of the Company and senior
to any future subordinated indebtedness of the
Company.
Optional Redemption........ The Existing Notes are not, and the Exchange Notes
will not be, redeemable at the option of the
Company, prior to July 1, 2003, except that, until
July 1, 2001, the Company may redeem, at its
option, up to an aggregate of 20% of the original
principal amount of the Notes with the net cash
proceeds of one or more Public Equity Offerings (as
defined) at a redemption price equal to 111.25% of
the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption;
provided, however, that at least $100.0 million
principal amount of the Notes originally issued
remains outstanding immediately after any such
redemption. On or after July 1, 2003, the Notes may
be redeemed at the
7
<PAGE> 12
option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. See "Description of the
Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined), each holder
of Notes will have the right to require the Company
to purchase all or a portion of such holder's Notes
at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. In the event of a
Change of Control, there can be no assurance that
the Company will have the financial resources or be
permitted under the terms of its other indebtedness
to purchase the Notes. See "Description of the
Notes -- Change of Control."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit (i) the incurrence of
additional Indebtedness (as defined) by the Company
and its Restricted Subsidiaries; (ii) the payment
of dividends and other restricted payments by the
Company and its Restricted Subsidiaries; (iii) the
creation of restrictions on distributions from
Restricted Subsidiaries, (iv) asset sales; (v)
transactions with affiliates; (vi) sales or
issuances of Restricted Subsidiary capital stock,
and (vii) mergers and consolidations; provided,
however, that all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Risk
Factors -- Restrictive Debt Covenants" and
"Description of the Notes -- Certain Covenants."
Registration Rights........ The Company has filed a registration statement on
Form S-4 (together with any amendments thereto, the
"Registration Statement") with respect to the
Exchange Offer made hereby, and has agreed to use
its best efforts to cause the Registration
Statement to become effective on or prior to
November 21, 1998. In the event that any changes in
law or the applicable interpretations of the staff
of the Commission do not permit the Company to
effect the Exchange Offer made hereby, if the
Registration Statement is not declared effective on
or prior to December 21, 1998, if the Exchange
Offer is not consummated on or prior to January 20,
1999 for any reason attributable to actions or
inactions of the Company, or under certain other
circumstances, the Company will, as promptly as
practicable, file with the Commission a shelf
registration statement with respect to the resale
of the Existing Notes (the "Shelf Registration
Statement"), use its best efforts to cause such
Shelf Registration Statement to become effective
generally within 30 days after the date on which
the Company is required to file the Shelf
Registration Statement, and to keep the Shelf
Registration Statement effective until three years
after the effective date thereof (or until one year
after such effective date if the Shelf Registration
Statement is filed at the request of an Initial
Purchaser). Upon consummation of the Exchange
Offer, the Company generally will have no further
obligation to register the Existing Notes. See "The
Exchange Offer -- Registration Agreement" and
"-- Termination of Certain Rights."
Termination of Certain
Rights..................... Holders of Exchange Notes will not be entitled to
certain rights under the Registration Agreement,
including the right to require the Company to file
a registration statement with respect to the
Exchange Notes, and to file a Shelf Registration
Statement, except in certain limited circumstances.
See "The Exchange Offer -- Termination of Certain
Rights."
8
<PAGE> 13
Absence of a Public Market
for the Exchange Notes..... The Exchange Notes will be new securities for which
there currently is no market. Although the Initial
Purchasers have informed the Company that they
currently intend to make a market in the Exchange
Notes, they are not obligated to do so, and any
such market making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Exchange Notes. The Company does not
intend to apply for listing of the Exchange Notes
on any securities exchange or seek the admission
thereof to trading on The Nasdaq Stock Market. See
"Risk Factors -- Absence of Public Market for the
Notes; Volatility; Restrictions on Resale."
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer. The net proceeds to the Company
from the sale of the Existing Notes were used: (i)
to pay the purchase price of the Acquisition; (ii)
to repay the Company's Outstanding Indebtedness (as
defined); (iii) to retire a portion of the
Company's Series A Preferred Stock; (iv) to pay
accumulated interest and dividends, fees and
expenses associated with the Transactions (as
defined) (other than the Management Buy-Out); and
(v) for general corporate purposes. See "The
Exchange Offer -- Use of Proceeds."
For further information regarding the Exchange Notes, see "Description of
the Notes."
9
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth the summary unaudited pro forma financial
information for the Company. This information is derived from the Unaudited Pro
Forma Financial Data appearing elsewhere in this Prospectus that gives effect to
the Private Offering, the Acquisition, the Management Buy-Out, the repayment of
Aqua-Chem's Outstanding Indebtedness (as defined), the execution of the New
Credit Facility, the retirement of a portion of Aqua-Chem's Series A Preferred
Stock, and the payment of accrued interest and dividends, fees and expenses in
connection with the foregoing (collectively, the "Transactions"). See "The
Exchange Offer -- Use of Proceeds."
The pro forma statement of operations data and other financial data for the
twelve months ended December 31, 1997 and the six months ended June 30, 1998
give effect to the Transactions as if the Transactions had occurred on January
1, 1997. The balance sheet data as of June 30, 1998 represents actual, rather
than pro forma, data. The summary unaudited pro forma financial data is
presented for comparative and informational purposes only and is not necessarily
indicative of future results or of the results that would have been obtained had
the Transactions assumed therein actually been completed on the dates indicated.
The pro forma data presented below should be read in conjunction with the
"Unaudited Pro Forma Financial Data" and the financial statements of Aqua-Chem
and of NDC included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $250,451 $ 98,495
Cost of goods sold.......................................... 186,913 73,701
-------- --------
Gross margin................................................ 63,538 24,794
Selling, general and administrative expenses................ 45,612 21,245
Restructuring charges....................................... -- 4,720
-------- --------
Operating income (loss)..................................... 17,926 (1,171)
OTHER FINANCIAL DATA:
EBITDA(a)................................................... $ 24,451 $ 1,554
Adjusted EBITDA(b).......................................... 26,751 7,424
Depreciation and amortization............................... 5,838 2,725
Capital expenditures........................................ 4,811 1,422
Cash interest expense(c).................................... 14,063 7,032
Ratio of total debt to Adjusted EBITDA(b)(d)................ 4.7x --(e)
Ratio of Adjusted EBITDA to cash interest expense(b)(c)..... 1.9x --(e)
Ratio of earnings to fixed charges(f)....................... 1.3x --(g)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................................ $175,734
Total debt.................................................. 125,000
Stockholders' deficit....................................... (1,611)
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization
and, for the twelve months ended December 31, 1997, excludes $687 of
non-cash purchase accounting adjustments to cost of goods sold related to
writing up inventory to fair market value at the time of the Management
Buy-Out. While EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles ("GAAP") and should
not be considered as an indicator of operating performance or an alternative
to cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements. The Company's measure of EBITDA may not be comparable
to similarly titled measures of other companies.
10
<PAGE> 15
(b) Adjusted EBITDA for the periods presented is EBITDA, excluding restructuring
charges plus anticipated cost savings arising from: (i) the Company's
closure of its Greenville, Mississippi facility pursuant to the 1998
Restructuring and (ii) the in-sourcing of certain boiler components
currently procured from third parties that either Cleaver-Brooks or National
Dynamics already produces, as set forth below:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
EBITDA................................................. $24,451 $1,554
Restructuring charges (i)............................ -- 4,720
Facility rationalization (ii)........................ 1,800 900(iii)
In-sourcing of certain components (iv)............... 500 250(iii)
------- ------
Adjusted EBITDA........................................ $26,751 $7,424
======= ======
</TABLE>
- ------------------------------------
(i) For the six months ended June 30, 1998, consists of $3,021 to write
down the value of certain fixed assets and inventory, $1,460 of
employee termination benefits and $239 of other costs. The Company
anticipates capital expenditures of approximately $1,500 within the
year following the closure of the Greenville facility to accommodate
increased production levels at other manufacturing facilities.
(ii) Consists of estimated annual cash savings of approximately $1,800
attributable to the rationalization of approximately 35 employees
engaged in general management, administrative and indirect
manufacturing functions.
(iii) Estimated cost savings for the pro forma six months ended June 30,
1998 consist of one-half of the estimated annual cost savings for the
twelve months ended December 31, 1997.
(iv) Consists of estimated annual cash savings of approximately $500
attributable to the in-sourcing of burners produced by Cleaver-Brooks
that will be incorporated into certain Nebraska Boiler industrial
watertube boilers and certain fabricated components produced by
National Dynamics that will be incorporated into Cleaver-Brooks
boilers.
(c) Calculated using an interest rate of 11.25% per annum on the Notes excluding
non-cash amortization of deferred financing costs.
(d) The ratio of total debt to Adjusted EBITDA is calculated using actual total
debt as of June 30, 1998, which management believes would have approximated
pro forma total debt as of December 31, 1997 had a pro forma balance sheet
been prepared as of such date, and Adjusted EBITDA for the twelve months
ended December 31, 1997.
(e) Due to the seasonal nature of the Company's business, the ratios of Adjusted
EBITDA to cash interest expense and total debt to Adjusted EBITDA for the
six months ended June 30, 1998 are not accurate representations of full year
results.
(f) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before taxes, extraordinary item and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized, and (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized.
(g) Earnings would have been inadequate to cover fixed charges by $7,790 for the
six months ended June 30, 1998.
11
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL DATA OF AQUA-CHEM
The following summary historical financial data of Aqua-Chem as of and for
each of the fiscal years ended December 31, 1995 and 1996, the twelve months
ended December 31, 1997, and the six months ended June 30, 1997 and 1998 has
been derived from the consolidated financial statements of Aqua-Chem. The
summary historical financial data for the twelve months ended December 31, 1997
is derived by combining the financial results of Aqua-Chem for the seven-month
period from January 1, 1997 through July 31, 1997 (while under prior ownership)
and the five-month period from August 1, 1997 through December 31, 1997
(following the Management Buy-Out), including purchase accounting adjustments
for the Management Buy-Out (see Note (a) to the Unaudited Pro Forma Consolidated
Statements of Operations for the year ended December 31, 1997 under "Unaudited
Pro Forma Financial Data"). The financial data for Aqua-Chem before and after
the Management Buy-Out is not comparable in all material respects. This summary
historical financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Aqua-Chem" and the consolidated financial statements of Aqua-Chem included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, TWELVE MONTHS ENDED JUNE 30,
------------------- DECEMBER 31, -------------------
1995 1996 1997 1997 1998
-------- -------- -------------------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $183,368 $199,552 $191,159 $83,211 $ 76,222
Cost of goods sold.............. 148,650 153,446 139,989 62,087 55,930
-------- -------- -------- ------- --------
Gross margin.................... 34,718 46,106 51,170 21,124 20,292
Selling, general and
administrative expenses....... 37,772 34,446 39,394 18,069 17,446
Restructuring charges(a)........ 4,593 5,038 -- -- 4,720
-------- -------- -------- ------- --------
Operating income (loss)......... $ (7,647) $ 6,622 $ 11,776 $ 3,055 $ (1,874)
OTHER FINANCIAL DATA:
EBITDA(b)....................... $ (4,494) $ 9,606 $ 15,437 $ 4,778 $ 28
Adjusted EBITDA(c).............. 99 14,644 15,437 4,778 4,748
Depreciation and amortization... 3,153 2,984 2,974 1,723 1,902
Gross profit margin............. 18.9% 23.1% 26.8% 25.4% 26.6%
Capital expenditures............ $ 4,867 $ 2,789 $ 3,392 $ 1,097 $ 1,023
Ratio of earnings to fixed
charges(d).................... --(e) 4.2x 3.4x 5.6x --(e)
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................... $101,381 $101,000 $124,661 $97,008 $175,734
Total debt...................... 18,636 20,128 59,691 20,198 125,000
Stockholders' equity
(deficit)..................... 36,636 39,960 3,638 41,653 (1,611)
</TABLE>
- ------------------------------------
(a) For 1995, reflects restructuring charges required to complete the 1994
Restructuring. For 1996, reflects restructuring charges required to complete
the 1996 Restructuring. For the six months ended June 30, 1998, reflects
restructuring charges to complete the 1998 Restructuring. For further
information on such restructurings, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem,"
Note (3) to the consolidated financial statements of Aqua-Chem and Note (7)
to the consolidated condensed interim financial statements of Aqua-Chem, all
included elsewhere in this Prospectus.
(b) EBITDA is defined as operating income before depreciation and amortization
and, for the twelve months ended December 31, 1997, excludes $687 of
non-cash purchase accounting adjustments to cost of goods sold related to
writing up inventory to fair market value at the time of the Management
Buy-Out. While EBITDA is not intended to represent cash flow from operations
as defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by
12
<PAGE> 17
GAAP) as a measure of liquidity, management believes it provides additional
information with respect to the ability of a company to meet its future debt
service, capital expenditures and working capital requirements. The measure of
EBITDA presented above may not be comparable to similarly titled measures
of other companies.
(c) Adjusted EBITDA for the periods presented is defined as EBITDA excluding
restructuring charges.
(d) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income (loss) before taxes, extraordinary item and fixed charges.
Fixed charges consist of the total of (i) interest, whether expensed or
capitalized; (ii) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized.
(e) Earnings were inadequate to cover fixed charges by $6,265 and $4,779 for the
year ended December 31, 1995 and the six months ended June 30, 1998,
respectively.
13
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA OF NDC
The following summary historical financial data of NDC as of and for each
of the fiscal years ended October 31, 1995, 1996 and 1997, and for the five
months ended March 31, 1997 and 1998 have been derived from the financial
statements of NDC. This summary historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of NDC" and the financial statements of NDC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED FIVE MONTHS ENDED
OCTOBER 31, MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $49,717 $54,853 $59,292 $21,722 $25,561
Cost of goods sold............................. 40,916 43,461 45,862 17,150 19,973
------- ------- ------- ------- -------
Gross margin................................... 8,801 11,392 13,430 4,572 5,588
Selling, general and administrative expenses... 6,601 5,516 5,815 1,888 2,472
------- ------- ------- ------- -------
Operating income............................... 2,200 5,876 7,615 2,684 3,116
OTHER FINANCIAL DATA:
EBITDA(a)...................................... $ 2,650 $ 6,339 $ 8,112 $ 2,877 $ 3,316
Gross profit margin............................ 17.7% 20.8% 22.7% 21.0% 21.9%
Depreciation................................... $ 450 $ 463 $ 497 $ 193 $ 200
Capital expenditures........................... 1,758 571 1,419 262 222
Ratio of earnings to fixed charges(b).......... 16.6x 138.9x 43.3x 39.5x 57.8x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................... $23,600 $22,144 $25,991 $22,166 $24,076
Total debt..................................... 2,441 1,472 1,422 -- --
Stockholders' equity........................... 8,335 10,887 14,665 13,207 16,918
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. The measure of EBITDA
presented above may not be comparable to similarly titled measures of other
companies.
(b) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income before taxes and fixed charges. Fixed charges consist of
the total of (i) interest, whether expensed or capitalized; and (ii)
amortization of debt expense and discount or premium relating to any
indebtedness, whether expensed or capitalized.
14
<PAGE> 19
RISK FACTORS
HOLDERS OF EXISTING NOTES SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION
SET FORTH IN THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING
RISKS BEFORE TENDERING THEIR EXISTING NOTES IN THE EXCHANGE OFFER, ALTHOUGH THE
RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE EXISTING NOTES AS
WELL AS THE EXCHANGE NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange them for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to certain
restrictions on transfer of such Existing Notes. In general, the Existing Notes
may not be reoffered or resold by their holders except pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration, and the Existing Notes are legended to so
restrict their transfer. Based on interpretations by the staff of the SEC, as
set forth in no-action letters issued to third parties, the Company believes
that each holder (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who duly exchanges
Existing Notes for Exchange Notes in the Exchange Offer will receive Exchange
Notes that are freely transferable under the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder is not engaged in, and does not intend to engage in, a
distribution of such Exchange Notes and has no arrangement or understanding with
any person to participate in the distribution of such Exchange Notes. By
tendering Existing Notes and executing the Letter of Transmittal, the holder
thereof shall represent and agree that (i) it is neither an affiliate of the
Company nor a broker-dealer tendering Existing Notes acquired directly from the
Company for its own account, (ii) it acquired the Exchange Notes in the ordinary
course of its business and (iii) it is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes and it has no arrangement or
understanding to participate in a distribution of Exchange Notes. The SEC,
however, has not considered the Exchange Offer in the context of a no-action
letter, and therefore there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Existing Notes who participate in such Exchange Offer
should be aware, however, that, except in the case of certain broker-dealers as
described below, if they accept Exchange Notes in the Exchange Offer for the
purpose of engaging in secondary resales, such Exchange Notes may not be
publicly reoffered or resold without complying with the registration and
prospectus delivery requirements of the Securities Act. The same registration
and prospectus delivery requirements would apply to any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer" and "Plan of
Distribution."
The Existing Notes may be sold without registration under the Securities
Act pursuant to the restrictions set forth in Rule 144A or Regulation S.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE THE NOTES
As a result of the Private Offering, the Company has substantial
indebtedness and significant debt service obligations. At June 30, 1998 the
Company had total long-term indebtedness, including current maturities, of
$125.0 million, as well as undrawn borrowing availability under the New Credit
Facility of $45.0 million. The Indenture permits the Company to incur additional
indebtedness, including secured indebtedness, subject to certain limitations.
See "The Exchange Offer -- Use of Proceeds," "Capitalization," "Description of
Certain Indebtedness," and "Description of the Notes -- Certain Covenants."
The Company's high degree of leverage could have important consequences to
holders of the Notes, including, without limitation: (i) a substantial portion
of the Company's cash flow from operations will be committed to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company for its operations and other purposes; (ii) the Company's ability
to obtain additional financing in the future for working capital expenditures,
acquisitions or other purposes may be limited; (iii) a substantial
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decrease in net operating cash flows or an increase in expenses could make it
difficult for the Company to meet its debt service requirements and force it to
modify its operations; (iv) the Company may be more highly leveraged than its
competitors, which may place it at a competitive disadvantage; (v) certain
indebtedness under the New Credit Facility is at variable rates of interest,
which will cause the Company to be vulnerable to increases in interest rates;
and (vi) all of the indebtedness outstanding under the New Credit Facility is
secured by substantially all the assets of the Company and becomes due prior to
the time the principal on the Notes becomes due. See "Description of Certain
Indebtedness" and "Description of the Notes."
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) will
depend on the Company's future performance, which to a certain extent will be
subject to economic, financial, competitive and other factors beyond its
control. Based upon the Company's current operations and anticipated growth,
management believes that future cash flow from operations, together with the
Company's available borrowings under the New Credit Facility, will be adequate
to meet its anticipated requirements for capital expenditures, interest payments
and scheduled principal payments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Aqua-Chem -- Liquidity and
Capital Resources." There can be no assurance, however, that the Company's
business will continue to generate sufficient cash flow from operations in the
future to service its indebtedness and make necessary capital expenditures. If
it is unable to do so, the Company may be required to refinance all or a portion
of its indebtedness, including the Notes, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained.
IMPLEMENTATION OF BUSINESS STRATEGY
The Company intends to continue the implementation of its business
strategy, elements of which are to improve manufacturing efficiency and make
strategic acquisitions. The Company's ability to successfully implement its
business strategy is subject to a number of factors, many of which are beyond
the control of the Company. There can be no assurance that the Company will be
able to continue to successfully implement its business strategy following the
Offering and a failure to successfully implement its business strategy may have
a material adverse effect on the Company's results of operations. See
"Summary -- Business Strategy."
Realizing the full benefits of any acquisition may require the integration
of one or more of the acquired company's administrative, finance, manufacturing,
engineering, sales, or marketing functions with those of the Company and the
implementation of appropriate operations, financial and management systems and
controls in order to capture anticipated efficiencies, manufacturing
improvements and cost reductions. These efforts would require substantial
attention from the Company's management team. The diversion of management
attention, as well as any other difficulties which may be encountered in such a
transition and integration process, could have a material adverse impact on the
revenue and operating results of the Company. There can be no assurance that the
Company will be able to realize the potential benefits of any such acquisition.
If any such acquisition is completed, the failure to achieve a substantial
portion of the anticipated benefits could have a material adverse impact on the
Company.
CYCLICAL NATURE OF INDUSTRY; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's business is cyclical in nature and sensitive to changes in
general economic conditions, including the rate of expansion and new
construction by its customers, and the associated demand for new boilers. The
Company's customers are in turn influenced by a variety of factors beyond the
Company's control, including interest rates, currency exchange rates, and
general economic conditions throughout the world. The Company believes that this
cyclicality is mitigated by increased demand for replacement boiler units and
parts during periods of economic difficulty, when customers often elect to
repair existing boilers rather than purchase new ones or forego new construction
but nevertheless choose to renovate existing buildings which may involve boiler
replacement. Notwithstanding the foregoing, the Company has experienced, and in
the future could experience, reduced net sales and margins, which may affect the
Company's ability to satisfy its debt service obligations, including payments on
the Notes, on a timely basis. The Company's boiler business is also seasonal in
nature and net sales and operating results may fluctuate significantly from
quarter to quarter.
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See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aqua-Chem" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of NDC."
Given the magnitude of certain of the Company's water purification and
treatment projects, one or a limited number of projects may account for a
substantial portion of net sales in any particular period. Although the Company
recognizes net sales on a percentage-of-completion basis for new projects, the
timing of one or a small number of contracts in any particular period may
nevertheless affect operating results. Although a majority of the projects
undertaken by the Company on a percentage of completion basis have been
profitable historically, the profitability of these projects can vary from
original estimates. In addition, net sales and gross margin may fluctuate
depending upon the size and the requirements of the particular contracts entered
into in that period. As a result of these and other factors, the Company may
experience significant fluctuations in net sales and operating results in future
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Aqua-Chem."
REALIZATION OF BENEFITS OF THE ACQUISITION
On June 23, 1998, Aqua-Chem completed the purchase of substantially all of
the assets of NDC. Management has estimated that cost savings and other benefits
can be achieved as a result of the Acquisition. The estimates of potential cost
savings and other benefits are forward-looking statements that are inherently
uncertain, and actual results could differ materially from those anticipated.
All of these forward-looking statements are based on estimates and assumptions
made by management, which although believed to be reasonable, are inherently
uncertain and difficult to predict; therefore, undue reliance should not be
placed upon such estimates.
Full realization of the potential benefits and savings of the Acquisition
will be dependent upon a variety of factors, including (i) rationalization of
manufacturing facilities; (ii) retention of a substantial portion of NDC's
sales; and (iii) successful application of Aqua-Chem's modern manufacturing
practices to increase efficiency in the production of NDC products. Any material
delays or unexpected costs incurred in connection with the integration of
Aqua-Chem and NDC could have a material adverse effect on the Company and its
results of operations, liquidity and financial condition.
The Company has no previous experience acquiring or integrating a business
as large as NDC, and the successful integration of Aqua-Chem and NDC will
require substantial attention from the Company's management team. The diversion
of management's attention, as well as any other difficulties which may be
encountered in the transition and integration process, could have a material
adverse effect on the revenue and operating results of the Company. There can be
no assurance that the Company will be able to integrate the operations of
Aqua-Chem and NDC successfully or the extent to which the Company will be able
to realize the potential benefits of the Acquisition or the timing of any such
benefits. Failure to achieve a substantial portion of these benefits within the
time frame expected by the Company could have a material adverse effect on the
Company, including its ability to make payments on the Notes. See "Unaudited Pro
Forma Financial Data" and "The Acquisition."
RESTRICTIVE DEBT COVENANTS
The terms of the New Credit Facility and the Indenture contain numerous
covenants that limit the discretion of management with respect to certain
business matters and place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, to create liens or
other encumbrances, to make certain payments or investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. See "Description of Certain Indebtedness" and "Description
of the Notes -- Certain Covenants." The New Credit Facility also contains a
number of financial covenants that require the Company to maintain certain
financial ratios (including a fixed charge coverage ratio and a funded debt to
EBITDA ratio) and tests (including maintenance of the Company's net worth at a
specified level). A breach of any of these covenants or the inability of the
Company to comply with the required financial ratios could result in an event of
default under the New Credit Facility or under the Indenture. In the event of
any such default, depending on the actions taken by the lenders under the New
Credit Facility, the Company could be prohibited from making any payments of
principal or interest on the
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Notes. In addition, the lenders under the New Credit Facility could elect to
declare all amounts borrowed thereunder, together with accrued interest, to be
due and payable. If the Company were unable to repay such borrowings, such
lenders could proceed against their collateral. If the indebtedness under the
New Credit Facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such indebtedness and the
Notes in full. See "-- Ranking of the Notes," "Description of Certain
Indebtedness" and "Description of the Notes -- Ranking."
RANKING OF THE NOTES
The indebtedness evidenced by the Existing Notes is, and by the Exchange
Notes will be, general unsecured senior subordinated obligations of the Company,
subordinated in right of payment to all Senior Indebtedness of the Company,
including all indebtedness under the New Credit Facility. As of June 30, 1998,
the Company had no outstanding Senior Indebtedness; however, the Company had
approximately $45.0 million of borrowing availability under the New Credit
Facility, all of which, when borrowed, will be Senior Indebtedness, and will be
secured by substantially all the assets of the Company. The Indenture and the
New Credit Facility permit the Company to incur additional Senior Indebtedness
in the future, subject to certain conditions. Moreover, the Indenture does not
limit the Company's ability to secure Senior Indebtedness.
In the event of the bankruptcy, administration, insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, any Senior Indebtedness, the
lenders under the New Credit Facility and any other creditors who are holders of
Senior Indebtedness must be paid in full before any holder of Notes may be paid.
Accordingly, there may be insufficient assets remaining after such payments to
pay principal of or interest on the Notes. In addition, the subordination
provisions of the Indenture provide that no cash payments may be made with
respect to the Notes during the continuance of a payment default under certain
Senior Indebtedness of the Company. Furthermore, if certain nonpayment defaults
exist with respect to certain Senior Indebtedness, the holders of such Senior
Indebtedness would be able to prevent payments on the Notes for certain periods
of time. See "Description of the Notes -- Ranking."
INTERNATIONAL EXPANSION
The Company currently sells its products internationally primarily through
export from the United States and through foreign manufacturing operations in
Canada and Mexico. During the twelve months ended December 31, 1997, $50
million, or approximately 26%, of Aqua-Chem's net sales were generated outside
the United States. The Company typically transacts international sales and
exports in U.S. dollars which insulates the Company from certain risks
associated with currency fluctuations.
The Company's strategy to increase export sales will depend on numerous
factors which are beyond its control, including its ability to develop or
acquire additional manufacturing and distribution capabilities outside the
United States. In addition, international expansion may increase the Company's
exposure to certain risks inherent in doing business outside the United States,
such as currency exchange rate fluctuations, restrictions on the repatriation of
profits or dividends, export duties and quotas, domestic and foreign customs and
tariffs, compliance with foreign codes and standards, labor unrest, political
risks and potentially adverse tax consequences. There can be no assurance that
these factors would not have a material adverse effect on the Company or its
international operations or sales. See "Summary -- Business Strategy -- Increase
International Penetration."
CONTROL BY PRINCIPAL SHAREHOLDER
All of the Common Stock and Series C Preferred Stock of the Company is
owned by Rush Creek, of which 51% of the Common Stock and 63% of the Series C
Preferred Stock is allocated to the capital account of Whitney Equity Partners,
L.P. (a fund managed by J. H. Whitney & Co.). See "Capital Stock and Principal
Stockholders" and "Management." Through Rush Creek, Whitney Equity Partners,
L.P. will have the ability to control the management and affairs of the Company
and there may be circumstances under which its interests as a stockholder may
differ from the interests of holders of the Notes.
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COMPETITION
The Company operates in a highly competitive environment. It competes
directly and indirectly with other manufacturers of industrial and commercial
boilers and water desalination and process evaporation systems, as well as with
manufacturers of parts and components for all of the foregoing. Some of the
Company's competitors are larger, have greater financial resources, and may be
less leveraged than the Company. There can be no assurance that the Company will
be able to compete successfully with its competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results or financial condition. See "Business of the
Company -- Boiler Market," "-- Cleaver-Brooks Division -- Sales, Marketing and
Customers," "-- National Dynamics Division -- Sales, Marketing and Customers,"
and "-- Water Technologies Division -- Sales, Marketing and Customers."
PRICES OF RAW MATERIALS AND COMPONENT PARTS
The principal raw materials in most of the Company's products are steel,
standard alloys and refractory materials, as well as controls, pumps, motors and
various other component parts. The prices for such raw materials are influenced
by numerous factors beyond the control of the Company, including general
economic conditions, competition, labor costs, import duties and other trade
restrictions and currency exchange rates. Changing prices for such raw materials
may cause the Company's results of operations to fluctuate significantly.
Although the Company has never experienced a material shortage of raw materials,
a large, rapid increase in the price of raw materials could have a material
adverse effect on the Company's operating margins unless and until the increased
cost can be passed along to customers. See "Business of the Company --
Cleaver-Brooks Division -- Raw Materials and Suppliers," "-- National Dynamics
Division -- Raw Materials and Suppliers," and "-- Water Technologies
Division -- Raw Materials and Suppliers."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend largely on the efforts and abilities of
its executive officers, in particular Mr. Miller, and certain other key
employees, and there can be no assurance that the Company will be able to retain
all such officers and employees. The failure of such key personnel to remain
active in the Company's management could have a material adverse effect on the
Company's operations. See "Management."
ENVIRONMENTAL AND RELATED MATTERS
The Company's operations and properties are subject to foreign, federal,
state and local laws and regulations relating to the use, storage, handling,
generation, transportation, treatment, emission, discharge, disposal and
remediation of, and exposure to, hazardous and non-hazardous substances,
materials and wastes. The Company's operations also are subject to laws and
regulations governing employee health and safety. The nature of the Company's
current and former operations exposes it to the risk of liabilities or claims
with respect to environmental matters, including on-site and off-site releases
and emissions of hazardous substances, materials and wastes. There can be no
assurance that the Company will not incur material costs in connection with such
liabilities or claims. In addition, changes in existing laws or regulations, or
the discovery of additional environmental liabilities associated with the
Company's current or former operations, could have a material adverse effect on
the Company's business, results of operations, or financial condition. See
"Business of the Company -- Environmental and Related Matters."
PRODUCT LIABILITY LITIGATION
The Company has been named as one of a number of defendants in
approximately 5,900 lawsuits (of which approximately 3,600 are still pending)
alleging personal injury arising from exposure to asbestos-containing materials
allegedly contained in certain boilers manufactured by the Company or its
subsidiaries in the past. Although the Company has successfully resolved the
vast majority of closed cases without payment, is vigorously defending the open
suits, believes that substantially all of the open cases are without merit,
believes it has adequate insurance to pay all costs and liabilities in
connection with such claims, and believes that the ongoing costs and liabilities
associated with current and future asbestos-related litigation will not have
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a material adverse effect on the Company's business, results of operation, or
financial condition, there can be no assurances to this effect. See "Business of
the Company -- Legal Proceedings."
LABOR RELATIONS
As of June 30, 1998, the Company had approximately 1,445 active employees,
of whom approximately 30% were represented by various unions. There can be no
assurance that additional employees not currently represented by unions will not
elect to be so represented in the future. The Company's agreements with its
unions expire on January 1, 1999 at its facilities in Mexico; on June 5, 2000 in
Stratford, Ontario; on January 19, 2001 in Monroe, Wisconsin and on November 1,
1999 in Lincoln, Nebraska. There can be no assurance that such agreements will
be renewed when they expire or that the Company will not experience strikes,
work stoppages or other situations. In the last five years, Aqua-Chem has not
experienced any strikes or other work stoppages; however, in 1994, NDC employees
represented by the International Boilermakers Union went on strike for six weeks
in connection with a dispute over employee contributions for health benefits.
The Company has reached an agreement with the Union representing production
workers at its Greenville, Mississippi facility regarding the transfer of
production from, and the closing of, that facility. Although management believes
that its relations with its employees are satisfactory, a dispute between the
Company and its employees could have a material adverse effect on the Company.
See "Business of the Company -- Properties and Employees."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or void the Notes (and
payments of principal and/or interest in respect thereof could be voided and
recovered) in favor of other existing or future creditors of the Company.
Proceeds of the Private Offering were used, in part, to repay certain
senior and subordinated debt of the Company. If a court in a lawsuit brought by
an unpaid creditor or representative of creditors, such as a trustee in
bankruptcy or the Company, as a debtor-in-possession, were to find under
relevant federal or state fraudulent conveyance statutes that the Company did
not receive fair consideration or reasonably equivalent value for issuing the
Notes, as the case may be, and that, at the time of such incurrence, the Company
(i) was insolvent; (ii) was rendered insolvent by reason of such incurrence or
grant; (iii) was engaged or about to engage in a business or transaction for
which the assets remaining with the Company, as the case may be, constituted
unreasonably small capital; or (iv) intended to incur, or believed or reasonably
should have believed that it would incur, debts beyond its ability to pay such
debts as they become due, then such court, subject to applicable statutes of
limitation, could void the Notes, subordinate the Notes to other indebtedness of
the Company, or take other action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with the intent to hinder, delay or defraud creditors. In
addition, a court could subordinate the indebtedness, including the Notes, to
the claims of all existing and future creditors on similar grounds.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the sale
of the Notes or that, regardless of the method of valuation, a court would not
determine that the Company was insolvent as a result of the foregoing.
Based upon financial and other information currently available to it,
management of the Company believes that the Notes are being incurred for proper
purposes and in good faith. The Company believes that it (i) is solvent and will
continue to be solvent after issuing the Notes, (ii) will have sufficient
capital for carrying on the business it intends to conduct after such issuance,
and (iii) will be able to pay its debts as they become due. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Aqua-Chem -- Liquidity and Capital Resources" and "Management's Discussion and
Analysis of
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Financial Condition and Results of Operations of NDC." There can be no
assurance, however, that a court would concur with such beliefs and positions.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company is required, subject to certain
conditions, to offer to purchase all outstanding Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. The source of funds for any such purchase would be the Company's
available cash or cash generated from other sources, including borrowings, sales
of assets, sales of equity or funds provided by a new controlling person. A
Change of Control likely would constitute an event of default under the New
Credit Facility that would permit the lenders to accelerate the debt under the
New Credit Facility. In such event, the Company likely would attempt to
refinance the indebtedness outstanding under the New Credit Facility and the
Notes. There can be no assurance that sufficient funds will be available at the
time of any Change of Control to make any required purchases of Notes tendered
and to repay indebtedness under the New Credit Facility. See "Description of
Certain Indebtedness" and "Description of the Notes -- Change of Control."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES; VOLATILITY; RESTRICTIONS ON RESALE
The Exchange Notes are being offered to the holders of Existing Notes. The
Existing Notes were originally issued on the Issue Date to the Initial
Purchasers pursuant to Section 4(2) of the Securities Act. The Company has been
advised that the Existing Notes subsequently have been resold to (i) qualified
institutional buyers as defined in Rule 144A ("Qualified Institutional Buyers"
or "QIBs") in reliance on, and subject to the restrictions imposed pursuant to,
Rule 144A, and (ii) certain non-U.S. persons outside the United States of
America in accordance with Regulation S. The Existing Notes beneficially owned
by Qualified Institutional Buyers are eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages ("PORTAL") Market, which
is the National Association of Securities Dealers' screen-based automated market
for trading of securities eligible for resale under Rule 144A.
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. The Exchange Notes will
constitute a new issue of securities, have no established trading market and may
not be widely distributed. Although the Initial Purchasers have informed the
Company that they currently intend to make a market in the Exchange Notes, they
are not obligated to do so and may discontinue market making at any time without
notice. The Company does not intend to list the Notes on any national securities
exchange or to seek the admission thereof to trading in The Nasdaq Stock Market.
Accordingly, there can be no assurance as to the development or liquidity of any
market for either Exchange Notes or the Existing Notes. If a market does
develop, the Notes may trade at a discount from their principal amount, and the
price of the Notes may fluctuate depending on many factors including, but not
limited to, prevailing interest rates, the Company's operating results and the
market for similar securities, and liquidity may therefore be limited. If a
market for the Notes does not develop, purchasers may be unable to resell such
securities for an extended period of time, if at all.
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THE EXCHANGE OFFER
GENERAL
The Existing Notes were originally sold by the Company on June 23, 1998 to
the Initial Purchasers pursuant to a purchase agreement dated June 18, 1998 (the
"Purchase Agreement"). The Initial Purchasers subsequently resold the Existing
Notes to QIBs in reliance on Rule 144A and to non-U.S. persons in accordance
with Regulation S.
The Company hereby offers, upon the terms and conditions set forth herein
and in the related Letter of Transmittal, to exchange Exchange Notes for a like
principal amount of outstanding Existing Notes. An aggregate of $125 million
principal amount of Existing Notes are outstanding. The Exchange Offer is not
conditioned upon any minimum principal amount of Existing Notes being tendered.
REGISTRATION AGREEMENT
As a condition to the Purchase Agreement, the Company agreed pursuant to
the Registration Rights Agreement with the Initial Purchasers dated as of June
18, 1998 (the "Registration Agreement"), for the benefit of the holders of the
Existing Notes, that the Company will, at its cost, (i) within 45 days after the
date of original issue of the Existing Notes, file a registration statement (the
"Exchange Offer Registration Statement") with the SEC with respect to a
registered offer to exchange the Existing Notes for the Exchange Notes that will
be issued under the Indenture in the same aggregate principal amount and having
terms substantially identical in all material respects to the Existing Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) and (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the date of original issue of the Existing Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer the Exchange Notes in exchange for surrender of the Existing Notes. The
Company will keep the Exchange Offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Existing Notes. For each Existing Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Existing Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Existing Note. Interest on each Exchange Note will accrue from the
last interest payment date on which interest was paid on the Existing Note
surrendered in exchange thereof or, if no interest has been paid on such
Existing Note, from the date of its original issue.
If the Company effects the Exchange Offer, it will be entitled to close the
Exchange Offer 30 days after the commencement thereof provided that it has
accepted all Existing Notes theretofore validly tendered in accordance with the
terms of the Exchange Offer.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect a registered Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Agreement, or if the Initial Purchasers so request with respect to
Existing Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer, or if any holder of Existing Notes is not eligible to participate in the
Exchange Offer or does not receive freely tradeable Exchange Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a shelf registration statement (a "Shelf Registration Statement") covering
resales of the Existing Notes or the Exchange Notes, as the case may be, (b) use
its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until the time when the Existing Notes covered by the Shelf
Registration Statement can be sold pursuant to Rule 144 without any limitations
under clauses (c), (e), (f) and (h) of Rule 144. The Company will, in the event
a Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Existing Notes or the Exchange Notes, as the case may be. A holder selling such
Existing Notes or Exchange Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
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with such sales and will be bound by the provisions of the Registration
Agreement which are applicable to such holder (including certain indemnification
obligations).
Pursuant to the Registration Agreement, if (i) by August 7, 1998, neither
the Exchange Offer Registration Statement nor the Shelf Registration Statement
has been filed with the SEC; (ii) by December 21, 1998, the Exchange Offer is
not consummated and, if applicable, the Shelf Registration Statement is not
declared effective; or (iii) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement is declared effective, such
Registration Statement thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of Existing Notes or Exchange
Notes in accordance with and during the periods specified in the Registration
Agreement (each such event referred to in clauses (i) through (iii) a
"Registration Default"), additional interest will accrue on the applicable
Existing Notes and the Exchange Notes at the rate of 0.50% per annum from and
including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. Such
interest is payable in addition to any other interest payable from time to time
with respect to the Existing Notes and the Exchange Notes.
The Company's purpose in making the Exchange Offer is to comply with the
Registration Agreement and to avoid the payment of additional interest which the
Company would incur if the Exchange Offer were not duly and timely consummated.
The full terms of the Company's obligations with respect to the Exchange Offer
are set forth in the Registration Agreement which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The summary
herein of certain provisions of the Registration Agreement does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Agreement, a copy of which is available
from the Company upon request.
CERTAIN EFFECTS OF THE EXCHANGE OFFER
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Offer will provide holders of Existing Notes with Exchange Notes that
will generally be freely transferable by holders thereof (other than any holder
who is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), who may offer for resale, resell or otherwise transfer such
Exchange Notes without complying with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of each such holder's business and such holders are not
engaged in, and do not intend to engage in, a distribution of such Exchange
Notes and have no arrangement or understanding with any person to participate in
a distribution of such Exchange Notes, provided, further that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Exchange Notes. The SEC has taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Existing Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." Under the
Registration Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes. The Company has
not sought, and does not intend to seek, a no-action letter from the Commission
with respect to the effects of the Exchange Offer.
The Existing Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities under the Securities Act.
Accordingly, such Existing Notes may be resold only (i) to the Company, (ii)
pursuant to a registration statement that has been declared effective under the
Securities Act, (iii) for so long as the Existing Notes are eligible for resale
pursuant to Rule 144A, to a person reasonably believed to be a QIB that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (iv) pursuant to
offers and sales to non-U.S. persons that occur outside the United States within
the meaning of Regulation S, (v) to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
23
<PAGE> 28
Act and referred to in this Prospectus as an "Institutional Accredited
Investor") that is acquiring the security for its own account or for the account
of such an Institutional Accredited Investor for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or (vi) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases (a) to any requirement of law that the disposition
of its property or the property of such investor account or accounts be at all
times within its or their control and (b) to compliance with any applicable
state or other securities laws. After the Exchange Offer is completed, holders
of Existing Notes will not have certain registration rights under the
Registration Agreement. See "-- Termination of Certain Rights."
Because the Exchange Offer is for any and all Existing Notes, the number of
Existing Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Existing Notes outstanding. As a result, the liquidity of
any remaining Existing Notes may be substantially reduced. The Existing Notes
beneficially owned by QIBs are currently eligible for sale pursuant to Rule 144A
through PORTAL. Because the Company anticipates that most holders of Existing
Notes will elect to exchange such Existing Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any Existing
Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
The exchange of an Existing Note for an Exchange Note should not constitute
a taxable exchange of the Existing Note if the interest rate on the Exchange
Note is equal to the interest rate on the Existing Note. Although there is no
definitive guidance on the issue, even if the interest rate on the Exchange Note
is not equal to the interest rate on the Existing Note because Additional
Interest is payable on the Existing Note but not on the Exchange Note, the
exchange should not constitute a taxable exchange of the Existing Note. See
"Certain United States Federal Income Tax Considerations."
EXPIRATION AND EXTENSION
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless extended by the Company. The Exchange Offer may be extended by
oral or written notice from the Company to the Exchange Agent at any time or
from time to time, on or prior to the date then fixed for the expiration of the
Exchange Offer. The term "Expiration Date" means 5:00 p.m., New York City time,
on , 1998, unless the Company, in its sole discretion, notifies the
Exchange Agent that the period of the Exchange Offer has been extended, in which
case the term "Expiration Date" means the latest time and date on which the
Exchange Offer, as so extended, will expire. Notwithstanding any extension of
the Exchange Offer, if the Exchange Offer is not consummated by December 21,
1998, additional interest will accrue. Public announcement of any extension of
the Exchange Offer will be timely made by the Company, but, unless otherwise
required by law or regulation, the Company will not have any obligation to
communicate such public announcement other than by making a release to the Dow
Jones News Service.
ACCRUED INTEREST
Holders of Existing Notes that are accepted for exchange will not receive
any accrued interest thereon. However, each Exchange Note will bear interest
from the most recent date on which interest has been paid on the corresponding
Existing Note, or, if no interest has been paid, from June 23, 1998.
CONDITIONS
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to cause the
issuance of Exchange Notes in respect of any validly tendered Existing Notes not
accepted and, prior to the acceptance of tendered Existing Notes, may terminate
the Exchange Offer (by oral or written notice to the Exchange Agent and by
timely public announcement communicated, unless otherwise required by applicable
law or regulation, by making a release to the Dow Jones News Service) or,
subject to compliance with the applicable rules of the Commission, delay the
24
<PAGE> 29
acceptance of the tendered Existing Notes, if any material change occurs which
is likely to affect the Exchange Offer, including, but not limited to, the
following:
(i) there shall occur (a) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (b) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (c) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any limitation by
any governmental agency or authority which adversely affects the extension
of credit or (d) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof;
(ii) any statute, rule or regulation shall have been proposed or
enacted, or any action shall have been taken or proposed to be taken by any
governmental authority which, in the sole judgment of the Company, would or
might prohibit, restrict or delay completion of the Exchange Offer;
(iii) there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging the Exchange Offer or
otherwise directly or indirectly relating to the Exchange Offer;
(iv) there shall occur any development in any pending action or
proceeding which, in the sole judgment of the Company, would or might
prohibit, restrict or delay consummation of the Exchange Offer;
(v) there exists, in the sole judgment of the Company, any actual or
threatened legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation to which
the Company is a party or by which it is bound) to the completion of the
Exchange Offer; or
(vi) prior to the completion of the Exchange Offer, the Company
determines there has been a change in law or applicable interpretation
thereof by the staff of the Commission such that the Exchange Notes that
would be received by holders in the Exchange Offer in exchange for Existing
Notes would not be transferable, upon receipt, by each such holder (other
than a holder that is an affiliate of the Company, a holder who acquires
the Exchange Notes outside the ordinary course of such holder's business, a
holder who is engaged in or intends to engage in a distribution of such
Exchange Notes or a holder who has arrangements or understandings with any
person to participate in the Exchange Offer for the purpose of distributing
the Exchange Notes) without restriction under the Securities Act.
Subject to the obligations under the Registration Agreement to use its best
efforts to complete the Exchange Offer, the Company expressly reserves the
right, at any time prior to the acceptance of tendered Existing Notes, to
terminate the Exchange Offer and not accept for exchange any Existing Notes upon
the occurrence of any of the foregoing conditions. In addition, the Company may
amend the Exchange Offer at any time prior to the acceptance of tendered
Existing Notes if any of the conditions set forth above occur. Moreover,
regardless of whether any of the foregoing conditions has occurred, the Company
reserves the right, in its reasonable discretion, to amend the Exchange Offer in
any manner prior to the acceptance of tendered Existing Notes, although it has
no current intention to do so.
The Company reserves the right to waive any condition or otherwise amend
the Exchange Offer prior to the acceptance of tendered Existing Notes. If any
amendment by the Company of the Exchange Offer or waiver by the Company of any
condition thereto constitutes a material change in the information previously
disclosed to the holders of Existing Notes, the Company will, in accordance with
the applicable rules of the Commission, promptly disseminate disclosure of such
change in a manner reasonably calculated to inform such holders of such change.
If it is necessary to permit an adequate dissemination of information regarding
such material change, the Company will extend the Exchange Offer to permit an
adequate time for holders of Existing Notes to consider the additional
information.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company, in whole
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<PAGE> 30
or in part, at any time and from time to time in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties to the Exchange Offer.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no Exchange Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended.
If the event referred to in clause (vi), above, shall occur, the Company
shall be under no continuing obligation under the Registration Agreement to
complete the Exchange Offer, but in lieu thereof will be obligated to file and
use its best efforts to secure and maintain the effectiveness under the
Securities Act of a "shelf" registration statement providing for the resale of
Existing Notes.
HOW TO TENDER
A holder of Existing Notes may tender Existing Notes by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof), having their signatures guaranteed if required,
and delivering the same, together with the Existing Notes being tendered (or a
confirmation of an appropriate book-entry transfer), to the Exchange Agent on or
prior to the Expiration Date, or (ii) requesting a broker, dealer, bank, trust
company or other nominee to effect the transaction for such holder prior to the
Expiration Date.
Exchange Notes will not be issued in the name of a person other than that
of a registered holder of the Existing Notes appearing on the Note register.
The Exchange Agent will establish an account with respect to the Existing
Notes at The Depository Trust Company ("DTC" or the "Depository") for purposes
of the Exchange Offer promptly after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Existing Notes by causing DTC to transfer such Existing Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, the Letter of Transmittal, with any
required signature guarantees and any other required documents, must in any case
be transmitted to and received by the Exchange Agent on or prior to the
Expiration Date at the address set forth below under "-- Exchange Agent," or the
guaranteed delivery procedure described below must be complied with. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent. See
"-- Exchanging Book-Entry Notes."
THE METHOD OF DELIVERY OF EXISTING NOTES AND ALL OTHER DOCUMENTS, INCLUDING
DELIVERY THROUGH DTC, IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED,
AND PROPER INSURANCE BE OBTAINED.
If a holder desires to tender Existing Notes pursuant to the Exchange Offer
and such holder's Existing Notes are not immediately available or time will not
permit all of the above documents to reach the Exchange Agent prior to the
Expiration Date, or such holder cannot complete the procedure of book-entry
transfer on a timely basis, such tender may be effected if the following
conditions are satisfied:
(i) such tenders are made by or through an eligible guarantor
institution which is a member of one of the following Signature Guarantee
Programs: The Securities Transfer Agents Medallion Program (STAMP); The New
York Stock Exchange's Medallion Signature Program (MSP) and The Stock
Exchanges Medallion Program (SEMP) (each, an "Eligible Institution");
(ii) a properly completed and duly executed notice of guaranteed
delivery ("Notice of Guaranteed Delivery"), in substantially the form
provided by the Company, is received by the Exchange Agent as provided
below on or prior to the Expiration Date; and
(iii) the Existing Notes, in proper form for transfer (or confirmation
of book-entry transfer of such Existing Notes into the Exchange Agent's
account at the Depository as described above), together with a properly
completed and duly executed Letter of Transmittal and all other documents
required by the
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<PAGE> 31
Letter of Transmittal, are received by the Exchange Agent within five New
York Stock Exchange, Inc. trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Notes (or a timely confirmation received of a book-entry transfer of Existing
Notes into the Exchange Agent's account at DTC) or a Notice of Guaranteed
Delivery from an Eligible Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Existing Notes tendered pursuant to
a Notice of Guaranteed Delivery by an Eligible Institution will be made only
against delivery of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes (or a timely confirmation received of a
book-entry transfer of Existing Notes into the Exchange Agent's account at DTC)
to the Exchange Agent or confirmation of the Book-Entry Transfer Facility
Automated Tender Offer Program ("ATOP") procedures set forth below. See
"-- Exchanging Book-Entry Notes."
Partial tenders of Existing Notes may be made only if (i) the principal
amount tendered is equal to $1,000 or an integral multiple thereof and (ii) the
remaining untendered portion of such Existing Notes is in a principal amount of
$250,000, or any integral multiple of $1,000 in excess of such amount. Holders
tendering less than the entire principal amount of any Existing Note they hold
in accordance with the foregoing restrictions must appropriately indicate such
fact on the Letter of Transmittal accompanying the tendered Existing Note.
With respect to tenders of Existing Notes, the Company reserves full
discretion to determine whether the documentation is complete and generally to
determine all questions as to tenders, including the date of receipt of a
tender, the propriety of execution of any document, and any other questions as
to the validity, form, eligibility or acceptability of any tender. The Company
reserves the right to reject any tender not in proper form or otherwise not
valid or the acceptance of exchange of which, in the opinion of the Company's
counsel, may be unlawful or to waive any irregularities or conditions, and the
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions on the Letter of Transmittal) will be final. The
Company shall not be obligated to give notice of any defects or irregularities
in tenders and shall not incur any liability for failure to give any such
notice. The Exchange Agent may, but shall not be obligated to, give notice of
any irregularities or defects in tenders, and shall not incur any liability for
any failure to give any such notice. Existing Notes shall not be deemed to have
been duly or validly tendered unless and until all defects and irregularities
have been cured or waived. All improperly tendered Existing Notes, as well as
Existing Notes in excess of the principal amount tendered for exchange, will be
returned (unless irregularities and defects are timely cured or waived), without
cost to the tendering holder (or, in the case of Existing Notes delivered by
book-entry transfer within DTC, will be credited to the account maintained
within DTC by the participant in DTC which delivered such shares), promptly
after the Expiration Date.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in the DTC may utilize ATOP to tender Existing Notes.
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<PAGE> 32
Any DTC participant may make book-entry delivery of Existing Notes by
causing DTC to transfer such Existing Notes into the Exchange Agent's account in
accordance with DTC's ATOP procedures for transfer. However, the exchange for
the Existing Notes so tendered will only be made after timely confirmation (a
"Book-Entry Confirmation") of such book-entry transfer of Existing Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as defined) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the DTC
and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a participant tendering Existing Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
By tendering Existing Notes and executing the Letter of Transmittal, the
holder thereof shall represent and agree that (i) it is neither an affiliate of
the Company nor a broker-dealer tendering Existing Notes acquired directly from
the Company for its own account, (ii) it acquired the Exchange Notes in the
ordinary course of its business and (iii) it is not engaged in, and does not
intend to engage in, a distribution of the Exchange Notes and it has no
arrangement or understanding to participate in a distribution of Exchange Notes.
Holders of Existing Notes who participate in the Exchange Offer should be aware
that, except in the case of certain broker-dealers as described below, if they
accept the Exchange Offer for the purpose of participating in a distribution of
the Exchange Notes, they cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act. A holder of Existing Notes (other than
certain specified holders) who wishes to exchange such Existing Notes for
Exchange Notes in the Exchange Offer will be required to represent that any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business and that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an "affiliate" of the Company, as defined in Rule 405 of the
Securities Act, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus with any resale
of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
Existing Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Existing Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal and any other required documents, by 5:00 p.m., New York City
time, on or prior to , 1998, unless extended, or within the time
periods set forth above in "-- How to Tender" pursuant to a Notice of Guaranteed
Delivery from an Eligible Institution. The party tendering the Existing Notes
for exchange (the "Tendering Holder") shall be deemed to have sold, assigned and
transferred the Existing Notes to the Exchange Agent, as agent of the Company,
and irrevocably constituted and appointed the Exchange Agent as the Tendering
Holder's agent and attorney-in-fact to cause the Existing Notes to be
transferred and exchanged. The Tendering Holder shall also warrant that it has
full power and authority to tender, exchange, sell, assign, and transfer the
Existing Notes and to acquire the Exchange Notes issuable upon the exchange of
such tendered Existing Notes, that the Exchange Agent, as agent of the Company,
will acquire good and unencumbered title to the tendered Existing Notes, free
and clear of all liens, restrictions, charges and encumbrances, and that the
Existing Notes tendered for exchange are not subject to any adverse claims when
accepted by the Exchange Agent, as agent of the Company. The Tendering Holder
shall also warrant that it will, upon request, execute and deliver any
additional documents
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<PAGE> 33
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment and transfer of the Existing Notes. All
authority conferred or agreed to be conferred in the Letter of Transmittal by
the Tendering Holder will survive the death or incapacity of the Tendering
Holder and any obligation of the Tendering Holder shall be binding upon the
heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of such Tendering
Holder.
Signature(s) on the Letter of Transmittal will be required to be guaranteed
as set forth above in "-- How to Tender." All questions as to the validity,
form, eligibility (including time of receipt) and acceptability of any tender
will be determined by the Company, in its sole discretion, and such
determination will be final and binding. Unless waived by the Company,
irregularities and defects must be cured by the Expiration Date.
WITHDRAWAL RIGHTS
All tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. To be effective, a notice of withdrawal must be timely received
by the Exchange Agent at the address set forth below under "-- Exchange Agent."
Any notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered the Existing Notes to be withdrawn. If the
Existing Notes have been physically delivered to the Exchange Agent, the
Tendering Holder must also submit the serial number shown on the particular
Existing Notes to be withdrawn. If the Existing Notes have been delivered
pursuant to the book-entry procedures set forth above under "-- How to Tender,"
any notice of withdrawal must specify the name and number of the participant's
account at the Depository to be credited with the withdrawn Existing Notes. The
Exchange Agent will return the properly withdrawn Existing Notes as soon as
practicable following receipt of the notice of withdrawal. All questions as to
the validity, including time of receipt, of notices and withdrawals will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF TENDERS
Subject to the terms and conditions of the Exchange Offer, including the
reservation of certain rights by the Company, Existing Notes tendered (either
physically or through book-entry delivery as described in "-- How to Tender")
with a properly executed Letter of Transmittal and all other required
documentation, and not withdrawn, will be accepted on or promptly after the
Expiration Date. At the option of the holder of an Exchange Note, such Exchange
Note may be held in the form of either (i) a certificated Exchange Note or (ii)
a beneficial interest in one or more of the Global Notes (as defined).
Beneficial interests in the Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants. Subject to the terms and conditions of the Exchange Offer,
certificated Exchange Notes to be issued in exchange for properly tendered
Existing Notes will be mailed by the Exchange Agent promptly after the
acceptance of such tendered Existing Notes and the Exchange Notes to be issued
in the form of Global Notes will be deposited with the Depository promptly after
acceptance of the related tendered Existing Notes. Acceptance of tendered
Existing Notes will be effected by the delivery of a notice to that effect by
the Company to the Exchange Agent. Subject to the applicable rules of the
Commission, the Company, however, reserves the right, prior to the acceptance of
tendered Existing Notes, to delay acceptance of tendered Existing Notes upon the
occurrence of any of the conditions set forth above under the caption
"-- Conditions." The Company confirms that its reservation of the right to delay
acceptance of tendered Existing Notes is subject to the provisions of Rule
14e-1(c) under the Exchange Act, which requires that a tender offeror pay the
consideration offered or return the tendered securities promptly after the
termination or withdrawal of a tender offer.
Although the Company does not currently intend to do so, if it modifies the
terms of the Exchange Offer, such modified terms will be available to all
holders of Existing Notes, whether or not their Existing Notes have been
tendered prior to such modification. Any material modification will be disclosed
in accordance with the applicable rules of the Commission and, if required, the
Exchange Offer will be extended to permit holders of Existing Notes adequate
time to consider such modification.
The tender of Existing Notes pursuant to any one of the procedures set
forth in "-- How to Tender" will constitute an agreement between the Tendering
Holder and the Company upon the terms and subject to the conditions of the
Exchange Offer.
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<PAGE> 34
EXCHANGE AGENT
United States Trust Company of New York has agreed to provide certain
services as Exchange Agent for the Exchange Offer. Tendering Holders who require
assistance should contact the Exchange Agent. Letters of Transmittal and any
inquiries with respect to the Exchange Offer must be addressed to the Exchange
Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission By Hand up to 4:30 p.m.:
Number:
United States Trust (212) 780-0592 United States Trust Company
Company of New York (For Eligible Institutions of New York
P.O. Box 844 Only) 111 Broadway
Cooper Station Lower Level
New York, New York Confirm by Telephone: New York, New York 10006
10276-0844 (800) 548-6565 Attn: Corporate Trust
Attn: Corporate Trust Services
Services
(Registered or Certified Mail
Recommended)
By Overnight Courier:
United States Trust Company
of New York
770 Broadway -- 13th Floor
New York, New York 10003
Attn: Corporate Trust
Services
</TABLE>
DELIVERY TO OTHER THAN THE ADDRESS SET FORTH ABOVE OR FACSIMILE
TRANSMISSION TO OTHER THAN THE FACSIMILE TRANSMISSION NUMBER SET FORTH ABOVE
WILL NOT CONSTITUTE VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
Except as described above under "-- Exchange Agent," the Company has not
retained any agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or other persons for soliciting or recommending
acceptances of the Exchange Offer. The Company, will, however, reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of the Existing Notes and in handling or forwarding tenders for their
customers.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the transfer
of Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Existing Notes tendered, or if tendered
Existing Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Existing Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
Tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such Tendering Holder.
ACCOUNTING TREATMENT
The carrying value of the Existing Notes is expected to become the carrying
value of the Exchange Notes at the time of the Exchange Offer. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer will be amortized over the term of the Exchange Notes.
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<PAGE> 35
TERMINATION OF CERTAIN RIGHTS
Holders of the Exchange Notes will not be entitled to certain special
rights under the Registration Agreement, which rights will terminate when the
Exchange Offer is completed. Pursuant to the Registration Agreement, the
Exchange Offer shall be deemed to be "completed" upon the occurrence of (i) the
filing and effectiveness under the Securities Act of a registration statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such registration statement continuously effective for a period
of not less than 30 days after notice has been sent to holders of Existing Notes
and (iii) the delivery by the Company in exchange for all Existing Notes that
have been duly tendered and not validly withdrawn on or prior to the Expiration
Date of Exchange Notes transferable by each holder thereof (other than a holder
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act, a broker-dealer tendering Existing Notes acquired directly from
the Company for its own account, a holder who acquires the Exchange Notes
outside the ordinary course of such holder's business or a holder who is engaged
in or who intends to engage in a distribution of the Exchange Notes or who has
arrangements or understandings with any person to participate in the Exchange
Offer for the purpose of distributing the Exchange Notes) without restrictions
under the Securities Act. The rights that will terminate include the right to
require the Company (i) to file with the Commission, and use its best efforts to
cause to become effective under the Securities Act, a registration statement
with respect to the Exchange Notes and (ii) other than in certain limited
circumstances, to file with the Commission, use its best efforts to cause to
become effective under the Securities Act and keep continuously effective for a
period of up to three years a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, Existing Notes.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement. The Company will not receive any
cash proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Existing Notes in like principal amount,
the form and terms of which are identical in all material respects to the form
and terms of the Exchange Notes, except as otherwise described herein. The
Existing Notes surrendered in exchange for the Exchange Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company.
The proceeds to the Company for the sale of the Existing Notes were
approximately $121.3 million, net of Initial Purchasers' discount. The net
proceeds to the Company from the sale of the Existing Notes were used as
follows: (i) approximately $47.9 million was used to pay the purchase price of
the Acquisition and related expenses; (ii) approximately $63.9 million was used
to repay the Company's existing revolving credit facility and term loan
facility, existing subordinated debt, and an existing note payable
(collectively, the "Outstanding Indebtedness"); (iii) approximately $3.3 million
was used to retire a portion of the Company's Series A Preferred Stock; (iv)
approximately $1.3 million was used to pay fees and expenses of the Private
Offering; and (v) approximately $4.9 million was used for general corporate
purposes.
31
<PAGE> 36
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the consolidated
capitalization of the Company. The information set forth below should be read in
conjunction with the consolidated financial statements of Aqua-Chem included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 9,300
========
Long-term debt:
New Credit Facility(a).................................... $ --
The Notes................................................. 125,000
--------
Total debt............................................. 125,000
Preferred stock............................................. 4,704
Stockholders' deficit....................................... (1,611)
--------
Total capitalization................................. $128,093
========
</TABLE>
- ------------------------------------
(a) Consists of a $45,000 revolving facility, none of which was drawn at June
30, 1998. See "Description of Certain Indebtedness."
32
<PAGE> 37
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data include the unaudited pro forma
consolidated statements of operations of the Company for the twelve months ended
December 31, 1997, and the six months ended June 30, 1998 (the "Pro Forma
Statements of Operations"). The Pro Forma Statements of Operations for the
twelve months ended December 31, 1997 have been prepared using NDC's results for
the fiscal year ended October 31, 1997. The Pro Forma Statements of Operations
for the six months ended June 30, 1998 have been prepared using NDC's historical
results for the period from January 1, 1998 through June 23, 1998, the date the
Acquisition was consummated (the operations of the Company's National Dynamics
Division, consisting of the former business of NDC, for the period June 24,
1998, to June 30, 1998, are not included in Aqua-Chem's historical results for
the six months ended June 30, 1998, as management has determined the impact is
not material to the Company's Consolidated Statement of Operations). The results
of NDC's operations for the year ended October 31, 1997 are not necessarily
indicative of the results of NDC's operations for the twelve months ended
December 31, 1997. The pro-forma and actual results of operations for any
interim period are not necessarily indicative of the results for an entire year.
The Pro Forma Statements of Operations give effect to the Transactions as if
they had occurred on January 1, 1997.
The Company is implementing a business plan designed to achieve certain
synergies and costs savings arising from (i) the Company's closure of its
Greenville, Mississippi facility; and (ii) the in-sourcing of certain boiler
components currently procured from third parties that either Cleaver-Brooks or
National Dynamics already produces. See Note (b) to the table under
"Summary -- Summary Unaudited Pro Forma Financial Data." The Pro Forma
Statements of Operations do not include these cost savings or the cost of
achieving these cost savings.
The Acquisition will be accounted for by the purchase method of accounting.
Under purchase accounting, the total purchase price will be allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values as of the closing of the Acquisition based on valuations
and studies which are not yet available. A preliminary allocation of the
purchase price has been made to major categories of assets and liabilities in
the Pro Forma Financial Statements based on available information. The final
allocation of purchase price and resulting effect on income from operations may
differ significantly from the pro forma amounts included herein. On or prior to
August 22, 1998, a balance sheet will be prepared for NDC as of the date of the
closing of the Acquisition, on which the post-closing purchase price adjustments
will be based. Management does not expect that differences between the
preliminary and final purchase price allocation will have a material impact on
the Company's financial position or results of operations.
The Pro Forma Financial Statements are based on certain estimates and
assumptions made by the management of the Company as to the combined operations
of Aqua-Chem and NDC which the Company believes to be reasonable. The Pro Forma
Financial Statements do not purport to be indicative of the results of
operations or financial position of Aqua-Chem and NDC that actually would have
been obtained had the Transactions been completed as of the assumed dates, or to
project the results of operations or financial position of the Company for any
future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
financial statements of Aqua-Chem and of NDC included elsewhere in this
Prospectus. See also "Risk Factors -- Realization of Benefits of the
Acquisition," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Aqua-Chem," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of NDC."
33
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA HISTORICAL --------------------------
AQUA-CHEM(A) NDC ACQUISITION OFFERING PRO FORMA
------------ ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................... $191,159 $59,292 $ -- $ -- $250,451
Cost of goods sold.................. 140,950 45,862 101(b) -- 186,913
-------- ------- -------- -------- --------
Gross margin...................... 50,209 13,430 (101) -- 63,538
Selling, general and administrative
expenses.......................... 39,602 5,815 195(b) -- 45,612
-------- ------- -------- -------- --------
Operating income.................... 10,607 7,615 (296) -- 17,926
Other income (expenses):
Interest income................... 459 242 -- -- 701
Interest expense.................. (5,745) (183) 183(c) (8,823)(d) (14,568)
Other............................. 445 54 -- -- 499
-------- ------- -------- -------- --------
(4,841) 113 183 (8,823) (13,368)
Income before income taxes, minority
interest and extraordinary item... 5,766 7,728 (113) (8,823) 4,558
Income tax expense (benefit)........ 2,289 -- 3,023(e) (3,502)(e) 1,810
Minority interest in earnings of
consolidated subsidiary........... 345 -- -- -- 345
-------- ------- -------- -------- --------
Net income before extraordinary
item.............................. 3,132 7,728 (3,136) (5,321) 2,403
Extraordinary item, net of tax...... -- -- -- (1,485)(f) (1,485)
-------- ------- -------- -------- --------
Net income.......................... 3,132 7,728 (3,136) (6,806) 918
Preferred stock dividends........... (619) -- -- 209(g) (410)
-------- ------- -------- -------- --------
Net income applicable to common..... $ 2,513 $ 7,728 $ (3,136) $ (6,597) $ 508
======== ======= ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(h)......................... $ 15,539 $ 8,112 $ 800 $ -- $ 24,451
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
34
<PAGE> 39
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS
------------------- ----------------------------
AQUA-CHEM NDC ACQUISITION OFFERING PRO FORMA
--------- ------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................ $76,222 $22,273 $ -- $ -- $98,495
Cost of goods sold................... 55,930 17,721 50(b) -- 73,701
------- ------- ----- ------- -------
Gross margin.................... 20,292 4,552 (50) -- 24,794
Selling, general and administrative
expenses........................... 17,446 3,450 349(b) -- 21,245
Restructuring charges................ 4,720 -- -- -- 4,720
------- ------- ----- ------- -------
Operating income (loss).............. (1,874) 1,102 (399) -- (1,171)
Other income (expenses):
Interest income................. 209 572 -- -- 781
Interest expense................ (3,004) (78) 78(c) (4,280)(d) (7,284)
Other........................... 26 (6) -- -- 20
------- ------- ----- ------- -------
(2,769) 488 78 (4,280) (6,483)
Income (loss) before income taxes,
minority interest and extraordinary
item............................... (4,643) 1,590 (321) (4,280) (7,654)
Income tax expense (benefit)......... (1,448) -- 504(e) (2,095)(e) (3,039)
Minority interest in earnings of
consolidated subsidiary............ 136 -- -- -- 136
------- ------- ----- ------- -------
Net income (loss) before
extraordinary item................. (3,331) 1,590 (825) (2,185) (4,751)
Extraordinary item, net of tax
benefit............................ 1,260 -- -- (1,260)(f) --
------- ------- ----- ------- -------
Net income (loss).................... (4,591) 1,590 (825) (925) (4,751)
Preferred stock dividends............ (310) -- -- 90(g) (220)
------- ------- ----- ------- -------
Net income (loss) applicable to
common............................. $(4,901) $ 1,590 $(825) $ (835) $(4,971)
======= ======= ===== ======= =======
OTHER FINANCIAL DATA:
EBITDA(h).......................... $ 28 $ 1,376 $ 150 $ -- $ 1,554
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
35
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents Aqua-Chem's Statement of Operations for the period January 1,
1997 to July 31, 1997, prepared using Aqua-Chem's historical basis of
accounting and Aqua-Chem's Statement of Operations for the period August 1,
1997 to December 31, 1997, prepared under a new basis of accounting that
reflects the fair values of assets acquired and liabilities assumed, the
related financing cost and all debt incurred in connection with the
Management Buy-Out, on a combined basis, adjusted as follows:
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------- PRO FORMA
SEVEN MONTHS FIVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED MANAGEMENT ENDED
JULY 31, DECEMBER 31, DECEMBER 31, BUY-OUT DECEMBER 31,
1997 1997 1997 ADJUSTMENTS 1997
------------ ------------ ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $99,618 $91,541 $191,159 $ -- $191,159
Cost of goods sold.................... 73,656 66,333 139,989 961(i) 140,950
------- ------- -------- ------- --------
Gross margin........................ 25,962 25,208 51,170 (961) 50,209
Selling, general and administrative
expenses............................ 22,258 17,136 39,394 208(i) 39,602
------- ------- -------- ------- --------
Operating income...................... 3,704 8,072 11,776 (1,169) 10,607
Other income (expenses):
Interest income..................... 450 202 652 (193)(ii) 459
Interest expense.................... (753) (2,559) (3,312) (2,433)(iii) (5,745)
Other............................... (955) 57 (898) 1,343(iv) 445
------- ------- -------- ------- --------
(1,258) (2,300) (3,558) (1,283) (4,841)
Income before income taxes and
minority interest................... 2,446 5,772 8,218 (2,452) 5,766
Income tax expense.................... 421 2,289 2,710 (421)(v) 2,289
Minority interest in earnings of
consolidated subsidiary............. 171 174 345 -- 345
------- ------- -------- ------- --------
Net income............................ 1,854 3,309 5,163 (2,031) 3,132
Preferred stock dividends............. -- (260) (260) (359)(vi) (619)
------- ------- -------- ------- --------
Net income applicable to common....... $ 1,854 $ 3,049 $ 4,903 $(2,390) $ 2,513
======= ======= ======== ======= ========
</TABLE>
--------------------------------------------------
<TABLE>
<S> <C> <C>
(i) Reflects the historical results of operations of Aqua-Chem adjusted
for the period from January 1, 1997 to the Management Buy-Out date as
follows:
</TABLE>
<TABLE>
<CAPTION>
COST OF SELLING, GENERAL
GOODS SOLD AND ADMINISTRATIVE
---------- ------------------
<S> <C> <C> <C>
Additional depreciation expense due to the
recording of fixed assets at fair market
value........................................ $961 $290
Reduction of postretirement benefits expense
due to the recognition of the full
accumulated postretirement benefit
liability.................................... -- (102)
Amortization of intangible assets resulting
from the Management Buy-Out (40 year
amortization)................................ -- 20
---- ----
$961 $208
==== ====
</TABLE>
<TABLE>
<S> <C> <C>
(ii) Reflects a reduction of interest income for $6,600 of cash used in
the Management Buy-Out at a rate of 5.0%.
(iii) Reflects additional interest expense determined as follows:
Amortization of deferred financing costs.................... $ 333
Existing subordinated debt ($21,000 @ 10.5%)................ 2,205
Existing revolving credit facility ($5,000 @ 8.0%).......... 400
Existing term loan facility ($40,000 @ 8.0%)................ 3,200
Less: interest on various payments totaling $6,000 against
the existing debt........................................... (393)
-------
5,745
Less: historical interest expense........................... (3,312)
-------
$ 2,433
=======
</TABLE>
36
<PAGE> 41
<TABLE>
<S> <C> <C>
(iv) Reflects the following adjustments:
Elimination of certain payments to management from the
Management Buy-Out.......................................... $ 1,291
Elimination of amortization of deferred financing for debt
retired in conjunction with the Management Buy-Out.......... 52
-------
$ 1,343
=======
(v) Reflects the pro forma tax effects of all adjustments using
Aqua-Chem's consolidated effective tax rate for the applicable
period. See Note 10 to Aqua-Chem's consolidated financial statements
for a reconciliation from the statutory tax rate to the effective tax
rate.
(vi) Reflects additional dividends and original issue discount
amortization for the preferred stock.
</TABLE>
(b) Reflects the historical results of operations of NDC, adjusted as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------------ ------------------------------
SELLING, SELLING,
COST OF GOODS GENERAL AND COST OF GOODS GENERAL AND
SOLD ADMINISTRATIVE SOLD ADMINISTRATIVE
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Additional depreciation expense due to
the recording of fixed assets at
fair market value................... $181 $ 45 $ 90 $ 23
Additional depreciation expense due to
the recording of fixed assets at the
Company's lives..................... 120 30 60 16
Amortization of intangible assets
resulting from the Acquisition (40
year amortization).................. -- 720 -- 360
Reduction of insurance premiums....... (200) -- (100) --
Elimination of employment costs of
former owners (net of estimated
costs of replacing management)...... -- (600) -- (50)
---- ----- ---- ----
$101 $ 195 $ 50 $349
==== ===== ==== ====
</TABLE>
(c) Reflects the elimination of interest expense on NDC's short term borrowings
that would not be required.
(d) Reflects additional interest expense resulting from the Private Offering as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------- ----------
<S> <C> <C>
The Notes................................................... $14,063 $ 7,032
Amortization of deferred financing fees associated with the
Private Offering.......................................... 505 252
------- -------
14,568 7,284
Less historical interest expense............................ (5,745) (3,004)
------- -------
$ 8,823 $ 4,280
======= =======
</TABLE>
(e) Reflects the pro forma tax effects of all adjustments using Aqua-Chem's
effective tax rate for the applicable period. See Note 10 to Aqua-Chem's
consolidated financial statements for a reconciliation from the statutory
tax rate to the effective tax rate.
(f) Reflects the write-off of the deferred financing fees and original issue
discount associated with the Management Buy-Out due to the early retirement
of the existing subordinated debt, net of tax benefit.
37
<PAGE> 42
(g) Reflects a reduction of preferred stock dividends and original issue
discount due to a $3,000 redemption of Series A Preferred Stock.
(h) EBITDA is defined as operating income before depreciation and amortization
and, in 1997, excludes $687 of non-cash purchase accounting adjustments to
cost of goods sold related to writing up inventory to fair market value at
the time of the Management Buy-Out. While EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditures and working
capital requirements. The Company's measure of EBITDA may not be comparable
to similarly titled measures of other companies.
38
<PAGE> 43
SELECTED FINANCIAL DATA OF AQUA-CHEM
The following table sets forth selected historical financial data of
Aqua-Chem as of and for: (i) each of the two years ended December 31, 1996 and
1995, derived from the consolidated financial statements of Aqua-Chem, which
have been audited by KPMG Peat Marwick LLP, Milwaukee, Wisconsin and are
included elsewhere in this Prospectus; (ii) each of the years ended December 31,
1994 and 1993, derived from the consolidated financial statements of Aqua-Chem,
which have been audited by KPMG Peat Marwick LLP, Milwaukee, Wisconsin but are
not included in this Prospectus; (iii) the seven-month period ended July 31,
1997 and the five-month period ended December 31, 1997, derived from the
consolidated financial statements of Aqua-Chem, which have been audited by
Arthur Andersen LLP, Milwaukee, Wisconsin, and are included elsewhere in this
Prospectus; and (iv) the six month periods ended June 30, 1997 and 1998, derived
from the unaudited financial statements of Aqua-Chem included elsewhere in this
Prospectus, which include all adjustments that management considers necessary to
present fairly the financial results for these interim periods, all of which
were of a normal recurring nature. The results of operations for such interim
periods are not necessarily indicative of results to be expected for the full
year. This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem" and the
consolidated financial statements of Aqua-Chem included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEVEN
FISCAL YEAR ENDED MONTHS FIVE MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED JUNE 30,
-------------------------------------------- JULY 31, DECEMBER 31, -------------------
1993 1994 1995 1996 1997(A) 1997(A) 1997(A) 1998
-------- -------- -------- -------- -------- ------------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $184,254 $187,486 $183,368 $199,552 $ 99,618 $ 91,541 $83,211 $ 76,222
Cost of goods sold............. 139,980 144,490 148,650 153,446 73,656 66,333 62,087 55,930
-------- -------- -------- -------- -------- -------- ------- --------
Gross margin................. 44,274 42,996 34,718 46,106 25,962 25,208 21,124 20,292
Selling, general and
administrative expenses...... 39,080 40,981 37,772 34,446 22,258 17,136 18,069 17,446
Restructuring charges(b)....... -- 9,011 4,593 5,038 -- -- -- 4,720
-------- -------- -------- -------- -------- -------- ------- --------
Operating income (loss)...... 5,194 (6,996) (7,647) 6,622 3,704 8,072 3,055 (1,874)
Other income (expense):
Interest income.............. 301 252 358 464 450 202 390 209
Interest expense............. (1,075) (1,200) (1,663) (1,448) (753) (2,559) (597) (3,004)
Other income (expense)....... 734 639 2,635 (806) (955) 57 22 26
-------- -------- -------- -------- -------- -------- ------- --------
Earnings (loss) before income
taxes, minority interest and
extraordinary item........... 5,154 (7,305) (6,317) 4,832 2,446 5,772 2,870 (4,643)
Income tax expense (benefit)... 2,191 (2,806) 189 507 421 2,289 494 (1,448)
Minority interest in earnings
(loss) of consolidated
subsidiary................... 211 179 (52) 231 171 174 136 136
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) before
extraordinary item........... 2,752 (4,678) (6,454) 4,094 1,854 3,309 2,240 (3,331)
Extraordinary item, net of
tax.......................... -- -- -- -- -- -- -- 1,260
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss)............ $ 2,752 $ (4,678) $ (6,454) $ 4,094 $ 1,854 $ 3,309 $ 2,240 $ (4,591)
======== ======== ======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA(c)...................... $ 9,310 $ (3,028) $ (4,494) $ 9,606 $ 5,394 $ 10,043 $ 4,778 $ 28
Adjusted EBITDA(d)............. 9,310 5,983 99 14,644 5,394 10,043 4,778 4,748
Gross profit margin............ 24.0% 22.9% 18.9% 23.1% 26.1% 27.5% 25.4% 26.6%
Total depreciation and
amortization................. $ 4,116 $ 3,968 $ 3,153 $ 2,984 $ 1,690 $ 1,284 $ 1,723 $ 1,902
Capital expenditures........... 4,832 1,594 4,867 2,789 2,195 1,197 1,097 1,023
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets................... $109,744 $104,133 $101,381 $101,000 $ -- $124,661 $97,008 $175,734
Total debt..................... 19,296 18,098 18,636 20,128 -- 59,691 20,198 125,000
Redeemable preferred stock..... -- -- -- -- -- 7,365 -- --
Stockholders' equity
(deficit).................... 46,738 42,254 36,636 39,960 -- 3,638 41,653 (1,611)
</TABLE>
- ------------------------------------
(a) On July 31, 1997, Aqua-Chem management and its shareholders acquired
Aqua-Chem in the Management Buy-Out, which was treated as a purchase. As a
result, all periods presented prior to August 1, 1997 were prepared using
Aqua-Chem's historical basis of accounting. All periods presented subsequent
to July 31, 1997 reflect the fair values of the assets acquired and
liabilities assumed in the Management Buy-Out.
(b) For 1994 and 1995, reflects restructuring charges required to complete the
1994 Restructuring. For 1996, reflects restructuring charges required to
complete the 1996 Restructuring. For the six months ended June 30, 1998,
reflects restructuring charges to complete the 1998 Restructuring. For
further information on such restructurings, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Aqua-Chem,"
Note (3) to the consolidated financial statements of Aqua-Chem and Note (7)
to the consolidated condensed interim financial statements of Aqua-Chem, all
included elsewhere in this Prospectus.
39
<PAGE> 44
(c) EBITDA is defined as operating income (loss) before depreciation and
amortization and, in the five months ended December 31, 1997, excludes $687
of non-cash purchase accounting adjustments related to the Management
Buy-Out. While EBITDA is not intended to represent cash flow from operations
as defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. The measure of EBITDA
presented above may not be comparable to similarly titled measures of other
companies.
(d) Adjusted EBITDA for the periods presented is defined as EBITDA excluding
restructuring charges.
40
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AQUA-CHEM
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to the consolidated financial statements
of Aqua-Chem appearing elsewhere in this Prospectus. For information regarding
the pro forma financial condition of Aqua-Chem, see "Unaudited Pro Forma
Financial Data" and " -- Liquidity and Capital Resources."
The Management Buy-Out occurred on July 31, 1997. The financial results of
Aqua-Chem for all periods prior to July 31, 1997 reflect the operations of
Aqua-Chem under its prior owners. The consolidated financial statements for the
period from August 1, 1997 to December 31, 1997 reflect the financial results of
Aqua-Chem under a new basis of accounting that reflects the fair values of
assets acquired and liabilities assumed, the related financing costs, and all
debt incurred in connection with the Management Buy-Out. Accordingly, the
financial information for Aqua-Chem before and after the Management Buy-Out are
not directly comparable. The information relating to Aqua-Chem's twelve months
ended December 31, 1997 is derived by combining the financial results of
Aqua-Chem for the period January 1, 1997 through July 31, 1997 (while under
prior ownership) and for the period from August 1, 1997 through December 31,
1997 (following the Management Buy-Out), including purchase accounting
adjustments for the Management Buy-Out. See footnote (a) to the Notes to
Unaudited Pro Forma Consolidated Statements of Operations under "Unaudited Pro
Forma Financial Data."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
to net sales of certain items included in Aqua-Chem's statement of operations.
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------- DECEMBER 31, -------------------
1995 1996 1997 1997 1998
----- ----- ------------ ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 81.1 76.9 73.2 74.6 73.4
----- ----- ----- ----- -----
Gross margin........................... 18.9 23.1 26.8 25.4 26.6
Selling, general and administrative
expenses.................................. 20.6 17.3 20.6 21.7 22.9
Restructuring charges....................... 2.5 2.5 -- -- 6.2
----- ----- ----- ----- -----
Operating income (loss)................ (4.2)% 3.3% 6.2% 3.7% (2.5)%
===== ===== ===== ===== =====
</TABLE>
41
<PAGE> 46
Composition of net sales for Cleaver-Brooks and Water Technologies for the
periods indicated is listed below.
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR ENDED MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30,
------------------- DECEMBER 31, -----------------
1995 1996 1997 1997 1998
------ ------ ------------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Cleaver-Brooks.............................. $144.7 $155.6 $154.9 $67.9 $58.3
Water Technologies.......................... 38.7 44.0 36.3 15.3 17.9
------ ------ ------ ----- -----
Total............................... $183.4 $199.6 $191.2 $83.2 $76.2
====== ====== ====== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Sales. Net sales for the six month period ended June 30, 1998 declined
$7.0 million to $76.2 million from $83.2 million. Net sales of Cleaver-Brooks
declined $9.6 million (14.1%). Approximately 41% of the decrease resulted from
the sale of the contract machining business in the fourth quarter of 1997 with
the remainder attributable to soft orders during the second half of 1997 through
the first quarter of 1998. Water Technologies sales increased $2.6 million
(17.0%) during the same time period primarily due to a large land-based water
desalination project.
Gross Margin. Gross margin declined $0.8 million (3.9%) to $20.3 million
from $21.1 million for the same period in 1997. The gross margin percentage
increased 1.2% to 26.6% due to margin improvements on a large contract and on
parts at Water Technologies and due to certain cost reductions at Cleaver-Brooks
which were facilitated by improvements in management of the facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expense declined $0.6 million (3.4%) to $17.4 million.
Commissions to independent representatives and to internal sales personnel were
$0.5 million lower in the current period due to the reduced sales volume while
post retiree health care costs declined $0.3 million as a result of recognition
of the transition obligation at the time of the Management Buy Out.
Restructuring Charges. A restructuring charge of $4.7 million was recorded
in the current period as a result of the Board of Directors' approval of the
1998 Restructuring. The provision included $3.0 million to write down the value
of certain fixed assets and inventory, $1.5 million for employee severance and
additional workers compensation-related costs and $0.2 million for other related
costs.
Operating Income. For the reasons set forth above, operating income
decreased $4.9 million to a loss of $1.9 million. Excluding the $4.7 million
restructuring charge, operating income decreased $0.3 million to $2.8 million
compared to $3.1 million for the six months ended June 30, 1997.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales declined $8.4 million (4.2%) in 1997 to $191.2 million
from $199.6 million in 1996. Net sales attributable to Cleaver-Brooks were
relatively flat at $154.9 million in 1997, primarily due to a decline of $5.5
million in sales to the Asia Pacific region and $2.0 million in reduced sales
resulting from the sale of two small product lines, offset by continued strong
domestic demand for firetube boilers. Net sales attributable to Water
Technologies decreased $7.7 million (17.5%) to $36.3 million in 1997, primarily
due to the deferral of certain significant orders for water purification and
treatment systems during the period, partially offset by increased demand for
distillation systems for pharmaceutical and offshore oil applications.
Gross Margin. Gross margin increased $5.1 million (11.0%) in 1997 to $51.2
million from $46.1 million in 1996 despite a 4.2% decline in net sales. Gross
margin as a percentage of net sales improved to 26.8% in 1997 from 23.1% in 1996
due to (i) improved manufacturing efficiencies at Aqua-Chem's Thomasville boiler
42
<PAGE> 47
plant, (ii) improvements in the product mix, (iii) the completion of a large,
unprofitable water purification and treatment project in 1996 and (iv) the
in-sourcing of certain key boiler components.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $39.4 million in 1997, an increase of $5.0 million
(14.4%) from $34.4 million in 1996. Selling, general and administrative expenses
as a percentage of net sales was 20.6% in 1997 as compared with 17.3% in 1996.
This increase was due primarily to a $1.0 million increase in information
systems spending and increased travel expenditures related to Aqua-Chem's sales
and marketing efforts as such expenditures returned to normalized levels
following their curtailment in 1996.
Restructuring Charges. Aqua-Chem did not record any restructuring charges
in 1997 as compared with $5.0 million in 1996 related to the 1996 Restructuring.
Operating Income. For the reasons set forth above, operating income
increased $5.2 million (77.8%) in 1997 to $11.8 million from $6.6 million in
1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased $16.2 million (8.8%) in 1996 to $199.6
million from $183.4 million in 1995. Excluding the impact of product lines or
businesses sold during 1995 and 1996, net sales increased $20.2 million (11.8%)
in 1996. This increase was primarily attributable to (i) significantly improved
throughput at the Thomasville facility, which allowed Aqua-Chem to reduce a
backlog of boiler orders that had grown substantially in the second half of
1995; (ii) improved pricing; and (iii) higher sales to the U.S. Navy by Water
Technologies. Net sales attributable to Cleaver-Brooks increased $10.9 million
(7.5%) in 1996 to $155.6 million. During 1996, significant improvements were
made to the Thomasville plant which assumed production of large firetube boilers
during 1995. Additional training, opening a component shop and a tube mill, and
various improvements in quality allowed Cleaver-Brooks to reduce the backlog of
boiler orders which accumulated during late 1995 as a result of the combination
of strong order activity and production inefficiencies associated with the
transition of production from Lebanon to Thomasville and Stratford. Net sales
attributable to Water Technologies increased $5.3 million (13.9%) in 1996 to
$44.0 million, primarily due to increased U.S. Navy volume resulting from
progress on large percentage of completion contracts and a large land-based
water desalination project.
Gross Margin. Gross margin increased $11.4 million (32.8%) to $46.1 million
in 1996 from $34.7 million in 1995. Gross margin as a percentage of net sales
improved to 23.1% in 1996 from 18.9% in 1995 primarily due to (i) smaller losses
attributed to a certain large water purification and treatment contract, (ii)
improved pricing, (iii) manufacturing efficiencies at Aqua-Chem's Thomasville
facility, and (iv) the in-sourcing of certain components in Thomasville that
previously had been purchased from third party vendors. Additionally, the
improvement in the gross margin was impacted by greater operating leverage as
Aqua-Chem spread more volume over its fixed cost base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $3.4 million (8.8%) to $34.4 million in 1996
from $37.8 million in 1995 primarily due to the impact of the 1996
Restructuring. Selling, general and administrative expense as a percentage of
net sales was 17.3% in 1996 as compared with 20.6% in 1995.
Restructuring Charges. Restructuring charges were $5.0 million in 1996 as
compared with $4.6 million in 1995.
Operating Income. For the reasons set forth above, operating income
increased $14.2 million in 1996 to $6.6 million from a loss of $7.6 million in
1995.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Cash used in operating activities was $10.3 million for the six months
ended June 30, 1998 compared to $1.8 million of cash provided by operating
activities for the same period in 1997. The decrease of $12.1 million
43
<PAGE> 48
is due primarily to a build of inventory of $4.1 million, $2.3 million of
additional interest expense due to the increased debt levels resulting from the
Management Buy-Out and a decrease in accrued expenses of $7.5 million, which
includes $2.6 million in litigation settlement payments, $2.3 million in
increased performance related incentives and $2.0 of income tax payments.
Cash used in investing activities was $48.9 million for the six months
ended June 30, 1998 compared to a net of $0.0 million for the same period in
1997. The current period included $47.9 million for the purchase of National
Dynamics Corporation and capital expenditures of $1.0 million. The prior year
period included $1.4 million of proceeds from the collection of notes receivable
offset by $1.1 million of capital expenditures and $0.3 million of additions to
intangible assets.
Cash provided by financing activities was $56.6 million for the six months
ended June 30, 1998 compared to $0.1 million for the same period in 1997. The
current period included $125.0 million of proceeds from the issuance of the
Existing Notes and advances under the Revolving Credit Facility and repayments
of senior and subordinated debt and preferred stock of $66.3 million in
conjunction with the Private Offering. The increase is also offset by deferred
financing costs of $5.1 million related to the issuance of the Existing Notes in
the current period.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Cash provided by operating activities was $14.2 million for the twelve
months ended December 31, 1997 compared to $8.1 million for the same period in
1996. The increase of $6.1 million was attributable primarily to changes in
billings in excess of revenues which increased principally due to progress
billings on large contracts. Accrued expenses and other current liabilities also
increased over the prior year as a result of performance related incentives.
Less cash was generated by reductions in inventory during the twelve months
ended December 31, 1997 than in the prior year. For the fiscal year ended
December 31, 1995, cash used in operating activities was $1.6 million.
Cash used in investing activities was $51.6 million in the twelve months
ended December 31, 1997 compared to $1.0 million in 1996 and $0.9 million in
1995. The current period included $52.1 million for the Management Buy-Out.
Capital expenditures for the current period were $3.4 million as compared to
$2.8 million in fiscal 1996 and $4.9 million in fiscal 1995. These expenditures
relate to ongoing maintenance and upgrades to Aqua-Chem's manufacturing
equipment and facilities and to certain replacement software systems. During the
most recent twelve months, Aqua-Chem invested $0.7 million in new mainframe
financial systems to replace aging systems. In 1995, Aqua-Chem spent $1.4
million for certain building additions and equipment upgrades at its Thomasville
facility, in part to accommodate the transfer of production from its Lebanon
facility.
Cash provided by financing activities was $40.7 million in the twelve
months ended December 31, 1997 compared to $1.5 million in 1996 and $0.5 million
in 1995. The twelve months ended December 31, 1997 included $65.6 million in
proceeds from debt issued in connection with the Management Buy-Out and
repayments of $26.1 million, of which $20.0 million related to repayment of debt
outstanding at the time of the Management Buy-Out and $6.0 million related to
repayment of debt incurred as a result of the Management Buy-Out.
The Company intends to fund future working capital, capital expenditures
and debt service requirements through cash flows generated from operating
activities and from borrowings under the New Credit Facility. The New Credit
Facility provides $45.0 million of borrowing availability and is secured by
substantially all assets of the Company. See "Description of Certain
Indebtedness." The Company expects to make approximately $1.5 million of capital
expenditures related to the proposed closure of its Greenville facility and $0.5
million to $1.0 million for certain equipment at National Dynamics. Apart from
these items, the Company believes that its manufacturing facilities and computer
software and hardware are generally adequate to meet projected needs.
Management believes that cash generated from operating activities together
with borrowing availability under the New Credit Facility will be adequate to
cover the Company's working capital, debt service and
44
<PAGE> 49
capital expenditure requirements. The Company may, however, consider other
options available to it in connection with funding future working capital and
capital expenditure needs, including the issuance of additional debt and the
issuance of equity securities.
YEAR 2000
The Company has assessed and continues to assess the impact of the year
2000 issue on its operations, including the development of cost estimates for
and the extent of programming changes required to address this issue. The
Company is also assessing the impact of this issue with its key vendors and
suppliers. Although final cost estimates have yet to be determined management
anticipates that the Company will be required to modify significant portions of
its software so that it will function properly in the year 2000. Since 1996
Aqua-Chem has been executing an information technologies upgrade plan. This plan
includes leasing a new mainframe computer at an annual cost of $0.6 million, and
the expansion of, and improvements to, its networks and other hardware totaling
$0.2 million. Additionally, Aqua-Chem has spent $1.5 million on new financial
systems, of which $1.3 million has been capitalized. An additional benefit of
upgrading and/or replacing older technology and systems is that management
believes that the new hardware and software are year 2000 compliant. Preliminary
estimates of the total costs remaining to be incurred prior to 2000 range from
$0.2 million to $0.3 million. Maintenance or modification costs will be expensed
as incurred, while the costs of new software will be capitalized and amortized
over the software's useful life.
45
<PAGE> 50
SELECTED FINANCIAL DATA OF NDC
The following table sets forth selected historical financial data of NDC as
of and for each of fiscal years ended October 31, 1995, 1996 and 1997 and the
five-month periods ended March 31, 1997 and 1998. The historical financial data
under the captions Statement of Operations Data, Other Financial Data and
Balance Sheet Data for the fiscal years ended October 31, 1995 through 1997 have
been derived from the financial statements of NDC, which have been audited by
KPMG Peat Marwick LLP, Omaha, Nebraska, and are included elsewhere in this
Prospectus. The historical financial data for the five-month periods ended March
31, 1997 and 1998 have been derived from the unaudited condensed financial
statements of NDC included in this Prospectus, which include all adjustments
that management considers necessary to present fairly the financial results for
this interim period, all of which were of a normal recurring nature. The results
of operations for the five-month periods are not necessarily indicative of
results to be expected for the full year. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of NDC" and the financial statements of NDC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIVE MONTHS ENDED
OCTOBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $49,717 $54,853 $59,292 $21,722 $25,561
Cost of goods sold........................... 40,916 43,461 45,862 17,150 19,973
------- ------- ------- ------- -------
Gross margin.............................. 8,801 11,392 13,430 4,572 5,588
Selling, general and administrative
expenses.................................. 6,601 5,516 5,815 1,888 2,472
------- ------- ------- ------- -------
Operating income.......................... 2,200 5,876 7,615 2,684 3,116
Other income (expense):
Interest income........................... 55 22 242 291 344
Interest expense.......................... (135) (43) (183) (76) (61)
Other income (expense).................... (2) 42 54 21 54
------- ------- ------- ------- -------
Earnings before income taxes.............. 2,118 5,897 7,728 2,920 3,453
Income tax expense........................ -- -- -- -- --
------- ------- ------- ------- -------
Net earnings......................... $ 2,118 $ 5,897 $ 7,728 $ 2,920 $ 3,453
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA (a)................................... $ 2,650 $ 6,339 $ 8,112 $ 2,877 $ 3,316
Gross profit margin.......................... 17.7% 20.8% 22.7% 21.0% 21.9%
Total depreciation........................... $ 450 $ 463 $ 497 $ 193 $ 200
Capital expenditures......................... 1,758 571 1,419 262 222
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $23,600 $22,144 $25,991 $22,166 $24,076
Total debt................................... 2,441 1,472 1,422 -- --
Stockholders' equity......................... 8,335 10,887 14,665 13,207 16,918
</TABLE>
- ------------------------------------
(a) EBITDA is defined as operating income before depreciation and amortization.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP) as a
measure of liquidity, management believes it provides additional information
with respect to the ability of a company to meet its future debt service,
capital expenditures and working capital requirements. The measure of EBITDA
presented above may not be comparable to similarly titled measures of other
companies.
46
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NDC
The following discussion relates to the historical business, financial
condition and results of operations of NDC prior to the consummation of the
Acquisition on June 23, 1998.
OVERVIEW
NDC designed, manufactured and sold industrial watertube boilers, waste
heat recovery systems and related components for industrial and commercial
applications. In addition, NDC manufactured standard and customized fabricated
steel products.
Net Sales. Industrial watertube boilers, waste heat recovery systems and
related components accounted for substantially all of NDC's net sales for the
fiscal years ended October 31, 1997, 1996 and 1995, respectively. Less than 10%
of net sales were attributable to other products.
Cost of Goods Sold. The principal elements of NDC's cost of goods sold were
raw materials, component parts, engineering and manufacturing overhead, direct
labor and related start-up and warranty expenses. NDC's major raw materials
varied by plant but included steel, tubes and various manufactured and purchased
component parts. Raw materials and component parts represented approximately 62%
of NDC's total cost of goods sold for fiscal 1997.
NDC's gross margin improved from 17.7% in fiscal 1995 to 22.7% in fiscal
1997. This increase in gross margin was primarily attributed to an increase in
volume at the Gonzales, Texas manufacturing facility, which was acquired in
1995, as well as improved pricing in the industrial watertube and waste heat
recovery product lines.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined from 13.3% of net sales in fiscal 1995 to 9.8%
in fiscal 1997 primarily due to a 19.3% increase in sales volume during the
period and associated operating efficiencies.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
to net sales of certain items included in NDC's statement of earnings.
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
FISCAL YEAR ENDED OCTOBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin.......................................... 17.7 20.8 22.7 21.0 21.9
Selling, general and administrative expenses.......... 13.3 10.1 9.8 8.7 9.7
------ ------ ------ ------ ------
Total operating income................................ 4.4% 10.7% 12.8% 12.3% 12.2%
====== ====== ====== ====== ======
</TABLE>
FIVE MONTHS ENDED MARCH 31, 1998 COMPARED FIVE MONTHS ENDED MARCH 31, 1997
Net Sales. Net sales increased $3.9 million (17.7%) to $25.6 million in
1998 from $21.7 million in 1997 primarily due to increased volume of waste heat
recovery systems.
Gross Margin. Gross margin increased $1.0 million (22.2%) to $5.6 million
in 1998 compared to $4.6 million in 1997 and improved to 21.9% of net sales from
21.0% in the prior year. This improvement was primarily attributable to a more
favorable product mix as NDC sold more waste heat recovery systems with higher
gross margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.6 million to $2.5 million in 1998 (9.7% of
net sales) compared to $1.9 million (8.7% of net sales) in 1997.
47
<PAGE> 52
Operating Income. Operating income increased to $3.1 million in 1998 from
$2.7 million in 1997 due to the preceding factors.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net Sales. Net sales increased $4.4 million (8.1%) to $59.3 million from
$54.9 million in 1996 primarily due to volume increases in waste heat recovery
systems and from increased volume of fabricated boiler and waste heat recovery
components, partially offset by a modest decline in industrial watertube boiler
net sales from fiscal 1996's historically strong levels.
Gross Margin. Gross margin increased $2.0 million (17.9%) to $13.4 million
in 1997 from $11.4 million in 1996. As a percentage of net sales, gross margins
improved to 22.7% in 1997 from 20.8% in 1996 primarily due to an improved mix of
product sales, operating leverage associated with NDC's overall increase in net
sales and volume, and modest price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $5.5 million in 1996 (10.1% of net sales)
to $5.8 million in 1997 (9.8% of net sales), primarily due to the increase in
net sales.
Operating Income. As a result of the foregoing factors, operating income
increased $1.7 million to $7.6 million in 1997 from $5.9 million in 1996.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net Sales. Net sales increased $5.2 million (10.3%) to $54.9 million in
1996 from $49.7 million in 1995. The increase was primarily due to strong sales
of industrial watertube boilers as the overall market improved, partially offset
by a decline in waste heat recovery volume due to the completion of two large
jobs in 1995. NDC also increased sales of fabricated components to other waste
heat recovery manufacturers in 1996.
Gross Margin. Gross margin increased $2.6 million (29.4%) to $11.4 million
in 1996 compared to $8.8 million in 1995. As a percentage of net sales, gross
margin improved to 20.8% in 1996 from 17.7% in 1995, primarily due to the
increase in net sales and increased utilization of the Gonzales facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses declined $1.1 million to $5.5 million in 1996 from $6.6
million in 1995, primarily due to a decline in bad debt expense and salaries,
offset by an increase due to the increase in sales.
Operating Income. As a result of the foregoing factors, operating income
increased $3.7 million (168.2%) to $5.9 million in 1996 from $2.2 million in
1995.
YEAR 2000
NDC has assessed and continues to assess the impact of the year 2000 issue
on its operations. Although ultimate costs cannot yet be estimated, management
does not expect to incur significant costs in order to become year 2000
compliant.
48
<PAGE> 53
BUSINESS OF THE COMPANY
HISTORY
Founded in 1929 as the John C. Cleaver Company and later known as
Cleaver-Brooks, the Company began as an innovative manufacturer of small,
portable boilers that were packaged and fully assembled. Cleaver-Brooks, which
continues to operate as a division of the Company, eventually became, and for
over 20 years has been, the world's largest manufacturer of commercial and
industrial boilers, burners, related boiler-room equipment and aftermarket
parts. Cleaver-Brooks began manufacturing steam-powered water purification
stills in the early 1940's in response to a military request for a portable
system capable of purifying unfit drinking water. This business, which currently
operates as the Company's Water Technologies division, has become a leading
manufacturer of innovative water treatment products and systems for a variety of
commercial, government, military and industrial applications. The Company
completed the acquisition of substantially all of the assets of NDC on June 23,
1998 and now conducts NDC's former operations through its National Dynamics
Division.
BOILER MARKET
Boilers burn a variety of fuels to provide: (i) hot water for residential,
commercial, institutional and industrial uses; (ii) hot water or low-pressure
steam for use in circulatory heating systems; and (iii) process steam for a wide
variety of industrial applications and to drive turbines for the generation of
electricity. The boiler market can generally be segmented according to boiler
capacity and end use. Residential boilers are the smallest, followed by
commercial boilers, industrial boilers, and utility boilers, which are the
largest. Boiler capacities generally are measured in British Thermal Units
("BTU") or boiler horsepower ("BHP") output for smaller boilers, and in pounds
of steam per hour ("PPH") for larger boilers. One BHP equals 33,472 BTU per
hour, which in turn produces approximately 28 to 35 PPH, depending on pressure
and feedwater temperature.
Commercial boilers generally range from 15 BHP (or approximately 500,000
BTU per hour) up to 250 BHP and are used in apartment buildings, hotels, office
buildings, schools, hospitals, and government buildings primarily to provide hot
water or low-pressure steam for circulatory heating systems, and, to a lesser
extent, for potable hot water. Commercial boilers range in price between $15,000
and $50,000.
Industrial boilers, with capacities from approximately 250 BHP to over
250,000 PPH, are larger, more powerful and more expensive than commercial
boilers, and are generally used to provide high-pressure process steam for
industrial applications, such as driving steam-operated presses, mill equipment
or machine tools, sterilizing equipment and products, and processing chemicals,
foods, beverages, and other products. Industrial boilers are used in a broad
range of industries including paper, chemicals, electronics, pharmaceutical,
textiles, automotive, and heavy machinery. Industrial boilers range in price
between $50,000 and $1 million.
Based on industry sources, the annual worldwide market for boilers of all
types is estimated to be in excess of $1 billion, of which approximately $400
million is attributable to the North American commercial and industrial boiler
market.
CLEAVER-BROOKS DIVISION
The Company's Cleaver-Brooks Division ("Cleaver-Brooks") is the world's
largest manufacturer of commercial and industrial boilers. It has an estimated
installed base of approximately 80,000 boilers that remain in use and believes
it has the #1 or #2 market position in each of its principal product lines. The
division's products include firetube and watertube boilers, burners, and
combustion and emission controls, boiler room accessories, and aftermarket
parts. Management believes that Cleaver-Brooks' reputation for providing
high-quality, energy-efficient, low-emission boilers and ancillary equipment
with a demonstrated record of safety and durability often enables it to command
a premium price for its products from its diverse customer base. Cleaver-Brooks
accounted for approximately 81% ($154.9 million) of Aqua-Chem's net sales, and
an even higher percentage of EBITDA, for the twelve months ended December 31,
1997.
49
<PAGE> 54
PRODUCTS
Cleaver-Brooks manufactures two types of boilers, firetube and watertube,
for commercial and industrial applications. Most Cleaver-Brooks boilers can
operate on multiple fuel options using both natural gas and fuel oil.
Cleaver-Brooks primarily manufactures "packaged" boilers, which are shipped
fully assembled and require minimum on-site installation, and also manufactures
a limited number of boilers that are designed to be "field-erected" at the
customer's facility. The high-quality boilers manufactured by Cleaver-Brooks
generally have a useful life of 20 years or more, depending upon use and
maintenance.
FIRETUBE BOILERS. Firetube boilers heat water or produce steam by directing
hot gas from the combustion process through tubes which are submerged in a
chamber of water inside the boiler. Heat is transferred from the hot gas in the
tube through the tube walls to the water.
Cleaver-Brooks offers the industry's broadest line of firetube boilers,
which are generally used in low- and high-pressure industrial applications, and
to produce heat and hot water for large commercial and institutional buildings.
Cleaver-Brooks firetube boilers range in capacity from 15 to 800 BHP. Although
each Cleaver-Brooks firetube boiler is manufactured to specific customer
requirements, each is based on relatively standardized pressure vessel sizes and
other basic components. The prices of Cleaver-Brooks firetube boilers range from
approximately $25,000 to $150,000. Firetube boilers represented approximately
$68 million, or 44%, of Cleaver-Brooks' net sales for the twelve months ended
December 31, 1997.
Cleaver-Brooks firetube boilers are highly regarded for their quality,
efficiency, safety, design simplicity, and ease of operation and maintenance, as
well as their long product life and low emission levels. High efficiency is
often the primary criterion in selecting a boiler as annual fuel costs can
greatly exceed a boiler's purchase price. Because a $50,000 boiler system could
consume over $150,000 per year in fuel, a slight increase in boiler efficiency
can translate into substantial annual savings. Cleaver-Brooks boilers are
designed to operate efficiently to reduce customers' fuel costs. They include
what Aqua-Chem believes to be the world's highest efficiency "four-pass" design
and maintain high gas velocity which provides maximum heat transfer. They also
utilize a single tube sheet design that maintains consistent temperatures for
maximum operating life. Aqua-Chem believes that these factors provide it with a
competitive advantage in the firetube boiler market.
WATERTUBE BOILERS. Watertube boilers produce hot water or steam by
directing water through tubes installed in a chamber filled with hot gas from
the combustion process. This fundamental difference between the firetube and
watertube process allows watertube boilers to be designed with greater capacity
and makes watertube boilers more suitable for certain large, multi-step
industrial applications than firetube boilers. Cleaver-Brooks produces watertube
boilers in a range of models and capacities. Like its firetube boilers,
Cleaver-Brooks watertube boilers are manufactured for maximum efficiency and
ease of maintenance and are purchased by both industrial and commercial
end-users.
Cleaver-Brooks commercial watertube boilers range in capacity from 15 to
250 BHP, which is comparable to its smaller capacity firetube boilers, and
include flexible watertube boilers designed to simplify installation,
maintenance and tube replacement. The division's flexible watertube boilers
minimize potential thermalshock damage due to temperature fluctuation, an
especially important consideration with hot water applications.
Cleaver-Brooks manufactures industrial watertube boilers of only the "D"
design (so named because the watertubes inside the boiler are shaped in the
configuration of the letter "D"), which is preferred by manufacturers for most
industrial applications. Cleaver-Brooks industrial watertube boilers range in
capacity from 40,000 to 140,000 PPH (the approximate equivalent of 1,400 to
4,000 BHP).
Cleaver-Brooks watertube boilers range in price from approximately $25,000
to $500,000. Watertube boilers represented approximately $25 million (16%) of
the division's net sales for the twelve months ended December 31, 1997.
BURNERS. Cleaver-Brooks is a leading supplier of highly-engineered, single
and multi-fuel engineered burners. These burners are installed as original
equipment on certain Cleaver-Brooks product lines, as a retrofit
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to existing boilers where an upgraded or new burner is required, or, under the
Industrial Combustion brand name, on new boilers manufactured by competitors.
Cleaver-Brooks manufactures a broad range of burners that give customers the
flexibility to burn most liquid and gaseous fuels in use today. The Industrial
Combustion product line has an exceptionally strong market position
(approximately 90%) for heavy oil burners and is increasing its share of the gas
burner market. It was instrumental in originating the conversion burner business
and pioneered air atomizing and fuel metering technologies for using heavy fuel
oil.
BOILER ROOM ACCESSORIES. Cleaver-Brooks also offers a wide range of boiler
room accessories, most of which are used to ensure that corrosive gases and
impurities found in water do not seriously affect boiler performance. This
equipment includes deaerators, water softeners, boiler feed water systems and
chemical feed systems. Other boiler room accessories regulate the flow of water
to and from the boiler.
AFTERMARKET PARTS. Taking advantage of its industry-leading installed base
of approximately 80,000 boilers, Cleaver-Brooks offers over 15,000 aftermarket
parts for its own and other manufacturers' boilers through its computerized
immediate access system. The immediate access system electronically links
Cleaver-Brooks' sales representatives and provides information regarding parts
availability, price lists and lead time. Cleaver-Brooks' sales representatives
and distributors stock Cleaver-Brooks parts inventory on a worldwide basis.
Aftermarket parts, which generally carry higher gross margins than new boilers,
represented approximately $31 million (20%) of Cleaver-Brooks' net sales for the
twelve months ended December 31, 1997. As part of several strategic initiatives,
management is emphasizing further penetration of the aftermarket parts business
through additional training and support of its extensive sales representative
network.
Aftermarket products sold by Cleaver-Brooks include a wide range of
combustion and emission controls that generally enhance boiler performance or
safety, including low nitrous oxide ("NO(X)") emissions packages, conversion or
replacement burners, boiler control management systems, high turndown burners,
oxygen trim systems, and flame safeguard controls. For example, Cleaver-Brooks'
industry-leading low NO(X) emissions packages are guaranteed to as low as 20
parts per million ("ppm") of NO(X) levels and are extremely effective at
maintaining system efficiency levels. The majority of these parts are offered as
options to a boiler package.
Although boilers generally have a useful life of up to 20 years, certain
boiler parts are subject to wear and require periodic replacement. These parts
consist primarily of combustion-oriented components such as burners,
burner-safety components, and emissions controls, but also include certain
water-bearing components. The need for aftermarket parts is a function of the
level of use to which a boiler is subjected. Boilers that "cycle" (turn on and
off) more frequently tend to wear more quickly. In addition, oil-burning
components tend to wear more quickly than natural gas-burning components.
Water-bearing components of a boiler can wear more quickly if the end-user does
not properly treat the water used in the boiler to reduce corrosive gases and
impurities that accumulate in untreated water.
Commercial boiler wear can also be affected by cold weather, when a boiler
is more likely to cycle more frequently. Many Cleaver-Brooks boilers are
equipped with multi-fuel options and can readily be switched by the end-user
from one fuel to the other. In many locations, boilers are required by law to
switch from burning natural gas to oil during extended periods of cold weather,
when demand for natural gas for residential and commercial forced-air heating is
high and available gas pressure is reduced. Industrial applications can also
involve high-cycle use, causing boilers to wear more quickly. Inadequate
maintenance practices can also affect boiler wear.
In addition, the demand for aftermarket parts generally increases during
periods of economic difficulty when many businesses elect to defer the purchase
of new boilers in favor of repairing or retrofitting existing boilers. Aqua-Chem
believes that this phenomenon partially offsets the reduced demand for new
boilers during such periods.
COMMITMENT TO QUALITY
Cleaver-Brooks has received numerous industry and quality awards, including
the State of Wisconsin's 1995 Governor's New Product Award. Several of the
division's products have been recognized by the
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Wisconsin Society of Professional Engineers and the Model CB-LE was among a
select group of winners in a statewide competition which singled out new product
innovations in large, medium and small business segments. Additionally, with the
introduction of its low nitrous oxide (NO(X)) emissions product in 1995,
Aqua-Chem was the first boiler manufacturer cited by the California Clean Air
Board and South Coast Air Quality Management District for meeting California's
stringent emissions standards, as well as by the New York Bureau of Air
Research.
SALES, MARKETING AND CUSTOMERS
Cleaver-Brooks maintains strong relationships with its worldwide network of
sales and service representatives, which management believes to be the most
extensive global distribution network for commercial and industrial boilers.
Cleaver-Brooks sells boilers through 50 domestic sales representatives located
throughout North America and 43 international sales representatives located in
Eastern Europe, Asia, Australia, Central and South America, and the Middle East.
These sales representatives have sold Cleaver-Brooks products for an average of
more than 25 years, and do not sell products that compete directly with
Cleaver-Brooks. No sales representative accounted for more than approximately 5%
of Cleaver-Brooks' net sales in the twelve months ended December 31, 1997.
Cleaver-Brooks' sales representatives primarily offer on-demand service and
parts support to consulting engineers, contractors and end-users, as well as
offering multi-year service contracts for boiler parts and accessories.
Additionally, as is customary in the industry, sales representatives provide
on-site start-up assistance and personnel training by factory-qualified
specialists and preventive maintenance programs as part of the range of services
available to keep boiler and pretreatment equipment operating at peak
performance.
Cleaver-Brooks sells boilers to a diverse customer base in a broad range of
industries, with no significant customer concentration. Although Cleaver-Brooks'
customers vary from year to year, management believes that a substantial portion
of annual net sales are generally to repeat customers. Recent customers include
Ford, Cargill, Coca-Cola, Weyerhaeuser, Anheuser-Busch, Baxter Healthcare,
Ralston-Purina, Hewlett-Packard, Georgia Pacific, Chrysler-Jeep, Wrigley,
Sheraton, IBM, and NASA.
RAW MATERIALS AND SUPPLIERS
Cleaver-Brooks' primary raw materials include steel plate and coil steel.
The division also purchases finished components for its products, such as
burners, tubes, controls, insulation, refractory materials, valves, gauges and
pumps. Cleaver-Brooks maintains one-year supply agreements with its steel
suppliers. These arrangements generally specify volume and price, but are
cancelable at any time by either party. For raw materials not covered by supply
agreements, Cleaver-Brooks generally chooses a particular supplier based on
market conditions, availability and pricing. Cleaver-Brooks works closely with
its major suppliers and is not dependent on any single supplier for any of its
raw material or component needs. Cleaver-Brooks is currently implementing new
purchasing procedures to reduce material costs, including consolidation of its
suppliers.
MANUFACTURING
Cleaver-Brooks operates through five manufacturing facilities located in
Stratford, Ontario, Canada; Thomasville, Georgia; Monroe, Wisconsin; Mexico
City, Mexico and Greenville, Mississippi (however, the Company plans to close
its Greenville facility and transfer production to certain other facilities).
Additionally, Cleaver-Brooks conducts applied engineering and product
development activities at a Milwaukee, Wisconsin location, which is shared with
Water Technologies. See "-- Properties and Employees."
The Company has intensified its efforts to develop world-class
manufacturing facilities. Beginning in 1995, Aqua-Chem closed its Lebanon,
Pennsylvania facility, and consolidated its large firetube boiler production in
its Thomasville facility, and its smaller firetube boiler production in its
Stratford facility. These consolidations reduced labor and overhead costs by up
to one-third and took advantage of certain economies of scale in each facility.
In addition, the Company has been engaged in a program to improve its
manufacturing processes by adopting cellular manufacturing techniques,
just-in-time inventory controls and demand flow processing. These initiatives
have minimized scrap, identified manufacturing inefficiencies, significantly
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reduced manufacturing cycle times and have already improved manufacturing
efficiency and inventory management at the Thomasville facility. Aqua-Chem
expects to implement similar cost reduction initiatives and manufacturing
improvements at its other facilities. Aqua-Chem has also established an internal
manufacturing council to address ongoing process improvements, share best
practices and instill a broad base of manufacturing expertise throughout the
organization.
NATIONAL DYNAMICS DIVISION
The Company's National Dynamics Division ("National Dynamics") consists of
the former operations of NDC which were acquired by Aqua-Chem on June 23, 1998.
All references to historical data of NDC, and the term "NDC," refer to the
National Dynamics Division's operations under the ownership of NDC.
PRODUCTS
National Dynamics primarily designs and manufactures industrial watertube
boilers, waste heat recovery systems, and related accessories, as well as a
variety of standard and customized fabricated steel components, such as ductwork
and stacks, which are insourced for use in National Dynamics' products and
produced on a contract basis for other waste heat recovery systems
manufacturers. For the year ended October 31, 1997, NDC's net sales of
industrial watertube boilers and waste heat recovery systems, including related
accessories and components, represented approximately 90% of NDC's net sales.
INDUSTRIAL WATERTUBE BOILERS. National Dynamics produces shop-assembled
industrial watertube boilers, components and other boiler accessories under the
Nebraska Boiler brand-name, chiefly for industrial and institutional
applications. The Nebraska Boiler product line consists primarily of industrial
watertube boilers with larger capacities than those manufactured by
Cleaver-Brooks. Although National Dynamics manufactures industrial watertube
boilers with capacities as low as 7,000 PPH, its primary focus is on large
industrial watertube boilers that range in capacity from 100,000 to 250,000 PPH.
In contrast, Cleaver-Brooks focuses on commercial and industrial watertube
boilers with capacities under 100,000 PPH. The Nebraska Boiler product line also
includes industrial watertube boilers that are capable of producing steam at
much higher temperatures and pressures than those manufactured by
Cleaver-Brooks. NDC manufactured approximately 80 to 90 industrial watertube
boilers per year, which typically ranged in price from approximately $150,000 to
$1 million each.
National Dynamics' primary unit is the "D" design watertube boiler, which
accounted for approximately 72% of NDC's boiler sales in fiscal 1997. Nebraska
Boiler industrial watertube boilers generally utilize the "membrane" tube
design, in contrast to Cleaver-Brooks boilers, which utilize the "tangent" tube
design, each of which is preferred by certain end users for various reasons.
National Dynamics is also one of the few boiler manufacturers that produces "O"
and "A" design boilers in addition to the "D" design. Although the "D" design is
preferred for most industrial applications, the symmetrically designed "O" and
"A" boilers are more readily transportable and better suited for certain uses.
"O" design boilers in particular are compact, fully assembled, easily
transported by truck, and for these reasons are considered ideal for use as
"rental" boilers (boilers installed temporarily to provide supplemental, backup
or replacement service). "A" design boilers typically are designed to have
greater capacity than the "O" or "D" designs and can be designed to burn a
variety of alternative fuels (such as coal, wood and saw dust). "O" and "A"
design boilers accounted for approximately 8% and 20%, respectively, of NDC's
boiler sales in fiscal 1997.
National Dynamics also manufactures industrial watertube boiler components
and accessories, such as ducts, stacks, superheaters (an integral unit in the
boiler that heats the steam produced by the boiler to temperatures in excess of
750 degreesF for particular industrial applications) and economizers (an
integral or add-on unit that captures the heated air and flue gases vented from
the boiler's combustion chamber and uses them to preheat water entering the
boiler to conserve energy).
WASTE HEAT RECOVERY SYSTEMS. National Dynamics designs and produces a
variety of packaged, modular and field-erected waste heat recovery systems under
the Energy Recovery International or "ERI" brand-name. The general principle
behind these systems is that the waste heat generated by a turbine or industrial
process
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can be recaptured and directed into a pressure vessel (resembling a burnerless
boiler) to generate hot water or steam, which can in turn be used to drive a
turbine to generate electricity (a process referred to as "co-generation") or
for other industrial applications. Co-generated electric power may be used
internally; however, if it is generated at levels in excess of internal need,
which is often the case, the excess electricity is generally sold to the local
power company, which has been made possible through the deregulation of the
domestic electrical power industry over the last few years. For certain
applications, waste heat recovery systems can also be designed to operate with a
supplemental heat source, such as a duct burner, that raises the temperature and
pressure to levels comparable with conventional boilers.
NDC's sales of ERI products grew rapidly in the last few years and the
Company expects that such growth will continue due to increased demand for
energy efficient and environmentally conscious power projects, as well as
increased deregulation. Waste heat recovery systems are increasingly popular
because they provide an alternative source of power at significantly reduced
fuel cost.
National Dynamics offers complete system design and service, based on the
customer's specific needs and requirements. In particular, waste heat recovery
systems are generally custom-designed for integration with the individual
customer's facility and equipment at the time of construction. NDC manufactured
approximately 15 to 20 waste heat recovery systems per year.
SALES, MARKETING AND CUSTOMERS
National Dynamics markets its products primarily on the basis of quality,
dependability and custom engineering, which is complemented by the longstanding
working relationships NDC developed with customers and premier engineering
firms. National Dynamics products are marketed worldwide through its 46 sales
representatives and distributors, most of whom sell both Nebraska Boiler and ERI
products. No sales representative accounted for more than approximately 11% of
NDC's net sales for the year ended October 31, 1997. For the year ended October
31, 1996, one customer, Thai Petrochemical, accounted for more than 10% of NDC's
net sales.
National Dynamics sells its products to a diverse customer base in a broad
range of industries, with no significant customer concentration. Recent NDC
customers included Anheuser-Busch, Warner-Lambert, Bristol-Myers, General
Motors, Westinghouse, and Cargill, as well as engineering firms such as
Fluor-Daniels, Bechtel, Black & Veach, and Day and Zimmerman.
RAW MATERIALS AND SUPPLIERS
National Dynamics' primary raw material is steel, and it also purchases
finished components for its products, such as burners, tubes, controls,
insulation, refractory materials, valves, gauges and pumps. National Dynamics is
not dependent on any single supplier for any of its raw material or component
needs.
MANUFACTURING
National Dynamics operates three manufacturing facilities, two of which are
located in Lincoln, Nebraska and one of which is located in Gonzales, Texas. See
"-- Properties and Employees."
WATER TECHNOLOGIES DIVISION
With over 50 years of experience, Water Technologies is a world leader in
the design and production of water purification and treatment products, systems,
aftermarket parts and service for selected commercial, government, military and
industrial applications. Water Technologies, which markets and sells its
products under the Aqua-Chem brand name, has two product categories: (i)
Freshwater and Military Products, which consist of products with relatively
standard components and configurations that are generally sold to customers in
the military, bottled water and pharmaceutical markets; and (ii) Seawater and
Process Systems, which consist primarily of large, highly engineered projects
and products that generally are sold to customers in markets for seawater
desalination and industrial evaporation processes. Water Technologies accounted
for
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approximately 19% ($36.3 million) of Aqua-Chem's net sales for the twelve months
ended December 31, 1997.
PRODUCTS AND SERVICES
Water Technologies manufactures products that utilize evaporation and
filtration technologies to create purified water for use in a variety of
applications. Water Technologies' primary products are thermal distillation
units, which convert seawater or contaminated fresh water into clean water for
drinking and manufacturing processes by passing feedwater over a heated surface
to create steam that is then condensed as distillate. Water Technologies also
offers reverse osmosis units, which pressurize contaminated fresh or salt water
to force it through a semipermeable membrane to produce drinking water.
FRESHWATER AND MILITARY PRODUCTS. Freshwater and Military Products are
primarily pre-engineered water purification and treatment products and systems
for the bottled water and pharmaceutical industries and for the military. Water
Technologies also provides services and replacement parts for its Freshwater and
Military Products. Most Freshwater and Military Products are various types of
thermal distillation units, including an all-electric thermal distillation unit
that is installed on all U.S. Navy Trident submarines. Aqua-Chem believes that
every U.S. aircraft carrier and nuclear submarine utilizes Water Technologies
products to purify water for use by onboard personnel. Water Technologies also
manufactures a reverse osmosis unit marketed under the "ROWPU" (Reverse Osmosis
Water Purification Unit) name that is sold primarily to the U.S. military.
Freshwater and Military Products also include heat exchangers, which are used by
food, chemical and other industries to cool liquids. For example, the U.S. Navy
uses Water Technologies' heat exchangers for seawater cooling of nuclear reactor
waste water and feedwater preheating in steam propulsion plants of nuclear
aircraft carriers. Freshwater and Military water purification units and heat
exchangers generally sell for between $100,000 and $500,000.
Although individual units may be adapted to meet unique customer
specifications, Water Technologies manufactures all Freshwater and Military
Products to basic design parameters at its Knoxville, Tennessee facility.
Freshwater and Military Products are shipped from the Knoxville facility to the
customer as fully-manufactured systems that require a minimum number of piping
and electrical connections for installation. Once installed, the unit is ready
for operation.
SEAWATER AND PROCESS SYSTEMS. Seawater and Process Systems are highly
engineered systems for land-based and offshore desalination and manufacturing
process plants. Water Technologies utilizes a number of thermal distillation
technologies to meet the specific needs of its Seawater and Process Systems
customers. Water Technologies offers both single effect systems, which are
low-cost and simple to operate, and multi-effect systems, which conserve energy
by linking two, three or more evaporators in series and, as a result, are more
popular for industrial applications. For example, Water Technologies has
installed a 10 million gallon per day seawater desalination system which
produces the entire fresh water supply for the Caribbean island of Aruba.
Seawater and Process Systems include thermal distillation units used by the pulp
and paper industry to concentrate heavy scaling sulfite pulping liquors. Water
Technologies also offers reverse osmosis units for industrial applications.
Many Seawater and Process Systems component parts are fabricated, assembled
and hydro-tested at the Knoxville facility prior to shipment to the customer's
job site, where they are assembled into a field erected plant. Seawater and
Process Systems are highly project oriented, may take from 10 to 14 months to
complete, and are contracted on a fixed-price basis, typically ranging between
$1 million and $10 million in installed value.
SALES, MARKETING AND CUSTOMERS
Water Technologies utilizes a network of over 40 representatives,
distributors and licensees worldwide to sell and market its Freshwater and
Military Products. Sales representatives are compensated on a commission-only
basis, while distributors typically make a profit margin on the purchase and
resale of Water Technologies parts. Due to the unique engineering considerations
and the magnitude of the projects, most Seawater and Process Systems are sold by
Water Technologies directly to end-users.
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For the twelve months ended December 31, 1997, Water Technologies had
approximately 325 customers worldwide, with no one customer representing more
than 10% of its gross sales. Water Technologies' leading customers generally
vary from year to year, due in part to the project-oriented nature of many of
its Seawater and Process Systems. Recent customers include Arvind Mills, the
Aruba Water and Energy Authority, and Newport News Shipbuilding. International
customers represented approximately 50% of Water Technologies' sales over the
last three years, with revenues generated from over 35 countries. Payment terms
on international sales are typically denominated in U.S. dollars and satisfied
via letters of credit.
Typically, over half of Water Technologies' annual revenue is based upon
fixed-priced, long-term contracts. Generally, the term of the contract for
Freshwater and Military Products extends from the order date through shipment,
which usually ranges from 4 to 12 months. A start-up or test period may follow
shipment and last for 1 to 3 months. Customers are generally billed at the time
of shipment. Contract terms for Seawater and Process Systems may vary between 10
and 14 months. Seawater and Process Systems are contracted on a fixed-priced
basis, and customers are billed for work performed according to a pre-arranged
schedule detailed in the sales contract.
PRODUCT SERVICE AND SUPPORT
Water Technologies supports its products with a staff of engineers and
service specialists who provide parts, service, technical training, service
publications, overhaul and repair for customers around the world. For instance,
Water Technologies provides qualified technical training anywhere in the world
through a team of training specialists who work closely with customers to
develop productive and dependable operators for all equipment.
When service is needed, Water Technologies dispatches a qualified service
representative who assesses the customer's system and its repair requirements.
To meet customer needs quickly, Water Technologies distributors maintain
authorized parts and service centers across the continental United States, as
well as service centers in Alaska, Canada, South America, Northern Europe,
Southeast Asia, the Middle East and India.
RAW MATERIALS AND SUPPLIERS
Water Technologies utilizes a wide variety of raw materials in the
construction of its products, including copper-nickel, alloys, stainless steel,
electrical control systems and a number of plastic and metal component parts.
Water Technologies maintains relationships with a select group of suppliers to
leverage its purchasing power and may enter into purchasing agreements to ensure
a reliable source of materials. Water Technologies has never experienced a
significant shortage of raw materials.
MANUFACTURING
Water Technologies' primary production facility is located in Knoxville,
Tennessee. The Knoxville plant, an ISO 9001 certified facility, provides
fabrication, machining, welding and assembly work for the production of both
Freshwater and Military Products and the component parts of Seawater and Process
Systems. Units are tested at the Knoxville plant prior to shipment to the
customer's site for installation. The division is currently implementing
cellular manufacturing techniques, just-in-time inventory controls and
demand-flow processing to improve manufacturing efficiency and reduce production
costs.
The Seawater and Process Systems business also utilizes subcontract
manufacturers in connection with international contracts when Aqua-Chem believes
that it provides a competitive advantage. To implement this international
subcontracting strategy, Water Technologies employs pre-qualified subcontractors
and project managers who are responsible for ensuring that quality, schedule and
other specifications of its Seawater and Process Systems contracts are met.
These project managers are supported by engineers who specialize in the
erection, commissioning, performance testing and overall service and
troubleshooting of the systems.
Water Technologies shares an applied engineering and product development
facility with Cleaver-Brooks for evaluating the practical application of
evaporator technology on a broad range of processing needs. This
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capability is an important part of Water Technologies' operations, enabling it
to test the performance and cost effectiveness of the systems it offers.
PROPERTIES AND EMPLOYEES
The following table sets forth certain information regarding the Company's
properties and employees as of June 30, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE NUMBER OF
SQUARE EMPLOYEES AT
FACILITY LOCATION USAGE FOOTAGE OWNERSHIP FACILITY
- ------------------------------- --------------------------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Milwaukee, Wisconsin........... Aqua-Chem, Inc. 81,000 Leased (a) 229
Corporate Headquarters
Milwaukee, Wisconsin........... Cleaver-Brooks and Water 27,000 Owned 9
Technologies
Product Development and Design
Greenville, Mississippi........ Cleaver-Brooks 88,000 Leased (b) 149(b)
Manufacturing (Commercial and
Industrial Watertube Boilers)
Stratford, Ontario, Canada..... Cleaver-Brooks of Canada, Ltd. 74,000 Owned 103(c)
Manufacturing (Firetube and
Commercial Watertube Boilers)
Mexico City, Mexico............ Cleaver-Brooks de Mexico 40,000 Owned 93(c)
Manufacturing (Miscellaneous
Parts and Components)
Thomasville, Georgia........... Cleaver-Brooks 185,000 Owned 253
Manufacturing (Firetube Boilers)
Knoxville, Tennessee........... Water Technologies 162,000 Owned 152
Manufacturing
Monroe, Wisconsin.............. Cleaver-Brooks 81,000 Owned 100(c)
Manufacturing (Burners and
Combustion and Emissions
Controls)
Lincoln, Nebraska.............. National Dynamics 150,000 Owned 218(c)
Manufacturing (Industrial
Watertube Boilers, Waste Heat
Recovery Systems)
Lincoln, Nebraska.............. National Dynamics 50,000 Owned 51
Manufacturing (Fabricated Steel
Components)
Gonzales, Texas................ National Dynamics 75,000 Owned 98
Manufacturing (Industrial
Watertube Boilers, Waste Heat
Recovery Systems and Fabricated
Steel Products)
Elk Grove Village, Illinois.... CB-Kramer Sales & Service, Inc. 46,000 Leased (d) 30
Sales, Service, Warehouse
Lebanon, Pennsylvania.......... (e) 164,000 Owned (e) --(e)
-----
Total: 1,445
</TABLE>
- ------------------
(a) The Company was formerly a limited partner in a partnership that owned this
facility. In July 1998 the partnership sold this facility to a third party
and the partnership was liquidated. The Company occupies the facility under
a lease which expires in June 2006.
(b) The Company plans to close the Greenville facility and transfer all
production currently located there to other Company facilities. The process
of transferring production is expected to be completed, and the
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Greenville facility closed within approximately one year. The Company has
entered into an agreement with the union representing production workers at the
Greenville facility regarding the transfer of production and closure of that
facility. The Company occupies this facility under a year to year lease
which automatically renews until 2061 unless terminated by either party
upon six months' notice.
(c) As of June 30, 1998, approximately 30% of the Company's employees were
represented by various unions. The Company's agreements with its unions
expire on January 1, 1999 in Mexico City, Mexico; on June 5, 2000 in
Stratford, Ontario; on January 19, 2001 in Monroe, Wisconsin and on November
1, 1999 in Lincoln, Nebraska. The Company has not experienced any strikes or
work stoppages in the past five years, except that in 1994, the employees
represented by the International Boilermakers Union at NDC's main
manufacturing facility in Lincoln went on strike for approximately six weeks
in connection with a dispute over employee contributions for health
benefits. See "Risk Factors -- Labor Relations."
(d) The Company occupies this facility under a lease which expires in November
1999.
(e) The Company's Lebanon, Pennsylvania facility, a 164,000 square foot
manufacturing plant, is currently partially leased to third parties and is
held for sale.
ENVIRONMENTAL AND RELATED MATTERS
The Company is subject to a variety of foreign, federal, state and local
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of, and
exposure to, hazardous and non-hazardous substances, materials, and wastes
("Environmental Laws"). The Company is also subject to laws and regulations
governing employee health and safety.
Under certain Environmental Laws, the Company could be held strictly,
jointly and severally liable for the investigation and remediation of hazardous
substances, materials or wastes at currently or formerly owned or operated
properties, or at third-party waste disposal sites. In addition, the Company
could be held responsible for third-party property or personal injury claims
relating to such contamination or for other violations of Environmental Laws.
The Company has, in some cases, agreed to indemnify the owners of properties
formerly owned by the Company for liabilities under Environmental Laws with
respect to such properties and could be held liable for environmental conditions
which arose while these properties were owned by the Company regardless of such
indemnification. The Company has discovered environmental conditions at a number
of on-site locations that may require additional action, investigation and/or
remediation for which the Company, alone or with others, is or may be
responsible. The Company also has been identified as a responsible party at one
off-site disposal location. Although the Company does not believe that the
aggregate future costs associated with these matters will have a material
adverse effect on its business, results of operations or financial condition,
the amount of such costs in any one year could be substantial.
Certain Environmental Laws impose stringent permitting, operating,
reporting, and other compliance obligations on the Company's operations,
particularly with respect to air and wastewater emissions and to hazardous
substance management and disposal. Failure to comply with such Environmental
Laws could result in substantial fines or penalties, costly corrective action
requirements or operational changes, stringent monitoring or reporting
requirements, and, in certain instances, cessation of operations. The Company is
presently evaluating and addressing various environmental conditions at certain
of its facilities, including the potential that air permits will be required at
certain of its facilities. Although the Company believes that there are no
instances of non-compliance with Environmental Laws that would require it to
incur material costs, there can be no assurance that additional environmental
issues will not arise, either with respect to the Company's existing or formerly
owned facilities, which could have a material adverse effect on the Company's
business, results of operations, or financial condition.
LEGAL PROCEEDINGS
The Company has been named as one of a number of defendants in
approximately 5,900 lawsuits (of which approximately 3,600 are still pending)
alleging personal injury arising from exposure to asbestos-containing materials
allegedly contained in certain boilers manufactured by the Company or its
subsidiaries in the past. The Company believes that substantially all of these
lawsuits are without merit and has not admitted
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liability or been found liable for the plaintiff's injuries in any of these
cases. The Company has disposed of the vast majority of the closed cases without
payment, and is vigorously defending the open cases, although many may not be
resolved for several years. The Company believes that it has adequate insurance
coverage from a number of different insurance carriers for any potential
liability it may face as a result of such claims, although it has agreed to bear
a portion of the defense costs and indemnity payments with regard to a number of
these suits. The Company has established a reserve on its balance sheet to cover
any such exposure and believes this reserve to be adequate. It is the view of
management that the final resolution of said claims and other similar claims
which are likely to arise in the future will not individually or in the
aggregate have a material effect on the Company's financial position or results
of operations, although no assurance to that effect can be given. See "Risk
Factors -- Product Liability Litigation."
The Company is involved in various other litigation matters arising in the
normal course of business. It is the view of management that the Company's
recovery or liability, if any, under pending litigation is not expected to have
a material effect on the Company's financial position or results of operations,
although no assurance to that effect can be given.
PATENTS, TRADEMARKS AND COPYRIGHTS
The Company has a number of United States and foreign patents, patent
applications, patent licensing agreements, trademarks, trademark applications
and copyrights. The Company does not consider its business to be materially
dependent upon any patent, patent application, patent license agreement,
trademark, trademark application or copyright.
59
<PAGE> 64
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF AQUA-CHEM
The following table sets forth certain information concerning the directors
and executive officers of the Company. Each director is elected for a one year
term or until such person's successor is duly elected and qualified. The
Company's by-laws provide for six directors; the Board is currently comprised of
five directors and there is one vacancy on the Board to be designated by
Management (as defined).
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Jeffrey A. Miller.................... 48 President, Chief Executive Officer and Director
(Chairman of the Board)
J. Scott Barton...................... 49 Vice President, Chief Financial Officer
James A. Feddersen................... 54 Secretary
James H. Fordyce..................... 39 Director
James W. Hook........................ 61 Director
Daniel J. Johnson.................... 48 President-Water Technologies Division
William P. Killian................... 62 Director
Rand E. McNally...................... 46 Executive Vice President and General Manager-
Cleaver-Brooks Division
Charles J. Norris.................... 51 Vice President, Chief Information Officer
Michael R. Stone..................... 35 Director
Ronald G. Thimm...................... 42 Treasurer
</TABLE>
Jeffrey A. Miller has served as President and Chief Executive Officer of
the Company since July 1996 and assumed the role of Chairman of the Board in
August, 1997. Prior to such time, Mr. Miller had undertaken permanent and
interim Chief Executive Officer and Chief Operating Officer assignments for
various major industrial companies, including serving as interim President and
Chief Operating Officer of Donnelly Corporation (an automotive supplier) from
October, 1995 to May, 1996, and Group Vice President of the Automotive Products
Group of Aeroquip Corporation (an automotive supplier) from August, 1992 to
June, 1993. Mr. Miller also spent 19 years in numerous managerial and executive
positions within various business groups of The General Electric Company,
including transportation systems (locomotives, transit cars, transit equipment),
major appliances, mining, oil well drilling, industrial electronics, industrial
controls, factory automation and automotive.
J. Scott Barton has served as Vice President and Chief Financial Officer of
the Company since 1994. Mr. Barton served as Vice President and Controller of
the Company from 1992 to 1994, Corporate Controller of the Company from 1982 to
1992, and Controller of Water Technologies from 1980 to 1982.
James A. Feddersen has served as Secretary of the Company since 1990. Mr.
Feddersen is a shareholder of the law firm of Whyte Hirschboeck Dudek S.C.,
which he joined in 1973. See "Certain Relationships and Related Transactions"
and "Legal Matters."
James H. Fordyce has served as a Director of the Company since August,
1997. Mr. Fordyce is a general partner of J. H. Whitney & Co., a private equity
and mezzanine capital investment firm, which he joined in 1996. Mr. Fordyce
serves on the board of directors of several private companies. Mr. Fordyce was
Senior Vice President of Heller Financial, Inc., a commercial finance firm, from
1988 to 1996.
James W. Hook has served as a Director of the Company since January, 1998.
Mr. Hook has been a professor at the Robert J. McCormick School of Engineering
at Northwestern University since 1992. Mr. Hook served as consultant to
MascoTech, Inc. from 1992 to 1996.
Daniel J. Johnson has served as the President of Water Technologies since
September 1997. Prior to joining the Company, Mr. Johnson served as Vice
President and General Manager of MagneTek Corporation -- Power Electronics and
Drives Division from 1995 to 1997, as MagneTek's Division Vice President --
60
<PAGE> 65
Operations from 1994 to 1995, and as Vice president of MagneTek's Engineered
Systems Business Unit from 1991 to 1994. MagneTek Corporation designs,
manufactures and markets variable speed drive automation products and systems.
William P. Killian has served as a Director of the Company since 1993. Mr.
Killian has served as Vice President -- Corporate Development and Strategy at
Johnson Controls, Inc., a global manufacturer of automotive systems and
controls, since 1987. Mr. Killian is also a director of Gehl Company and Q.E.P.
Company, Inc.
Rand E. McNally has served as the Company's Executive Vice President and
General Manager-Cleaver-Brooks Division since November, 1994, and served as
Cleaver-Brooks' Senior Vice President from March, 1990 to November, 1994.
Charles J. Norris has served as Vice President and Chief Information
Officer of the Company since 1996. Prior to joining the Company, Mr. Norris
spent 16 years at Norris Systems Group, Inc., a business systems consulting
company founded and owned by Mr. Norris.
Michael R. Stone has served as a Director of the Company since August,
1997. Mr. Stone is a general partner of J. H. Whitney & Co., a private equity
and mezzanine capital investment firm, which he joined in 1989. Mr. Stone is an
alternate director of Steel Dynamics, Inc., and serves on the board of directors
of several private companies.
Ronald G. Thimm has served as Treasurer of the Company since 1990, and
prior to that as Assistant Treasurer since 1981.
DIRECTOR COMPENSATION
Directors of the Company, other than Messrs. Hook and Killian, receive no
compensation for their services as directors. The Company has entered into
written agreements with Messrs. Hook and Killian with regard to compensation for
their services as directors.
In accordance with the agreement entered into between the Company and Mr.
Killian on December 17, 1997, effective August 1, 1997, for so long as Mr.
Killian remains a director of the Company, the Company will pay him $2,500 on
the first day of February, April, July and November each year, regardless of the
number of meetings held or attended. In addition, the Company agreed to grant
Mr. Killian an option to purchase 600 shares of Common Stock of the Company at a
price of $3.75 per share on August 1 of each year, for so long as Mr. Killian
remains a director. Each option granted to Mr. Killian under this agreement
vests and becomes fully exercisable on July 31 of the year subsequent to the
date of grant and, if not previously exercised, expires and terminates on August
1, 2007; provided, however, that in the event of a Stock Sale, Reorganization or
Termination, as those terms are defined in the December 17, 1997 agreement, the
option may expire and terminate prior to such date.
In accordance with the agreement entered into between the Company and Mr.
Hook on February 19, 1998, effective January 23, 1998, the Company paid Mr. Hook
a one-time fee of $20,000 upon his acceptance of such agreement and, for so long
as Mr. Hook remains a director of the Company, the Company will pay him $2,500
on the first day of February, April, July and November each year, regardless of
the number of meetings held or attended. In addition, the Company granted Mr.
Hook an option to purchase 1,125 shares of Common Stock of the Company at a
price of $3.75 per share, which vest and become fully exercisable at the rate of
225 shares per year commencing on December 31, 1998 through and including
December 31, 2002, and which, if not previously exercised, expires and
terminates on February 11, 2008; provided, however, that in the event of a Stock
Sale, Reorganization or Termination, as those terms are defined in the February
19, 1998 agreement, the option may expire and terminate prior to such date.
The options granted to Messrs. Killian and Hook pursuant to their
compensation agreements with the Company are non-statutory options that are not
part of Aqua-Chem's employee Stock Option Plan and are non-transferable, except
through inheritance. The stock acquired by Messrs. Killian or Hook pursuant to
such options is subject to certain put-call provisions in the event of death or
disability and to a right of first refusal of the Company in the event of any
sale, transfer or other disposition of such stock.
61
<PAGE> 66
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid by the
Company in the fiscal years ended December 31, 1995 and 1996 and in the twelve
months ended December 31, 1997, to the Company's Chief Executive Officer and to
each of the Company's four other most highly compensated executive officers
(collectively, including the Chief Executive Officer, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(A)
----------------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(B) COMPENSATION(C)
- ---------------------------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Jeffrey A. Miller............................. 1997(d)(e) $182,736 $304,712 $ 292
Chairman of the Board, Chief 1996(e) -- -- --
Executive Officer, President 1995(e) -- -- --
J. Scott Barton............................... 1997(d) $148,086 $ 82,571 $96,420
Vice President, Chief 1996 124,578 45,351 14,187
Financial Officer 1995 118,574 -- 15,181
Rand E. McNally............................... 1997(d) $182,226 $ 79,528 $99,350
Executive Vice President, 1996 145,018 61,285 11,588
General Manager-Cleaver-Brooks 1995 145,018 12,689 11,647
Charles J. Norris............................. 1997(d) $101,478 $ 34,804 $31,534
Vice President, Chief 1996 84,320 27,123 3,942
Information Officer 1995 80,262 2,019 3,779
Ronald G. Thimm............................... 1997(d) $ 89,606 $ 30,977 $ 7,883
Treasurer 1996 86,310 27,123 6,541
1995 82,805 -- 7,400
</TABLE>
- ------------------------------------
(a) Certain personal benefits provided by the Company to the Named Executive
Officers are not included in the table as permitted by regulations of the
Commission because the aggregate amount of such personal benefits for each
Named Executive Officer in each year reflected in the table did not exceed
the lesser of $50,000 or 10% of the sum of such officer's salary and bonus
in such year.
(b) Bonuses are reported for the year or period in which earned, although the
bonuses were paid after the end of the year or period shown.
(c) "All Other Compensation" includes the following:
<TABLE>
<CAPTION>
BARTON MCNALLY NORRIS THIMM
------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Company match under Aqua-Chem's
401(k) savings plan.......................... 1997 $ 4,750 $ 4,750 $ -- $2,870
1996 4,069 4,750 -- 2,589
1995 4,046 4,620 -- 2,920
Life insurance premium payments(i)............. 1997 $10,270 $ 700 $ 390 $ 344
1996 5,135 838 488 500
1995 5,135 1,027 568 586
Company Retirement Plan contribution........... 1997 $ 6,400 $ 6,400 $ 6,144 $4,669
1996 4,983 6,000 3,454 3,452
1995 6,000 6,000 3,211 3,894
"Change In Control" bonus(ii).................. 1997 $75,000 $87,500 $25,000 $ --
</TABLE>
----------------------------------------
(i) The premiums paid for Mr. Barton's policy in calendar 1997 were for two
years of coverage.
(ii) See "Employment Agreements," below.
(d) Represents aggregate compensation for the twelve months ended December 31,
1997 (combining the seven-month fiscal year ended July 31, 1997 and the five
months ended December 31, 1997).
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<PAGE> 67
(e) Mr. Miller became President and Chief Executive Officer pursuant to an
Interim Management Agreement (the "Management Agreement"), dated July 8,
1996, as amended, between the Company and J. Miller Management, Inc.
("JMM"). Amounts paid by the Company under the Management Agreement were
paid to JMM and Mr. Miller was separately compensated by JMM. Mr. Miller
served as President and Chief Executive Officer pursuant to the Management
Agreement until July 31, 1997, when he became employed by the Company. See
"Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENTS
The Company has employment agreements with all of the Named Executive
Officers except Mr. Thimm. These agreements govern the compensation, benefits
and treatment upon termination under various circumstances, including voluntary
termination by either party or termination by reason of retirement, death or
disability.
Compensation under these employment agreements includes a base salary plus
a bonus calculated under the Company's management incentive program as a
percentage of the executive's base salary. Each Named Executive Officer is
entitled to participate in all employee benefit plans made available to the
Company's senior executive officers, including, without limitation, medical,
disability, life insurance, retirement and management incentive plans. The
employment agreements for the Named Executive Officers provide for additional
benefits, such as club membership, vacation, use of a Company car and
supplemental life insurance. The employment agreements of Messrs. Barton,
McNally and Norris provide for a bonus calculated as a percentage of base salary
(50% in the case of Mr. Norris and 100% in the case of Messrs. Barton and
McNally) in the event of a Change In Control, as that term is defined in the
respective employment agreements. In connection with the Management Buy-Out, in
July 1997 Messrs. Barton, McNally and Norris were awarded bonuses of $150,000,
$175,000, and $50,000, respectively, pursuant to such Change In Control
provisions. One-half of the amount of each Named Executive Officer's Change In
Control bonus was paid in August 1997 and is reflected in the Summary
Compensation Table under "All Other Compensation." Payment of the remaining
one-half was contingent upon continued employment with Aqua-Chem for a period of
six months following the Change In Control, was paid to the Named Executive
Officers on February 1, 1998. The February 1998 payment is not reflected in the
Summary Compensation Table.
Each employment agreement continues indefinitely until terminated as
provided in the agreement, except for Mr. Miller's employment agreement which is
for a six year term expiring on July 31, 2003, unless terminated prior to the
end of such term as provided in the agreement. Each employment agreement may be
terminated by either the Company or the executive at any time by giving notice
as required under the agreement; provided, however, that under certain
conditions the executive may be entitled to certain severance benefits as
described in that executive's individual agreement. Each agreement also imposes
certain confidentiality obligations on the executive and places restrictions on
the executive's involvement in activities that may compete with the Company and
on engaging fellow employees both during employment and following termination.
Violation of such provisions, or other termination for cause, as defined in the
agreements, may result in forfeiture of severance and other benefits that may
otherwise accrue.
RETIREMENT AND SAVINGS PROGRAMS
The Company maintains a defined contribution retirement plan which includes
a 401(k) savings plan. Substantially all employees who are not members of
collective bargaining groups are eligible to participate. The Company's
retirement contribution equals 4% of eligible compensation while 401(k)
contributions equal 50% of employee contributions to a maximum Company
contribution of 3% of eligible compensation. Under provisions of the 401(k)
savings plan, employees may voluntarily contribute a maximum of 17% of eligible
compensation.
In connection with the Acquisition, the Company assumed the sponsorship of
the National Dynamics Corporation 401(k) Plan and the National Dynamics
Corporation Union Pension Plan that were previously maintained by NDC, for the
benefit of employees of the Company's National Dynamics Division.
63
<PAGE> 68
The Company also maintains employee incentive plans covering substantially
all employees who are not members of collective bargaining groups. The Company's
contribution to these plans is based upon defined levels of profitability.
The Company maintains unfunded health care plans covering certain eligible
retirees and employees. The estimated costs of postretirement benefits,
principally health care, are accrued over the period the benefits are earned.
The Company's policy is to fund postretirement benefits as incurred.
MANAGEMENT INCENTIVE PLANS
On November 15, 1996, the Company adopted the Aqua-Chem, Inc. Management
Incentive Plan (the "Management Incentive Plan") and the Aqua-Chem, Inc.
Executive Management Incentive Plan (the "Executive Management Incentive Plan").
The Management Incentive Plan was implemented to provide an incentive to
motivate and reward key management eligible employees for achievement of
short-term results. The incentive payment to participants is calculated through
a formula that utilizes Return On Net Assets, or RONA (subject to adjustment in
the event of certain extraordinary charges, such as acquisitions, divestitures
and/or major new strategic initiatives) as the critical financial performance
measure. Participation is limited to selected senior level employees from each
of the business units and at the corporate level. An Administrative Committee is
responsible for administration of the Management Incentive Plan (including
selection of participants, setting individual incentive opportunity ranging from
10% to 100% of the participant's annual salary, setting financial targets, and
evaluation of performance), subject to the review and final approval of the
Compensation Committee of the Board.
The purpose of the Executive Management Incentive Plan, which was
terminated on December 31, 1997, was to focus the senior management team on
implementing and achieving long-term strategic business plans and financial
performance goals to enhance shareholder value. The incentive payment to
participants was calculated each year through a formula based on three-year
Return On Equity, or ROE, goals. Participation was limited to senior level
executives and officers and who had typically been with the Company for at least
one full three-year period.
STOCK OPTION PLAN
In connection with the Management Buy-Out, the Company adopted the
Aqua-Chem, Inc. 1997 Stock Option Plan (as amended and restated, the "Stock
Option Plan"), which provides for the grant to key employees, from time to time
of non-statutory stock options to purchase up to an aggregate of 61,919 shares
of Common Stock of Aqua-Chem at exercise prices to be determined in accordance
with the provisions of the Stock Option Plan. The Stock Option Plan provides
that between 10% and 20% of the aggregate number of shares of Common Stock
underlying each series of options shall vest each year on the anniversary of the
date of the grant, provided that in the prior fiscal year (i) the option holder
completed at least twelve consecutive Months of Service (as defined in the Stock
Option Plan), and (ii) the Company attained 80% to 100% of a specified target of
EBITDA (as defined therein) ($18.3 million in the current year, subject to
adjustment in the event of certain extraordinary activities, such as the
Acquisition (the "EBITDA Goal")). In the event that an installment does not vest
on an anniversary date because the EBITDA Goal is not met, such installment
shall vest on the next succeeding anniversary date as to which (i) the option
holder has completed at least twelve consecutive Months of Service, and (ii) the
Company met the EBITDA Goal by a cumulative amount greater than or equal to the
prior cumulative EBITDA shortfalls. Notwithstanding the foregoing, options
granted under the Stock Option Plan shall vest automatically on the seventh
anniversary of the date of the grant regardless of performance criteria. As of
the date of this Prospectus, no options had been granted under the Stock Option
Plan.
64
<PAGE> 69
PHANTOM STOCK PLAN
On January 23, 1998, the Board approved the Aqua-Chem, Inc. 1998 Phantom
Stock Plan (the "Phantom Stock Plan"), effective April 1, 1998, as a replacement
for the Executive Management Incentive Plan, which was terminated as of December
31, 1997.
The objective of the Phantom Stock Plan is to provide certain senior level
executives and officers with the opportunity to share in future increases in the
value of the Company's Common Stock. The Board (or a committee appointed by the
Board) selects participants and determines the number of shares of phantom stock
to be awarded to each participant. Participants who remain employed by the
Company as of the scheduled payment dates (with certain exceptions) become
entitled to receive the value of their phantom stock awards for that year if a
specified percentage of the EBITDA goal (as specified in the Phantom Stock Plan)
is attained (90% in the current year, subject to decrease in future years). The
value of a participant's phantom stock is determined by multiplying the number
of shares of phantom stock initially awarded to the participant that year by the
value of a share of Common Stock determined in accordance with a formula set
forth the Phantom Stock Plan which is based a multiple of Actual EBITDA with
certain balance sheet adjustments. Two-thirds of the value of a participant's
phantom stock award is scheduled to be paid in the June following the end of the
period to which the award relates, with the remaining third to be paid in the
June of the subsequent year. Regardless of the foregoing, in the event that the
amount that would have been paid out at the end of the 1998 or 1999 calendar
years under the Executive Management Incentive Plan is greater than the amount
payable under the Phantom Stock Plan as of June immediately following the end of
the twelve-month period to which the award relates (i.e. two-thirds of the total
value of the award), then the participant shall be entitled to the amount that
would have been payable under the Executive Management Incentive Plan. On April
1, 1998, the following awards were made to Named Executive Officers under the
Phantom Stock Plan, portions of which mature in 1999, 2000 and 2001: Mr. Barton
received 2,518 shares; Mr. McNally received 3,264 shares; Mr. Norris received
1,479 shares; and Mr. Thimm received 1,506 shares.
65
<PAGE> 70
CAPITAL STOCK AND PRINCIPAL STOCKHOLDERS
CAPITAL STRUCTURE
The Company has a single class of common stock and three classes of
preferred stock (denominated Series A, Series B, and Series C). As of June 30,
1998, the Company had 2,006,260 shares of authorized capital stock, itemized by
class and series as follows:
(i) 2,000,000 shares of Common Stock, par value $.01 per share
("Common"), of which 1,000,000 shares are issued and outstanding;
(ii) 6,260 shares of Preferred Stock, par value $.01 per share, divided
into the following series:
(a) 130 shares of Series A Cumulative Preferred Stock, par value $.01
per share ("Series A Preferred"), of which 52 shares are issued
and outstanding.
(b) 130 shares of Series B Cumulative Preferred Stock, par value $.01
per share ("Series B Preferred"), of which 130 shares are issued
and outstanding.
(c) 6,000 shares of Series C Cumulative Preferred Stock, par value
$.01 per share ("Series C Preferred"), of which 2,755 shares
are issued and outstanding.
(iii) The Company has issued a warrant (the "Warrant") to purchase up to
176,471 shares of Common at a price of one cent ($0.01) per share.
The Warrant is exercisable at any time by the holder thereof on or
prior to July 31, 2007.
Series A Preferred. The Company formerly had 130 shares of Series A
Preferred outstanding, and used approximately $3.1 million of the proceeds of
the Private Offering to redeem 78 of such shares (see "The Exchange Offer -- Use
of Proceeds"). The remaining 52 shares of Series A Preferred will remain
outstanding subject to redemption as follows: one-half (26) of such shares will
be redeemed (at a redemption price of $1 million plus accrued dividends, if any)
on August 1, 2000 and the remainder will be redeemed (at a redemption price of
$1 million plus accrued dividends, if any) on August 1, 2001. Under the
Company's Certificate of Incorporation (the "Certificate"), holders of the
outstanding nonvoting Series A Preferred are entitled to receive cumulative cash
dividends of $577 per share per quarter beginning August 1, 1998. Holders of
Series A Preferred have the right to require the Company to redeem Series A
Preferred at an aggregate redemption price of $2 million plus accrued dividends
(i) simultaneous with the occurrence of an "overall ownership shift," "employee
ownership shift," or "asset shift" (each as defined in the Certificate); or (ii)
within the 120-day period following an initial public offering of the Company's
equity securities. The Company may call the outstanding shares at any time at
the redemption price of $38,462 per share plus accrued dividends.
Series B Preferred. Holders of the nonvoting Series B Preferred are
entitled to receive cumulative cash dividends of approximately $1,538 per share
per year beginning August 1, 1997 payable at redemption. The redemption price of
Series B Preferred shall be the "Normal Redemption Price," which is generally
based upon Water Technologies' cumulative earnings before taxes for the period
1997 through 2001. The redemption price is modified in the event that prior to
December 31, 2001, either (i) Water Technologies is sold to an unrelated third
party; (ii) there occurs an initial public offering of the Company's equity
securities; or (iii) there occurs an "overall ownership shift," "employee
ownership shift" or "asset shift" (each as defined in the Certificate). The
maximum redemption price, under any circumstance, is $57,692 per share. Holders
of Series B Preferred generally have the right to require the Company to redeem
the Series B Preferred at the applicable redemption price plus accrued dividends
(i) simultaneous with the occurrence of an "overall ownership shift" (as defined
by the Certificate); (ii) within the 120-day period following an initial public
offering of the Company's equity securities; (iii) within the 120-day period
following a refinancing and retirement of the Existing Subordinated Debt; or
(iv) on July 31, 2004. Under certain circumstances the redemption of the Series
B Preferred could result in an event of default under the Indenture. See
"Description of the Notes -- Certain Covenants -- Limitation on Restricted
Payments." The holders of the Series B
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<PAGE> 71
Preferred elected not to require that the Series B Preferred be redeemed in
connection with the Private Offering.
Series C Preferred. Holders of Series C Preferred are entitled to receive
quarterly dividends at the rate of 10.17% per year on the original issue price
per share ($964) beginning on August 1, 1997. Holders of Series C Preferred
generally shall have the right to require the Company to redeem all or any part
of Series C Preferred at a price equal to $1,000 per share, plus accrued
dividends (i) upon an "overall ownership shift," "employee ownership shift," or
"asset shift" (each as defined by the Certificate); (ii) within the 120-day
period following an initial public offering of the Company's equity securities;
or (iii) on July 31, 2005. Any time after July 31, 2004, the Company may call
the outstanding shares at the redemption price of $1,000 per share plus accrued
dividends, provided that the Series A Preferred and Series B Preferred have each
been redeemed. Each share of Series C Preferred has one vote per share,
equivalent to the voting rights of one share of Common.
PRINCIPAL STOCKHOLDERS
Series A and Series B Preferred. The Company's Series A Preferred and
Series B Preferred are owned as follows:
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED
----------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
OF SHARES OF CLASS OF SHARES OF CLASS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Lyonnaise American Holding, Inc.(b).................. 41.6 80.0% 104 80.0%
Gestra Corporation, N.V.(c).......................... 10.4 20.0% 26 20.0%
</TABLE>
- ------------------------------------
(a) See "-- Capital Structure -- Series A Preferred" above.
(b) c/o Patrick Babin, Northumbrian Water Group, 24. St James's Square, SW1 Y6HZ
London, England.
(c) c/o Miraj Uddin, Rezayat Trading Co. Ltd., P.O. Box 106, Safat, Kuwait
13002.
Common and Series C Preferred. The following table sets forth the
beneficial ownership as of June 30, 1998 of the outstanding Common and Series C
Preferred by (i) each person who is known to the Company to be the beneficial
owner of five percent or more of the outstanding classes shown; (ii) each
director; (iii) each of the Named Executive Officers; and (iv) all directors and
executive officers of the Company as a group.
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<PAGE> 72
All (100%) of the outstanding shares of Common and Series C Preferred are
held by Rush Creek LLC ("Rush Creek"). Pursuant to the Operating Agreement of
Rush Creek, shares of Common and Series C Preferred (and, in the case of the
Whitney Subordinated Debt Fund, L.P., the Warrant) are allocated to each
member's account as set forth in the table below.
<TABLE>
<CAPTION>
SERIES C
COMMON STOCK PREFERRED STOCK TOTAL VOTING POWER
----------------------- ----------------------- -------------------
NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT NUMBER PERCENT
BENEFICIALLY OF BENEFICIALLY OF OF OF
OWNED(A) CLASS(B) OWNED(A) CLASS(B) VOTES(C) VOTES(B)
------------ -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Whitney Equity Partners, L.P.(d)...... 510,000 51.0% 1,743 63.3% 511,743 51.0%
Whitney Subordinated Debt Fund
L.P.(e)............................. 176,471 15.0 -- -- -- --
Jeffrey A. Miller (f), (g)............ 343,002 34.3 709 25.7 343,711 34.3
James H. Fordyce(f)................... -- -- -- -- -- --
James W. Hook......................... -- -- -- -- -- --
William Killian(h).................... 8,166 * 17 * 8,183 *
Michael R. Stone(f)................... -- -- -- -- -- --
Rand E. McNally(i).................... 57,200 5.7 118 4.3 57,318 5.7
J. Scott Barton(j).................... 49,000 4.9 101 3.7 49,101 4.9
Charles Norris(k)..................... 16,300 1.6 34 1.2 16,334 1.6
Ronald G. Thimm....................... -- -- -- -- -- --
All directors and executive officers
as a group (consisting of 11
persons)............................ 481,834 48.2 996 36.1 482,830 48.2
</TABLE>
- ------------------------------------
(a) "Beneficial ownership" is defined under regulations of the Commission as the
power directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise to vote (or direct the voting of)
or dispose of (or direct the disposition of) stock, including stock of which
an individual has the right to acquire beneficial ownership (as defined)
within 60 days. In the above table, beneficial ownership reflects the number
of shares of Common or Series C Preferred allocated to the Rush Creek
capital account of the entity and individual members shown. Fractional
shares are not shown in the table, rather, the numbers of shares are rounded
to the nearest whole share.
(b) Asterisk (*) denotes less than 1%.
(c) Voting power is combined because each share of Common and each share of
Series C Preferred has one (1) vote per share.
(d) 177 Broad Street, Stamford, Connecticut 06901. Whitney Equity Partners, L.P.
("WEP") has 510,000 shares of Common and 1,743 shares of Series C Preferred
allocated to its Rush Creek capital account. WEP is a manager of Rush Creek
(see Note (f)).
(e) 177 Broad Street, Stamford, Connecticut 06901. The Whitney Subordinated Debt
Fund, L.P., a fund managed by J. H. Whitney & Co. ("WSDF") has the Warrant
(see "-- Capital Structure") allocated to its Rush Creek capital account.
WSDF is a manager of Rush Creek (see Note (f)). The percentage shown in the
table assumes the Warrant is exercised in full. If the Warrant were
exercised in full, the voting power (with respect to allocated shares of
Series C Preferred and Common) of all other entities,
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<PAGE> 73
individuals, and the group listed in the above table would be diluted, with
the resulting voting percentages as follows:
<TABLE>
<CAPTION>
RESULTING
VOTING POWER
ASSUMING
BENEFICIAL OWNER EXERCISE OF WARRANT
---------------- -------------------
<S> <C>
WEP......................................................... 43.4%
WSDF........................................................ 15.0
Jeffrey A. Miller (see Note (g), below...................... 29.1
Rand E. McNally (see Note (i), below)....................... 4.9
J. Scott Barton (see Note (j), below)....................... 4.2
Charles Norris (see Note (k), below)........................ 1.4
All directors and executive officers as a group (consisting
of 11 persons)............................................ 40.9
</TABLE>
(f) There are six managers of Rush Creek: WEP, WSDF, and Messrs. Miller,
Fordyce, Stone and Barton. As managers of Rush Creek, these entities and
individuals may be deemed to share voting and dispositive power with respect
to all (100%, or 1,000,000 shares) of Common and all (100%, or 2,755 shares)
Series C Preferred held by Rush Creek. Each such individual or entity
disclaims beneficial ownership with respect to all 1,000,000 shares of
Common and all 2,755 shares of Series C Preferred other than those shares
set forth opposite their respective names in the above table; in addition,
Messrs. Miller and Barton further disclaim beneficial ownership with respect
to certain of the shares set forth opposite their respective names in the
above table. See Notes (g) and (j), below.
(g) 325,002 of these shares are beneficially owned by two entities controlled by
Mr. Miller. The Jeffrey A. Miller Family LLC ("Miller LLC") is a limited
liability company of which Jeffery A. Miller is the manager and sole voting
member. The Miller LLC is a member of Rush Creek and has 130,001 shares of
Common and 269 shares of Class C Preferred allocated to its Rush Creek
capital account. The Jeffrey A. Miller Trust u/a/d/ May 10, 1997 ("Miller
Trust") is a revocable trust of which Jeffery A. Miller (the president and
chief executive officer of the Company) is the grantor, beneficiary, and
trustee. The Miller Trust is a member of Rush Creek and has 195,001 shares
of Common and 403 shares of Series C Preferred allocated to its Rush Creek
capital account. Mr. Miller is a manager of Rush Creek (see Note (f)). In
addition, Mr. Miller is required under the Stockholders' and Members'
Agreement among the stockholders of the Company and the Members of Rush
Creek (see "Voting Agreements," below) to purchase 18,000 shares of Common
and 37 shares of Series C Preferred which were owned by Mr. Bruce Dickson,
the Company's former Vice President of Human Resources, who passed away in
April, 1998. Although Mr. Miller has not yet completed the purchase of such
shares, they are included in the above totals for Mr. Miller.
(h) Mr. Killian is a member of Rush Creek and has 8,166 shares of Common and 17
shares of Series C Preferred allocated to his Rush Creek capital account.
(i) These shares are beneficially owned by two entities controlled by Mr.
McNally. The Rand Eugene McNally Family LLC ("McNally LLC") is a limited
liability company of which Mr. McNally is the manager and sole voting
member. The McNally LLC is a member of Rush Creek and has 17,160 shares of
Common and 35 shares of Series C Preferred allocated to its Rush Creek
capital account. The Rand E. McNally Trust u/a/d/ November 4, 1997 ("McNally
Trust") is a revocable trust of which Mr. McNally is the grantor,
beneficiary, and trustee. The McNally Trust is a member of Rush Creek and
has 40,040 shares of Common and 83 shares of Series C Preferred allocated to
its Rush Creek capital account.
(j) These shares are beneficially owned by an entity controlled by Mr. Barton,
the J. Scott Barton Trust u/a/d December 22, 1997 ("Barton Trust"), a
revocable trust of which Mr. Barton is the grantor, beneficiary, and
trustee. The Barton Trust is a member of Rush Creek and has 49,000 shares of
Common and 101 shares of Series C Preferred allocated to its Rush Creek
capital account.
(k) These shares are beneficially owned by two entities controlled by Mr.
Norris. The Charles J. Norris Family LLC ("Norris LLC") is a limited
liability company of which Mr. Norris is the manager and sole
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<PAGE> 74
voting member. The Norris LLC is a member of Rush Creek and has 3,260 Shares
of Common and 7 shares of Series C Preferred allocated to its Rush Creek
capital account. The Charles Norris Trust u/a/d/ November 21, 1997 ("Norris
Trust") is a revocable trust of which Mr. Norris is the grantor,
beneficiary, and trustee. The Norris Trust is a member of Rush Creek and has
13,040 shares of Common and 27 shares of Series C Preferred allocated to its
Rush Creek capital account.
VOTING AGREEMENT
Pursuant to a Stockholders' and Members' Agreement among the stockholders
of the Company and the Members of Rush Creek, the parties thereto have agreed to
vote to elect a six-member board of directors consisting of (i) two directors
designated by J. H. Whitney & Co. (or WEP and WSDF) (currently, Messrs. Fordyce
and Stone); (ii) two directors designated by certain senior executive officers
of the Company ("Management") (currently, Mr. Miller; the one vacancy on the
Board being a director to be designated by Management); and (iii) two
independent directors who are agreeable to each of J. H. Whitney & Co. and
Management (currently, Messrs. Hook and Killian). The Stockholders' and Members'
Agreement further provides that, in the event of a material breach of certain
documents entered into by the parties in connection with the Management Buy-Out
("Transaction Documents"), the parties agree to increase the number of directors
to nine and to elect three additional directors designated by J. H. Whitney &
Co. (or WEP and WSDF). Each Member of Rush Creek has one vote per Membership
Unit. However, pursuant to the Rush Creek Operating Agreement, the Membership
Units of Rush Creek are designated as either "Institutional Investor Membership
Units" (which includes the Membership Units held by WEP and WDSF) or "Management
Membership Units" (which includes the Membership Units held by the Miller LLC,
the Miller Trust, the McNally LLC, the McNally Trust, the Barton Trust, the
Norris LLC, and the Norris Trust). The election of the Managers of Rush Creek is
subject to a provision of the Operating Agreement which requires that two
managers shall be elected by a majority of the Institutional Investor Membership
Units and two managers shall be elected by a majority of the Management
Membership Units. The Operating Agreement further provides that, in the event of
a material breach of a Transaction Document, one additional manager shall be
designated by a majority of the Institutional Investor Membership Units.
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<PAGE> 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
The Company entered into an Interim Management Agreement ("Management
Agreement") with J. Miller Management, Inc. ("JMM") dated July 8, 1996, pursuant
to which the Company engaged JMM to provide the services of Mr. Miller as the
Company's President and Chief Executive Officer. Mr. Miller is the President and
co-owner of JMM. The Management Agreement provided that Mr. Miller would serve
as Interim Chief Executive Officer, provide management services and expertise to
the Company, and manage the operations of the Company, commencing on July 8,
1996. The Management Agreement was terminable at will by either party; however,
if the Company were to have terminated the Management Agreement without cause it
would have been liable for all compensation due thereunder. If the Company were
to have terminated the Management Agreement with cause (including Mr. Miller's
failure to obtain government security clearance) it would have been liable only
for accrued obligations through the date of termination.
Pursuant to the Management Agreement, the Company agreed to pay JMM $10,000
per week, plus the cost of living accommodations for Mr. Miller in the Milwaukee
area. The Company also agreed to reimburse JMM for out-of-pocket expenses
incurred by JMM on behalf of the Company under the Management Agreement,
including the cost of a company car and weekly travel to and from Mr. Miller's
home in Michigan.
The Management Agreement was amended on January 12, 1997 to extend its term
through December 31, 1997 and to provide for the payment to JMM of incentive
compensation for 1997 in accordance with the Company's Management Incentive
Plan. See "Management -- Management Incentive Plans." Under the Management
Agreement, the amount of incentive compensation that JMM would be paid was based
on base incentive compensation of $356,000 multiplied by a percentage based on a
sliding scale of from 50% to 150% tied to the Company's EBIT (as defined
therein) for the twelve months ended December 31, 1997. If 1997 EBIT were less
than $6.7 million, no incentive compensation would be due under the Management
Agreement; if 1997 EBIT were equal to or greater than $6.7 million but less than
$11.0 million, the base incentive compensation would have been multiplied by
50%; if 1997 EBIT were equal to or greater than $11.0 million but less than
$14.0 million, the base incentive compensation would have been multiplied by
100%; if 1997 EBIT were equal to or greater than $14.0 million but less than
$17.0 million, the base incentive compensation would have been multiplied by
125%; and if 1997 EBIT were equal to or greater than $17.0 million, the base
incentive compensation would have been multiplied by 150%.
The Management Agreement, as amended, also provided for additional
compensation in the event of a completed sale of the Company by December 31,
1998, based on a formula which provided for a Sale Bonus of $356,000 (the "Sale
Bonus") payable if the "net consideration" (as defined in the Management
Agreement) received for the Company was less than $40 million and a percentage
of the excess over $40 million ("Excess Consideration"). The percentage was 1%
of the first $5 million of Excess Consideration, 2% of the second $5 million of
Excess Consideration, 3% of the third $5 million of Excess Consideration, 4% of
the fourth $5 million of Excess Consideration, and 5% of any additional Excess
Consideration (that is, the amount by which the net consideration exceeded $60
million). The Sale Bonus became payable as a result of the Management Buy-Out.
The Management Agreement was terminated on July 31, 1997 when Mr. Miller
became employed by, and entered into an employment agreement with, the Company
(see "Management -- Employment Agreements"). The total cost to the Company for
Mr. Miller's services under the Management Agreement for 1997 was approximately
$1,514,000, including incentive compensation of approximately $267,000 and a
Sale Bonus of $861,000. The total cost to the Company for Mr. Miller's services
under the Management Agreement for 1996 was approximately $286,000.
OTHER
Three of the directors of the Company (Messrs. Fordyce, Miller and Stone)
are managers of Rush Creek, which holds 100% of the Common and Series A
Preferred Stock of the Company. Two of the directors of the Company (Messrs.
Fordyce and Stone) are general partners of J. H. Whitney & Co., which manages
Whitney Equity Partners, L.P., a principal owner of Rush Creek. See "Capital
Stock and Principal
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<PAGE> 76
Stockholders -- Principal Stockholders." The Company has agreed to pay J. H.
Whitney & Co. a "monitoring fee" of $50,000 annually on the first business day
of each year commencing in 1998, and an annual "recognition fee" of $25,000,
also commencing in 1998. The recognition fee is accrued and will become payable
upon the occurrence of an "Organic Transaction" (as defined in the Company
Certificate of Incorporation to include a sale of substantially all the assets
of the Company or a merger of the Company or other similar transaction) or an
initial public offering of the Company's securities.
James A. Feddersen, Secretary of Aqua-Chem, is a shareholder in the law
firm of Whyte Hirschboeck Dudek S.C., which performs legal services for
Aqua-Chem. Through Rush Creek, Mr. Feddersen owns approximately 8,166 shares, or
approximately 0.8% of the outstanding Common Stock and approximately 17 shares,
or approximately 0.6% of the outstanding Series C Preferred Stock. See "Capital
Stock and Principal Stockholders -- Common and Series C Preferred" and "Legal
Matters."
The Company has, pursuant to its Certificate of Incorporation and Bylaws,
established a policy indemnifying officers and directors, to the fullest extent
allowed by the Delaware General Corporation Law, for liabilities and expenses
arising out of their actions in their capacities as officers and directors. This
provision does not exclude indemnification for liability on the part of officers
and directors under the Securities Act arising out of material
misrepresentations or omissions contained in a registration statement filed
under the Securities Act. However, insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons pursuant to the foregoing provisions, the Company have been
informed that, in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 77
THE ACQUISITION
THE PURCHASE AGREEMENT
On May 28, 1998, Aqua-Chem entered into a definitive agreement (the "Asset
Purchase Agreement") with National Dynamics Corporation ("NDC"), a Nebraska
corporation, and three of NDC's individual shareholders who collectively held
83.3% of the issued and outstanding shares of NDC (the "Shareholders"), to
acquire substantially all of the assets of NDC for a purchase price of $47.0
million plus the assumption of certain liabilities. Pursuant to the Asset
Purchase Agreement, the purchase price is subject to certain post-closing
adjustments based upon a closing balance sheet and NDC's physical inventory as
of the closing date, to be prepared not later than August 22, 1998.
The Asset Purchase Agreement provided for the assumption of certain of
NDC's liabilities by Aqua-Chem, including without limitation, contractual
obligations to furnish goods and services or to pay for goods and services that
were acquired; provided, however, that Aqua-Chem did not assume any liabilities
for personal or property damage related to Products Sold (as defined therein).
The Asset Purchase Agreement included customary representations and warranties
by Aqua-Chem, NDC and the Shareholders regarding business and legal issues and
customary indemnification provisions. In the Asset Purchase Agreement, NDC and
the Shareholders covenanted not to compete with Aqua-Chem, as described therein,
for a period of 48 months following the closing date and not to disclose
Confidential Information (as defined therein) except as provided therein.
FINANCING
Aqua-Chem used a portion of the proceeds of the Private Offering to finance
the Acquisition, which was closed on June 23, 1998, concurrently with the
Private Offering. See "The Exchange Offer -- Use of Proceeds." Since the
Acquisition, the former business of NDC has been operated as the National
Dynamics Division of the Company. There can be no assurance that the expected
benefits of the Acquisition will be realized. See "Risk Factors -- Realization
of the Benefits of the Acquisition."
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<PAGE> 78
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Private Offering, the Company amended and restated
its existing revolving credit facility (as amended and restated, the "New Credit
Facility"). Borrowings under the New Credit Facility bear interest at variable
rates and permit borrowings and letters of credit totaling $45.0 million.
The obligations of the Company under the New Credit Facility are guaranteed
by all existing and future domestic subsidiaries and by Rush Creek, and
borrowings under the New Credit Facility are secured by substantially all of the
assets of the Company, other than assets (including real property) of foreign
subsidiaries. Pricing on the New Credit Facility is, at the option of the
Company, (i) a base rate equal to the higher of Comerica's prime rate or the
Federal funds rate plus 1.00%, or (ii) a Eurodollar-based rate plus an
applicable margin ranging from 1.00% to 1.75% dependent on the ratio of total
debt to EBITDA. Letters of credit are priced at 1.00% to 1.75% dependent on the
ratio of total debt to EBITDA plus a facing fee. The Company also pays a
revolving credit facility fee of 0.25% to 0.50% dependent on the ratio of total
debt to EBITDA.
The New Credit Facility contains certain restrictive covenants that impose
limitations upon, among other things, the ability of the Company and the
guarantors (other than Rush Creek) to incur liens; merge, consolidate or dispose
of assets; make loans and investments; incur indebtedness; engage in certain
transactions with affiliates; incur contingent obligations; enter into joint
ventures; enter into lease agreements; pay dividends and make other
distributions; change its business; and make capital expenditures.
The New Credit Facility also contains covenants requiring the Company (a)
to maintain certain financial ratios as follows: (i) a fixed charge coverage
ratio; and (ii) a funded debt to EBITDA ratio; and (b) to maintain a minimum
base tangible net worth.
All extensions of credit under the New Credit Facility are subject to
customary documentation and on the continued accuracy of all representations and
warranties as well as the absence of any Default or Event of Default (as defined
in the New Credit Facility).
The New Credit Facility may be refinanced (as defined in the Indenture)
from time to time in accordance with the limits of the Indenture. See
"Description of the Notes -- Certain Covenants -- Limitation on Indebtedness"
and "-- Certain Definitions."
FOREIGN CREDIT FACILITIES
Cleaver-Brooks of Canada, LTD has in place a Cdn$0.5 million revolving
credit facility established with a Canadian bank for convenience purposes and
for funding its working capital and other financing needs. This facility is
unsecured and payable on demand, and as of June 30, 1998, had no outstanding
balance.
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<PAGE> 79
DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were, and the Exchange Notes are to be, issued under an
Indenture, dated as of June 23, 1998 (the "Indenture"), between the Company and
United States Trust Company of New York, as Trustee (the "Trustee").
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes is available upon request
to the Company at the address set forth under "Available Information." The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. For purposes of this summary, the term "Company" refers only to
Aqua-Chem, Inc. and not to any of its subsidiaries.
The Existing Notes were, and the Exchange Notes will be, issued only in
fully registered form, without coupons, in denominations of $1,000 and any
integral multiple of $1,000. No service charge shall be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Existing Notes were, and the Exchange Notes will be, unsecured senior
subordinated obligations of the Company, initially in an aggregate principal
amount of $125.0 million aggregate principal amount, and will mature on July 1,
2008. The Notes bear interest at 11.25% per annum from June 23, 1998, or from
the most recent date to which interest has been paid or provided for, payable
semiannually to Holders of record at the close of business on the December 15 or
June 15 immediately preceding the interest payment date on January 1 and July 1
of each year, commencing January 1, 1999. The Company will pay interest on
overdue principal at 1% per annum in excess of such rate, and it will pay
interest on overdue installments of interest at such higher rate to the extent
lawful. Interest on the Existing Notes is, and the Exchange Notes will be,
computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Exchange Offer or if the registration statement is not declared effective on
a timely basis or if certain other conditions are not satisfied, all as further
described under "The Exchange Offer -- Registration Agreement."
Subject to the covenants described below under "-- Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture in an
unlimited aggregate principal amount. The Notes offered hereby and any
additional Notes subsequently issued would be treated as a single class for all
purposes under the Indenture.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to July 1, 2003. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders
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<PAGE> 80
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
July 1 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2003........................................................ 105.625%
2004........................................................ 104.219
2005........................................................ 102.813
2006........................................................ 101.406
2007 and thereafter......................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to July 1, 2001, the
Company may redeem in the aggregate up to 20% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 111.25% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least $100.0 million aggregate principal amount of the Notes remains
outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes is a senior subordinated, unsecured
obligation of the Company. The payment of the principal of, premium (if any) and
interest on the Notes is subordinate in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred, including the Company's
obligations under the Credit Agreement.
As of June 30, 1998 the Company had no Senior Indebtedness outstanding.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company may incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness. See "-- Certain Covenants -- Limitation on
Indebtedness."
A portion of the operations of the Company are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even though such obligations will not constitute
Senior Indebtedness. The Notes, therefore, will be effectively subordinated to
creditors (including trade creditors) and preferred stockholders (if any) of
subsidiaries of the Company. At June 30, 1998, the total liabilities of the
Company's subsidiaries were approximately $3.2 million, including trade
payables. Although the Indenture limits the incurrence of Indebtedness and
preferred stock of certain of the Company's subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the Indenture does
not impose any limitation on the incurrence by such subsidiaries of liabilities
that are not considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in right of payment to its Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right
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<PAGE> 81
of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinated or junior to Secured Indebtedness merely because it is
unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Indebtedness is not
paid when due or (ii) any other default on Designated Senior Indebtedness occurs
and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions described in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance."
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BOOK-ENTRY, DELIVERY AND FORM
The Existing Notes were, and the Exchange Notes will be, issued in the form
of a Global Note. The Global Note is deposited with, or on behalf of, the
Depositary and registered in the name of the Depositary or its nominee. Except
as set forth below, the Global Note may be transferred, in whole and not in
part, only to the Depositary or another nominee of the Depositary. Investors may
hold their beneficial interests in the Global Note directly through the
Depositary if they have an account with the Depositary or indirectly through
organizations which have accounts with the Depositary.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Note has previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depositary (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Note. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Note desires to take
any action that the Depositary, as the holder of the Global Note, is entitled to
take, the Depositary would authorize the participants to take such action, and
that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the
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Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Note held through
such participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants. The Company will
not have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in the Global
Note for any Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the Depositary and its participants or the relationship
between such participants and the owners of beneficial interests in the Global
Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of U.S.
$1,000 and integral multiples thereof if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for the Global Note or
if at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act and a successor Depositary is not appointed by the Company
within 90 days, (ii) the Company in its discretion at any time determines not to
have all of the Notes represented by the Global Note or (iii) an Event of
Default has occurred and is continuing. Any Note that is exchangeable pursuant
to the preceding sentence is exchangeable for certificated Notes issuable in
authorized denominations and registered in such names as the Depositary shall
direct. Subject to the foregoing, the Global Note is not exchangeable, except
for a Global Note of the same aggregate denomination to be registered in the
name of the Depositary or its nominee. In addition, such certificates will bear
the legend referred to under "Transfer Restrictions" (unless the Company
determines otherwise in accordance with applicable law) subject, with respect to
such Notes, to the provisions of such legend.
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) prior to the first public offering of common stock of the Company,
the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities or otherwise (for purposes of
this clause (i) and clause (ii) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of any Person (the "specified
entity") held by any other Person (the "parent entity") so long as the
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Permitted Holders beneficially own (as so defined), directly or indirectly,
in the aggregate a majority of the voting power of the Voting Stock of the
parent entity);
(ii) following the first public offering of common stock of the
Company, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that for
purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Company; provided, however, that
the Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors (for
the purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 40% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent entity);
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office;
(iv) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(v) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness".
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
The Credit Agreement will prohibit the Company from purchasing any Notes
and will also provide that the occurrence of certain change of control events
with respect to the Company would constitute a default thereunder. In the event
a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2.00 to 1 if such Indebtedness is Incurred prior to January 1, 2000,
2.25 to 1 if such Indebtedness is Incurred on or after January 1, 2000 and prior
to July 1, 2001 or 2.50 to 1 if such Indebtedness is incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement; provided,
however, that, after giving effect to any such Incurrence, the aggregate
principal amount of such Indebtedness then outstanding does
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not exceed the greater of (i) $45.0 million less the sum of all principal
payments with respect to such Indebtedness pursuant to paragraph (a)(ii)(A)
of the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" and (ii) the sum of (x) 50% of the book value of the
inventory of the Company and its Restricted Subsidiaries (other than any
Foreign Subsidiary that has Indebtedness then outstanding Incurred pursuant
to clause (3) below) and (y) 85% of the book value of the accounts
receivable of the Company and its Restricted Subsidiaries (other than any
Foreign Subsidiary that has Indebtedness then outstanding Incurred pursuant
to clause (3) below);
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that (i) any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(3) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount that, when taken together with the principal amount of all other
Indebtedness Incurred pursuant to this clause (3) (and any Indebtedness
Incurred by Foreign Subsidiaries prior to the Issue Date solely to finance
its working capital) and then outstanding does not exceed the sum of (i)
60% of the book value of the inventory of Foreign Subsidiaries that have
Indebtedness Incurred pursuant to this clause (3) then outstanding and (ii)
85% of the book value of the accounts receivable of Foreign Subsidiaries
that have Indebtedness Incurred pursuant to this clause (3) then
outstanding;
(4) the Notes and the Exchange Notes;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this covenant);
(6) Indebtedness of a Subsidiary Incurred and outstanding on or prior
to the date on which such Subsidiary was acquired by the Company (other
than Indebtedness Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to clause (a);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5) or (6) or this
clause (7); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (6), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(8) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
pursuant to the Indenture;
(9) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
(10) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
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(11) Incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or any such Restricted Subsidiaries in an aggregate
principal amount not to exceed the greater of (a) $20 million or (b) 5% of
the Consolidated Net Worth of the Company at any one time outstanding;
(12) Indebtedness of the Company consisting of Guarantees of
Indebtedness of a Foreign Subsidiary Incurred pursuant to clause (3) above;
(13) Indebtedness in respect of performance bonds and surety or appeal
bonds entered into by the Company and its Restricted Subsidiaries in the
ordinary course of their business and letters of credit entered into in the
ordinary course of business by the Company and its Restricted Subsidiaries
to secure such performance bonds or surety or appeal bonds to the extent
such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the 30th Business Day
following payment on such letter of credit; and
(14) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (13)
above or paragraph (a)) does not exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Notes equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
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(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness
of the Company convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in Unrestricted Subsidiaries resulting from dividends, repayments of loans
or advances or other transfers of assets, in each case to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of an Unrestricted Subsidiary at
the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however,that the foregoing sum shall not exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payments made out of the proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock
of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); provided, however,
that (A) such Restricted Payment shall be excluded in the calculation of
the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of the Company which is permitted to be Incurred
pursuant to the covenant described under "-- Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted
Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing
(or result therefrom); provided further, however, that such dividend
shall be included in the calculation of the amount of Restricted
Payments;
(iv) the repurchase or other acquisition of shares of, or options
to purchase shares of, common stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases and
other acquisitions shall not exceed $1 million in any calendar year;
provided further, however, that such repurchases and other acquisitions
shall be excluded in the calculation of the amount of Restricted
Payments;
(v) the repurchase of shares of Series A Preferred Stock (and the
payment of accrued dividends thereon); provided, however, that any such
repurchase shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) the repurchase of shares of Series B Preferred Stock (and the
payment of accumulated dividends thereon) if on the date of any such
repurchase and after giving effect thereto, the Consolidated Coverage
Ratio exceeds 2.00 to 1; provided, however, that any such repurchase
shall be included in the calculation of the amount of Restricted
Payments.
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Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an agreement
evidencing Indebtedness Incurred without violation of the Indenture or
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such agreement, refinancing agreement or amendment are no
less favorable to the Noteholders than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such predecessor
agreements;
(iv) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; and
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within one year
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B), to make an offer to the holders of the
Notes (and to holders of other Senior Subordinated Indebtedness designated by
the Company) to purchase Notes (and such other Senior Subordinated Indebtedness)
pursuant to and subject to the conditions
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contained in the Indenture; and (D) fourth, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A), (B) and (C)
to (x) the acquisition by the Company or any Wholly Owned Subsidiary of
Additional Assets or (y) the prepayment, repayment or purchase of Indebtedness
(other than any Disqualified Stock) of the Company (other than Indebtedness owed
to an Affiliate of the Company) or Indebtedness of any Subsidiary (other than
Indebtedness owed to the Company or an Affiliate of the Company), in each case
within one year from the later of the receipt of such Net Available Cash and the
date the offer described in clause (b) below is consummated; provided,
however,that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary shall permanently retire such Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased. Notwithstanding
the foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
paragraph exceeds $5 million. Pending application of Net Available Cash pursuant
to this covenant, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
above. The Company shall not be required to make such an offer to purchase Notes
(and other Senior Subordinated Indebtedness) pursuant to this covenant if the
Net Available Cash available therefor is less than $5 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $2 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and (3) if such
Affiliate Transaction involves an amount in excess of $10 million, have been
determined by a nationally recognized investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
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(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Restricted Payment permitted to be paid pursuant to the covenant
described under "-- Limitation on Restricted Payments," (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with the past practices of the
Company or its Restricted Subsidiaries, but in any event not to exceed $1
million in the aggregate outstanding at any one time, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, (vii) the payment by the Company (A) of
customary annual management fees and related expenses to WEP and (B) of fees
paid to WEP, J. H. Whitney & Co., or an affiliate of J. H. Whitney & Co.
pursuant to any financing, underwriting or placement agreement, or in respect of
other investment banking activities, in each case as determined by the Board of
Directors in good faith and (viii) the issuance or sale of any Capital Stock
(other than Disqualified Stock) of the Company.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary,
(ii) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries owns any Capital
Stock of such Restricted Subsidiary or (iii) if, immediately after giving effect
to such issuance, sale or other disposition, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect thereto would have been permitted to be made under
the covenant described under "-- Limitation on Restricted Payments" if made on
the date of such issuance, sale or other disposition.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "-- Limitation on Indebtedness;" (iv) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture and (v) the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
will not recognize income, gain or loss for Federal income tax purposes as a
result of such transaction and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such transaction had not occurred.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Trustee and Noteholders with such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections,
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such information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--
Certain Covenants -- Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations in the
covenants described above under "Change of Control" (other than a failure to
purchase Notes) or under "-- Certain Covenants" under "-- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries" or "-- Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"-- Limitation on Affiliate Transactions," "-- Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries" or "-- SEC Reports," (v)
the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $7.5 million
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions") or (viii) any judgment or decree for the payment of
money in excess of $7.5 million is entered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision"). However, a default under clauses (iv), (v) and
(viii) will not constitute an Event of Default until the Trustee or the holders
of 25% in principal amount of the outstanding Notes notify the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences. Subject to the provisions of the Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Notes unless such holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no holder
of a Note may pursue any remedy with respect to the Indenture or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of a Note or that would involve the Trustee in personal
liability.
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The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes or (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act. However, no amendment may be
made to the subordination provisions of the Indenture that adversely affect the
rights of any holders of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or their representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its
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obligations under "Change of Control" and under the covenants described under
"-- Certain Covenants" (other than the covenant described under "-- Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries and the judgment
default provision described under "-- Defaults" above and the limitations
contained in clauses (iii) and (iv) under "-- Certain Covenants -- Merger and
Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however,
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that any such Restricted Subsidiary described in clauses (ii) or (iii) above is
primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that the owners of the
Series A Preferred Stock and Series B Preferred Stock on the Issue Date and
their respective Affiliates shall not be considered Affiliates of the Company or
any Restricted Subsidiary solely by virtue of such ownership. For the purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the provisions described under "--
Certain Covenants -- Limitation on Restricted Payments," "-- Certain Covenants
- -- Limitation on Affiliate Transactions" and "-- Certain Covenants -- Limitation
on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 5% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (w) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (x) for purposes of the covenant described under "--
Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments," (y)
a disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of, in each case, in the ordinary course of
business and (z) disposition of assets with a fair market value of less than
$500,000).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means all Indebtedness outstanding under the Credit
Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount
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due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (provided that if
such Indebtedness is Incurred under a revolving credit facility (or similar
arrangement or under any predecessor revolving credit or similar arrangement)
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness (as determined in good faith by senior
management of the Company and assuming a constant level of sales) shall be
deemed outstanding for purposes of this calculation) and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, (2) if the Company or any Restricted Subsidiary has
repaid, repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (4) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and (5) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(3) or (4) above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if
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such Asset Disposition, Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith, without duplication, by a responsible financial or
accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication, (i)
interest expense attributable to capital leases and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) Preferred Stock dividends in respect of all
Preferred Stock held by Persons other than the Company or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by (or secured by the
assets of) the Company or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in the calculation of such Consolidated Net Income:
(i) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person for such period shall be included
in determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any
such Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company, its consolidated Subsidiaries or any other
Person (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person;
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(v) extraordinary gains or losses;
(vi) the cumulative effect of a change in accounting principles; and
(vii) any restructuring charges related to the closing of the
Company's Greenville, Mississippi manufacturing facility.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants-Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means (i) the Second Amended and Restated Credit
Agreement dated as of June 23, 1998, between the Company, the lenders party
thereto in their capacities as lenders thereunder and Comerica Bank, as agent,
together with all exhibits, schedules and appendices thereto, as the same may be
amended, supplemented or otherwise modified from time to time and (ii) any
renewal, extension, refunding, restructuring, replacement or refinancing thereof
(whether under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Notes and described under "--
Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "--
Certain Covenants -- Change of Control" and (y) any such requirement only
becomes operative after compliance with such terms applicable to the Notes,
including the purchase of any Notes tendered pursuant thereto.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all
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income tax expense of the Company and its consolidated Restricted Subsidiaries,
(b) depreciation expense of the Company and its consolidated Restricted
Subsidiaries, (c) amortization expense of the Company and its consolidated
Restricted Subsidiaries (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period) and (d) all other non-cash
charges of the Company and its consolidated Restricted Subsidiaries (excluding
any such non-cash charge to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and non-cash charges
of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in
a jurisdiction other than the United States or a State thereof or the District
of Columbia and with respect to which more than 80% of any of its sales,
earnings or assets (determined on a consolidated basis in accordance with GAAP)
are located in, generated from or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
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"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
30th Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net
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assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Holders" means (i) J. H. Whitney & Co. and any Person who on the
Issue Date is an Affiliate of J. H. Whitney & Co. and (ii) any Person who, on
the Issue Date, is a member of the senior management and a beneficial
shareholder of the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) Permitted Joint Ventures not
in excess of $7.5 million at any time outstanding; and (ix) any Person to the
extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to the covenant
described under "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock."
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"Permitted Joint Ventures" means joint ventures conducting a Related
Business primarily outside of the United States.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock),
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(iii) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
Indebtedness of the Company for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable (in the case of each of (A) and (B),
whether outstanding on the Issue Date or thereafter Incurred) unless, in the
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Notes; provided, however,
that Senior Indebtedness shall not include (1) any obligation of the Company to
any Subsidiary, (2) any liability for Federal, state, local or other taxes owed
or owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect to any other Indebtedness or other
obligation of the Company or (5) that portion of any Indebtedness which at the
time of Incurrence is Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Series A Preferred Stock" means the Series A Cumulative Preferred Stock,
par value $.01 per share, of the Company.
"Series B Preferred Stock" means the Series B Cumulative Preferred Stock,
par value $.01 per share, of the Company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including
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partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings
Group, and
(v) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under "--
Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
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"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WEP" means Whitney Equity Partners, L.P. and its successors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and similar ownership
required or made necessary to conduct business by the laws or regulations of the
jurisdiction under which it is incorporated) is owned by the Company or one or
more Wholly Owned Subsidiaries.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Following is a general discussion of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the Notes
to initial holders thereof. Except as provided below under "Foreign Holders,"
this discussion is limited to investors that are United States Holders (that is,
a holder that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States; (ii) a corporation or other entity taxable as
a corporation created or organized in or under the laws of the United States or
any political subdivision thereof; (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source; or
(iv) a trust if (X) a U.S. court is able to exercise primary supervision over
the administration of the trust, and (Y) one or more U.S. persons have the
authority to control all substantial decisions of the trust.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S.
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of Notes, and is limited to investors who hold the Notes
as capital assets as defined in section 1221 of the Code. Moreover, the
discussion is for general information only, and does not address all of the tax
consequences that may be relevant to particular investors in light of their
personal circumstances, or to certain types of investors (such as certain
financial institutions, insurance companies, tax exempt entities, dealers in
securities or foreign currencies or persons who hold the Notes as a position in
a straddle or as part of a "conversion transaction" or who have hedged the
interest rate on the Notes).
UNITED STATES HOLDERS
Interest on the Notes
In general, interest paid or payable on a Note will be taxable to a United
States Holder as ordinary interest income at the time it is received or accrued,
in accordance with such holder's method of accounting for federal income tax
purposes.
Disposition of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a United States Holder will generally recognize taxable
gain or loss equal to the difference between the sum of the cash plus the fair
market value of all other property received on such disposition and such
holder's adjusted tax basis in the Note (except to the extent such cash or
property is attributable to accrued interest, which will be taxable as ordinary
income).
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if the Notes
were held for more than one year at the time of disposition. In the case of
individuals, capital gain will be subject to a maximum rate of (i) 20% if, at
the time of such disposition, the United States Holder's holding period for the
Note is more than 18 months, and (ii) 28% if, at the time of such disposition,
the United States Holder's holding period for the Notes is 18 months or less but
more than one year.
Exchange Offer and Registration
The exchange of an Existing Note for an Exchange Note pursuant to the
Exchange Offer should not constitute a taxable exchange for United States
federal income tax purposes. As a result, holders who exchange Existing Notes
for Exchange Notes pursuant to the Exchange Offer will not recognize any taxable
gain or loss for United States federal income tax purposes at the time of the
exchange and any such holder should have the same adjusted tax basis and holding
period in the Exchange Notes as it had in the Existing Notes immediately before
the exchange.
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Upon failure to comply with certain of its obligations under the
Registration Agreement, the Company would be required to pay additional interest
on the Existing Notes. Although the matter is not free from doubt, if additional
interest becomes payable on the Existing Notes, such additional interest should
be treated in the same manner as stated interest on the Existing Notes. It is
also possible, however, that if additional interest becomes payable on the
Existing Notes, all or a portion of any interest or additional interest earned
on the Existing Note may constitute original issue discount for Unites States
federal income tax purposes and, to that extent, a holder would be required to
report such original issue discount over the remaining term of the Notes on a
constant yield basis. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSIDERATIONS RELATING TO THE PAYMENT OF ADDITIONAL INTEREST.
FOREIGN HOLDERS
For purposes of this discussion, a Foreign Holder means any holder of a
Note that is not a United States Holder. Subject to the discussion of backup
withholding below, a Foreign Holder generally will not be subject to United
States federal income or withholding tax on payments of interest on a Note,
provided that (i) the holder is not (A) a direct or indirect owner of 10 percent
or more of the total voting power of all voting stock of the Company or (B) a
controlled foreign corporation related to the Company through stock ownership
(actually or constructively), (ii) such interest payments are not effectively
connected with the conduct by the Foreign Holder of a trade or business within
the United States and (iii) the Company or its paying agent receives certain
information from the holder (or a financial institution that holds the Notes in
the ordinary course of its trade or business) certifying that such holder is a
Foreign Holder. See " -- Information Reporting and Backup Withholding" for
recent changes to the requirements described in (iii) above. Subject to the
discussion of backup withholding below, a Foreign Holder generally will not be
subject to United States federal income or withholding tax on gains from the
sale or other disposition of a Note, provided that (i) such gains are not
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States and (ii) such Foreign Holder is not an
individual who (A) is present in the United States for 183 days or more in the
taxable year of disposition and (B) meets certain other requirements.
INFORMATION REPORTING AND BACKUP WITHHOLDING
On October 6, 1997, the Treasury Department issued final regulations
relating to withholding, information reporting and backup withholding that unify
current certification procedures and forms and clarify reliance standards (the
"Final Regulations"). The Final Regulations generally will be effective with
respect to payments made after December 31, 1999. Except as provided below, this
section describes rules applicable to payments made on or before December 31,
1999.
A holder of a Note may be subject to backup withholding at a rate of 31%
with respect to interest paid on the Note and proceeds from the sale, exchange,
redemption or retirement of the Note, unless such holder (a) is a corporation or
comes within with certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number
(social security number or employer identification number), certifies as to its
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. Certain penalties may be imposed
by the Internal Revenue Service on a holder that is required to supply
information but does not do so in the proper manner.
A Foreign Holder generally will be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption from
backup withholding and information reporting.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's United States federal
income tax (which might entitle such holder to a refund), provided that such
holder furnishes the required information to the Internal Revenue Service.
The Final Regulations impose certain certification and documentation
requirements on Foreign Holders claiming an exemption from withholding,
information reporting and backup withholding on interest paid on the Notes and
proceeds of a sale of the Notes. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS
TO THE EFFECT, IF ANY, OF THE FINAL REGULATIONS ON THEIR PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES.
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The exchange of an Existing Note for an Exchange Note should not constitute
a taxable exchange of the Existing Note if the interest rate on the Exchange
Note is equal to the interest rate on the Existing Note. Although there is no
definitive guidance on the issue, even if the interest rate on the Exchange Note
is not equal to the interest rate on the Existing Note because Additional
Interest is payable on the Existing Note but not on the Exchange Note, the
exchange should not constitute a taxable exchange of the Existing Note.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS
OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND
ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS. IN ADDITION, INDIVIDUAL
NOTEHOLDERS WHO ARE NOT CITIZENS OF THE UNITED STATES SHOULD CONSULT THEIR TAX
ADVISORS AS TO WHETHER THEY WILL OR WILL NOT BE DEEMED TO BE "RESIDENTS" OF THE
UNITED STATES FOR PURPOSES OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986,
AS AMENDED.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer in exchange for Existing Notes must acknowledge
and agree that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Existing Notes where such Existing Notes
were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 199 , all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging and agreeing that it will deliver and
by delivering this Prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer agrees that, upon
receipt of notice from the Company of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
not misleading, such broker-dealer will suspend use of the Prospectus until (i)
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and (ii) either the Company has
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furnished copies of the amended or supplemented Prospectus to such broker-dealer
or, if the Company has not otherwise agreed to furnish such copies and declines
to do so after such broker-dealer so requests, such broker-dealer has obtained a
copy of such amended or supplemented Prospectus as filed with the Commission.
The Company has agreed to deliver such notice and such amended or supplemented
Prospectus promptly to any Participating Broker-Dealer that has so notified the
Company.
Pursuant to the Registration Agreement, the Company and the Guarantors have
jointly and severally agreed to indemnify the Initial Purchasers against certain
liabilities, including certain liabilities incurred in connection with the
offering of the Existing Notes, and contribute to payments the Initial
Purchasers may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance and sale
of the Exchange Notes offered hereby will be passed upon for the Company by
Whyte Hirschboeck Dudek S.C., Milwaukee, Wisconsin, of which James A. Feddersen,
Secretary of the Company, is a shareholder (see "Management" and "Certain
Relationships and Related Transactions").
INDEPENDENT AUDITORS
The consolidated financial statements of Aqua-Chem, Inc. for the periods
from January 1, 1997 to July 31, 1997, and August 1, 1997 to December 31, 1997,
included in this Prospectus, have been audited by Arthur Andersen LLP,
Milwaukee, Wisconsin, independent public accountants, as stated in their report
appearing herein.
The consolidated financial statements of Aqua-Chem, Inc. for the period
from January 1, 1995 to December 31, 1996, included in this Prospectus, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
Milwaukee, Wisconsin, as stated in their report appearing herein.
KPMG Peat Marwick LLP was previously the principal accountants for Aqua
Chem, Inc. On January 23, 1998, that firm's appointment as principal accountants
was terminated and Arthur Andersen LLP was engaged as principal accountants. The
decision to change accountants was approved by the board of directors.
In connection with the audits of the two fiscal years ended December 31,
1996 and the subsequent interim period through January 23, 1998 there were no
disagreements with KPMG Peat Marwick LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The financial statements of National Dynamics Corporation for the period
from November 1, 1995 to October 31, 1997, included in this Prospectus, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
Omaha, Nebraska, as stated in their report appearing herein.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the Exchange Notes offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
and certain information contained in the Registration Statement has been
omitted, as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Exchange Notes offered
hereby, reference is made to the Registration Statement, including the exhibits
and financial statements, notes and schedules thereto filed as a part thereof or
incorporated by reference therein. This Prospectus contains summaries of
material terms and provisions of certain documents, including the Registration
Agreement and the Indenture. With respect to each such document filed with the
Commission as
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an exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved. The Registration Statement and
the exhibits and schedules thereto may be inspected without charge and copied at
prescribed rates at the Public Reference Section maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661-2511. The Commission maintains a Web Site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
The principal executive offices of the Company are located at 7800 North
113th Street, P.O. Box 421, Milwaukee, Wisconsin, 53201, and the telephone
number is (414) 359-0600.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents or reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE, OR A SOLICITATION OF
AN OFFER TO EXCHANGE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO EXCHANGE OR A SOLICITATION OF AN OFFER TO EXCHANGE SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
The Indenture provides that the Company shall file with the Trustee and
provide holders of Notes, within 15 days after it files them with the
Commission, copies of its annual reports and the information, documents and
other reports that they are required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. To the extent permitted by the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee and holders with the annual reports and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act.
In the event that the Company is not permitted to file such reports, documents
and information with the Commission or the Company has subsidiaries that
individually or in the aggregate would be deemed to be "substantial
subsidiaries" (as defined in Rule 1-02 of Regulation S-X, as in effect on June
23, 1998), the Company will provide substantially similar information with
respect to itself and its subsidiaries to the Trustee, holders and prospective
holders (upon written request) as if the Company were subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. The Company shall also
comply with the other provisions of Trust Indenture Act Section 314(a).
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INDEX TO FINANCIAL STATEMENTS
AQUA-CHEM, INC. AND SUBSIDIARIES AUDITED AND UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
The following audited and unaudited consolidated financial statements of
Aqua-Chem, Inc. and Subsidiaries are presented herein on the pages indicated
below:
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the period August
1, 1997 to December 31, 1997, the period January 1 to July
31, 1997, and the years ended December 31, 1996 and
1995...................................................... F-5
Consolidated Statements of Stockholders' Equity for the
period August 1, 1997 to December 31, 1997, the period
January 1 to July 31, 1997, and the years ended December
31, 1996 and 1995......................................... F-6
Consolidated Statements of Cash Flows for the period August
1, 1997 to December 31, 1997, the period January 1 to July
31, 1997, and the years ended December 31, 1996 and
1995...................................................... F-7
Notes to Consolidated Financial Statements.................. F-8
UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of June 30, 1998
and 1997.................................................. F-25
Consolidated Condensed Statements of Operations for the six
months ended June 30, 1998 and 1997....................... F-26
Consolidated Condensed Statements of Cash Flows for the six
months ended June 30, 1998 and 1997....................... F-27
Notes to Consolidated Condensed Financial Statements........ F-28
Schedule II -- Valuation and Qualifying Accounts............ F-30
Computation of Ratio of Earnings to Fixed Charges........... F-31
</TABLE>
NATIONAL DYNAMICS CORPORATION AUDITED AND UNAUDITED FINANCIAL STATEMENTS
The following audited and unaudited financial statements of National
Dynamics Corporation are presented herein on the pages indicated below:
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-32
Balance Sheets as of October 31, 1997 and 1996.............. F-33
Statements of Earnings and Retained Earnings for the years
ended October 31, 1997, 1996 and 1995..................... F-34
Statements of Cash Flows for the years ended October 31,
1997, 1996 and 1995....................................... F-35
Notes to Financial Statements............................... F-36
UNAUDITED FINANCIAL STATEMENTS
Condensed Balance Sheets as of March 31, 1998 and 1997...... F-41
Condensed Statements of Earnings for the five months ended
March 31, 1998 and 1997................................... F-42
Condensed Statements of Cash Flows for the five months ended
March 31, 1998 and 1997................................... F-43
Note to Condensed Financial Statements (Unaudited).......... F-44
</TABLE>
F-1
<PAGE> 112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Aqua-Chem, Inc.:
We have audited the accompanying balance sheet of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the period from August 1, 1997 to
December 31, 1997 and the period from January 1, 1997 to July 31, 1997. These
financial statements and the supplemental schedule referred to below are the
responsibility of Aqua-Chem's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the period August 1, 1997 to December 31, 1997 and the
period from January 1, 1997 to July 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplemental schedule, Schedule II --
Valuation and Qualifying Accounts, is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. The supplemental schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 4, 1998 (except with respect to
the matters discussed in Notes 16 and
18, as to which the date is May 28,
1998).
F-2
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Aqua-Chem, Inc.:
We have audited the accompanying consolidated balance sheet of Aqua-Chem, Inc.
and subsidiaries (80% owned subsidiary of Lyonnaise American Holding, Inc.) as
of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1996, as listed in the accompanying index to financial
statements. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule, Schedule II
- -- Valuation and Qualifying Accounts, for each of the years in the two-year
period ended December 31, 1996, as listed in the accompanying index to financial
statements. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aqua-Chem, Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein for each of
the years in the two-year period ended December 31, 1996.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
January 24, 1997
F-3
<PAGE> 114
AQUA-CHEM, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ----------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 11,936 $ 8,627
Accounts receivable, less allowances of $638 and $659 at
December 31, 1997 and 1996 33,332 33,646
Revenues in excess of billings 5,068 5,283
Inventories 20,814 21,652
Deferred income taxes 4,237 4,884
Prepaid expenses and other current assets 1,093 2,180
-------- --------
Total current assets 76,480 76,272
Property, plant and equipment - net 31,555 21,866
Intangible assets, less accumulated amortization of $273 and
$236 at December 31, 1997 and 1996 10,174 647
Deferred income taxes 2,086 --
Other assets 4,366 2,215
-------- --------
TOTAL ASSETS $124,661 $101,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current liabilities:
Current maturities on long-term debt $ 1,055 $ 440
Accounts payable
Trade 10,685 9,647
Other 5,324 6,393
Billings in excess of revenues 5,654 1,780
Compensation and profit sharing 5,318 4,169
Accrued litigation settlements 3,200 --
Accrued expenses 17,624 14,922
-------- --------
Total current liabilities 48,860 37,351
Long-term debt 58,636 19,688
Deferred income taxes -- 1,130
Other long-term liabilities 5,573 2,282
-------- --------
64,209 23,100
Minority interest 589 589
Preferred stock with mandatory redemption provisions 7,365 --
Stockholders' equity:
Common stock, $.01 par value. Authorized 2,000,000
shares; issued and outstanding 1,000,000 shares at
December 31, 1997 10 --
Common stock, $1.00 par value. Authorized 5,000 shares;
issued and outstanding 1,300 shares at December 31,
1996 -- 1
Additional paid-in capital 90 36,924
Retained earnings 3,049 4,445
Warrants 433 --
Cumulative translation adjustment 56 (1,410)
-------- --------
Total stockholders' equity 3,638 39,960
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $124,661 $101,000
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 115
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -----------------------------------------
AUGUST 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, JANUARY 1 TO -------------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ---- ----
<S> <C> <C> <C> <C>
Net sales $91,541 $99,618 $199,552 $183,368
Cost of goods sold 66,333 73,656 153,446 148,650
------- ------- -------- --------
Gross margin 25,208 25,962 46,106 34,718
Costs and expenses:
Selling, general and administrative 17,136 22,258 34,446 37,772
Restructuring charges -- -- 5,038 4,593
------- ------- -------- --------
17,136 22,258 39,484 42,365
Operating income (loss) 8,072 3,704 6,622 (7,647)
Other income (expense):
Interest income 202 450 464 358
Interest expense (2,559) (753) (1,448) (1,663)
Other, net 57 (955) (806) 2,635
------- ------- -------- --------
(2,300) (1,258) (1,790) 1,330
Income (loss) before income taxes and minority
interest 5,772 2,446 4,832 (6,317)
Income tax expense 2,289 421 507 189
Minority interest in earnings (loss) of
consolidated subsidiary 174 171 231 (52)
------- ------- -------- --------
Net income (loss) $ 3,309 $ 1,854 $ 4,094 $ (6,454)
======= ======= ======== ========
Preferred stock dividends 260 -- -- --
Net income (loss) applicable to common $ 3,049 $ 1,854 $ 4,094 $ (6,454)
======= ======= ======== ========
PER SHARE DATA:
Basic net income per share of common stock $ 3.05 N.A. N.A. N.A.
=======
Diluted net income per share of common stock $ 2.59 N.A. N.A. N.A.
=======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 116
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT CAPITAL WARRANTS ADJUSTMENT EARNINGS TOTAL
--------- ------ ---------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-acquisition basis of
accounting
Balance at December 31, 1994 1,300 $ 1 $ 36,924 $ -- $(1,476) $ 6,805 $42,254
Net loss -- -- -- -- -- (6,454) (6,454)
Cumulative translation
adjustment -- -- -- -- 836 -- 836
--------- --- -------- ---- ------- ------- -------
Balance at December 31, 1995 1,300 1 36,924 -- (640) 351 36,636
Net income -- -- -- -- -- 4,094 4,094
Cumulative translation
adjustment -- -- -- -- (770) -- (770)
--------- --- -------- ---- ------- ------- -------
Balance at December 31, 1996 1,300 1 36,924 -- (1,410) 4,445 39,960
Net income -- -- -- -- -- 1,854 1,854
Cumulative translation
adjustment -- -- -- -- (404) -- (404)
--------- --- -------- ---- ------- ------- -------
Balance at July 31, 1997 1,300 $ 1 $ 36,924 $ -- $(1,814) $ 6,299 $41,410
========= === ======== ==== ======= ======= =======
Post-acquisition basis of
accounting
Balance at July 31, 1997 1,300 1 36,924 -- (1,814) 6,299 41,410
Cancellation of former equity
and elimination of retained
earnings and cumulative
translation adjustment (1,300) (1) (36,924) -- 1,814 (6,299) (41,410)
Issuance of new common stock 1,000,000 10 90 -- -- -- 100
Issuance of warrants -- -- -- 433 -- -- 433
Preferred stock dividends
accrued -- -- -- -- -- (260) (260)
Net income -- -- -- -- -- 3,309 3,309
Foreign currency translation
adjustment -- -- -- -- 56 -- 56
--------- --- -------- ---- ------- ------- -------
Balance at December 31, 1997 1,000,000 $10 $ 90 $433 $ 56 $ 3,049 $ 3,638
========= === ======== ==== ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 117
AQUA-CHEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -----------------------------------
YEARS ENDED
AUGUST 1 TO JANUARY 1 TO DECEMBER 31,
DECEMBER 31, JULY 31, -------------------
1997 1997 1996 1995
------------ ------------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,309 $ 1,854 $ 4,094 $(6,454)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,284 1,690 2,984 3,153
Deferred tax (benefit) expense (1,784) -- -- 234
Minority interest in earnings (loss) of consolidated
subsidiary 174 171 231 (52)
Increase (decrease) in cash due to changes in:
Accounts receivable (4,852) 5,166 54 4,437
Revenues in excess of billings 3,096 (2,881) (273) (1,113)
Inventories 3,473 (1,948) 8,463 (1,976)
Prepaid expenses and other current assets (332) (623) (57) 737
Accounts payable -- trade (931) 1,969 212 1,954
Accounts payable -- other 674 (1,743) (3,415) 3,183
Billings in excess of revenues 1,624 2,250 (4,489) 3,784
Accrued expenses and other current liabilities 3,800 (999) 880 (6,165)
Other, net (224) (49) (632) (3,273)
-------- ------- ------- -------
Total adjustments 6,002 3,003 3,958 4,903
-------- ------- ------- -------
Net cash provided by (used in) operating activities 9,311 4,857 8,052 (1,551)
Cash flows from investing activities:
Management Buy-Out of Aqua-Chem, Inc. (52,102) -- -- --
Proceeds from sales of property, plant and equipment and
other assets 2,000 73 203 3,639
Additions to property, plant and equipment (1,197) (2,195) (2,789) (4,867)
Additions to intangibles (50) (270) -- --
Proceeds from notes receivable 650 1,511 1,561 289
-------- ------- ------- -------
Net cash used in investing activities (50,699) (881) (1,025) (939)
Cash flows from financing activities:
Proceeds from debt 65,573 118 2,232 538
Principal payments on debt (26,016) (112) (740) --
Issuance of common stock 100 -- -- --
Issuance of warrants 433 -- -- --
Issuance of preferred stock 2,655 -- -- --
Deferred financing costs (2,030) -- -- --
-------- ------- ------- -------
Net cash provided by financing activities 40,715 6 1,492 538
Net increase (decrease) in cash and cash equivalents (673) 3,982 8,519 (1,952)
Cash and cash equivalents at beginning of period 12,609 8,627 108 2,060
-------- ------- ------- -------
Cash and cash equivalents at end of period $ 11,936 $12,609 $ 8,627 $ 108
======== ======= ======= =======
Cash paid (received) during the period for:
Interest $ 2,513 $ 658 $ 1,521 $ 1,601
======== ======= ======= =======
Taxes $ 1,214 $ 11 $ (123) $(1,404)
======== ======= ======= =======
Details of Management Buy-Out
Fair value of assets acquired $116,058
Goodwill 9,689
Liabilities assumed (69,196)
Issuance of Series A Cumulative Preferred Stock (4,449)
--------
Cash paid for assets $ 52,102
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 118
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 1: MANAGEMENT BUY-OUT
On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100% owned
subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a Limited Liability
Company owned by certain management of OLDCO and Whitney Equity Partners L.P.
Also on July 31, 1997, A-C Acquisition Corp. acquired the assets of OLDCO (the
"Management Buy-Out") for $125,747, which includes $69,196 of liabilities
assumed and $5,000 of Series A Cumulative Preferred Stock issued to the sellers.
The amount paid or assumed does not include contingent consideration to be paid
to the sellers based on cumulative earnings of certain operations of OLDCO
subsequent to the Management Buy-Out. Maximum additional consideration is $7,500
and will be settled as part of the Series B Cumulative Preferred Stock as
discussed in Note 11.
Concurrently with the Management Buy-Out, A-C Acquisition amended its
certificate of incorporation to change its name to Aqua-Chem, Inc., (hereinafter
referred to as Aqua-Chem). The Management Buy-Out was accounted for by Aqua-Chem
using the purchase method of accounting. The total purchase cost was allocated
first to the identified tangible and intangible assets and liabilities of OLDCO
based upon their respective fair values, with the remainder of $9,689 being
allocated to goodwill, which will be amortized on a straight-line basis over 40
years. The financial statements reflect the preliminary estimates of allocating
purchase price and may be revised at a later date. Other than to reflect the
impact of the contingent consideration noted above, Aqua-Chem would not expect
the finalization of the purchase price allocation to be materially different
from preliminary estimates. The following information presents pro forma
condensed consolidated statements of operations assuming OLDCO had been acquired
by Aqua-Chem as of January 1, 1996. Such information includes adjustments to
reflect additional interest expense and depreciation expense, amortization of
goodwill and other intangibles and a reduction of other expenses due to
Management Buy-Out-related compensation payments being made by OLDCO.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $191,159 $199,552
Net income (loss) applicable to common shares 2,980 (1,371)
Earnings (loss) per common share (basic) 2.98 N.A.
Earnings (loss) per common share (diluted) 2.53 N.A.
</TABLE>
The above pro forma financial information is not necessarily indicative of
either the results of operations that would have occurred had the Management
Buy-Out been effective at the beginning of the periods presented or of future
operations of Aqua-Chem.
Prior to the Management Buy-Out, OLDCO was an 80% owned subsidiary of
Lyonnaise American Holding, Inc.
NOTE 2: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Aqua-Chem primarily operates in two industry segments, (1) packaged
firetube and commercial and industrial watertube boilers ("Cleaver-Brooks") and
(2) water purification and desalination systems ("Water Technologies").
Aqua-Chem markets its products through a network of sales representatives,
distributors and an international direct sales force while maintaining
manufacturing facilities in the United States, Canada and Mexico.
F-8
<PAGE> 119
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(b) Basis of Presentation
The consolidated financial statements for the period from January 1, 1997
to July 31, 1997 and for each of the years in the two-year period ended December
31, 1996, were prepared using OLDCO's historical basis of accounting (the
"pre-acquisition basis of accounting"). The consolidated financial statements
for the period from August 1, 1997 to December 31, 1997 were prepared under a
new basis of accounting that reflects the fair values of assets acquired and
liabilities assumed, the related financing costs and all debt incurred in
connection with the acquisition of OLDCO by Aqua-Chem (the "post-acquisition
basis of accounting"). Accordingly, the accompanying financial statements are
not comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows of two separate
entities.
(c) Consolidation Policy and Use of Estimates
The consolidated financial statements include the accounts of Aqua-Chem and
all of its majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and the
disclosure of commitments and contingent 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.
(d) Inventories
Inventories are stated at cost determined on the first-in, first-out (FIFO)
basis. The resulting inventory values are not in excess of market. Inventory
cost includes material, labor, burden, and engineering.
Inventories consist of the following:
<TABLE>
<CAPTION>
POST- PRE-
ACQUISITION ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
------------ ------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials and work-in-process $16,963 $17,834
Finished goods 3,851 3,818
------- -------
Total Inventories $20,814 $21,652
======= =======
</TABLE>
(e) Property, Plant and Equipment
Prior to August 1, 1997, property, plant and equipment was carried at cost,
less allowances for depreciation and adjustments to net realizable value, and
included expenditures which substantially increased the existing useful lives of
plant and equipment. Depreciation of plant and equipment was provided over the
estimated useful lives of the respective assets using accelerated methods for
both financial statement and income tax purposes.
Effective with the Management Buy-Out, property, plant, and equipment was
adjusted to estimated fair values and is being depreciated on a straight-line
basis. Useful lives are 20 years for buildings and building improvements, 3 to
15 years for machinery and equipment, and 3 to 10 years for furniture and
fixtures. Leasehold improvements are depreciated over the term of the related
lease. Depreciation expense totaled $984, $1,622, $2,865, and $2,966 for the
period August 1 to December 31, 1997, the period January 1 to July 31, 1997, and
the years ended December 31, 1996 and 1995, respectively.
F-9
<PAGE> 120
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(f) Goodwill and Intangible Assets
Goodwill is being amortized on a straight-line basis over 40 years. At
December 31, 1997, goodwill totaled $9,467, net of accumulated amortization of
$222. Amortization expense totaled $222 for the period August 1 to December 31,
1997.
Prior to August 1, 1997, intangible assets, principally licenses and
technology, were carried at cost, less allowances for amortization. Amortization
of intangible assets was provided on the straight-line basis over the estimated
useful lives of the respective asset.
Effective with the Management Buy-Out, intangible assets were adjusted to
estimated fair values and are being amortized on a straight-line basis over
estimated useful lives ranging from 5 to 17 years. At December 31, 1997 and
1996, intangibles totaled $707 and $647, respectively, net of accumulated
amortization of $51 and $236, respectively. Amortization expense totaled $51,
$68, $119, and $187 for the period August 1 to December 31, 1997, the period
January 1 to July 31, 1997, and the years ended December 31, 1996 and 1995,
respectively.
(g) Income Taxes
Aqua-Chem accounts for income taxes under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. In assessing the
realizability of deferred tax assets, Aqua-Chem considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the years in which those temporary
differences become deductible. Aqua-Chem considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
Prior to the Management Buy-Out, Aqua-Chem filed a consolidated United
States corporate income tax return with Lyonnaise American Holding, Inc.
(Parent). The tax liability was calculated consistent with the provisions of the
1984 tax allocation agreement with the Parent which provided for the allocation
of income tax expense (benefit) based principally on a consolidated return
basis.
(h) Revenue Recognition
Aqua-Chem recognizes revenue utilizing the completed contract method of
accounting, except for large, long-term contracts, for which the percentage of
completion method of revenue recognition is used. The completed contract method
is generally used for contracts which take less than one year to complete.
Revenue is recognized upon shipment of the finished product to the customer.
Under the percentage of completion method, earned revenue is based on the
percentage that incurred costs to date bear to estimates of total costs. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the year in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed upon change
order revenue, if any. Losses expected to be incurred on jobs in process, after
consideration of estimated recoveries on change orders, are charged to
operations as soon as such losses are known. Progress billings in accounts
receivable are currently due. Estimated revenues in excess of progress billings
and billings in excess of estimated revenues are disclosed in Note 5.
Aqua-Chem has numerous contracts that are in various stages of completion.
Such contracts require estimates to determine the appropriate cost and revenue
recognition. Aqua-Chem has a substantial history of
F-10
<PAGE> 121
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
making reasonably dependable estimates of the extent of progress towards
completion, contract revenues and contract costs. However, current estimates may
be revised as additional information becomes available.
(i) Retainages
Retainages are unpaid amounts due in accordance with the specific terms of
boiler contracts. Certain contracts provide for a percentage of the total
billing price to be retained by the customer until final acceptance of the
product. The amount of retainages included in Aqua-Chem's accounts receivable
balance was $1,485 and $1,034 at December 31, 1997 and 1996, respectively.
(j) Foreign Currency Translation
Substantially all assets and liabilities of foreign subsidiaries are
translated at the exchange rate prevailing at the balance sheet date and
substantially all income and expense accounts are translated at the average
exchange rate in effect during the year. Translation adjustments are accumulated
as a component of stockholders' equity or directly to the consolidated
statements of operations for those countries whose currency has been classified
as highly inflationary. Foreign exchange transaction gains(losses) were not
material for all periods presented in the consolidated statements of operations.
(k) Commissions Payable
Aqua-Chem's domestic and international sales representatives sell products
on a commission basis. The related commissions payable were $2,580 and $3,297 at
December 31, 1997 and 1996, respectively, and are included in accounts payable
- -- other.
(l) Start-Up Accrual
Included in the sales price of Aqua-Chem's products is an estimated future
cost to prepare the product for use. These future costs, referred to as start-up
costs, are accrued by Aqua-Chem at the time of sale. When the customer is ready
for start-up, the service is requested through the sales representative who
performs the necessary work to prepare the product for use. The sales
representative then bills Aqua-Chem for the cost of the work performed. At
December 31, 1997 and 1996, Aqua-Chem had accrued $3,751 and $3,583,
respectively, for future start-up costs, which are included in accrued expenses.
(m) Warranty Costs
Aqua-Chem accrues estimated warranty costs at the time of the sale.
Reserves for warranty costs were $3,646 and $4,257 at December 31, 1997 and
1996, respectively, and are included in accrued expenses.
(n) Research and Development
Research and development costs are expensed as incurred and are included in
selling, general, and administrative expenses. Research and development expense
totaled $872, $1,305, $2,244, and $1,992, for the period August 1 to December
31, 1997, the period January 1 to July 31, 1997, and the years ended December
31, 1996 and 1995, respectively.
(o) Advertising
Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Advertising expense totaled $392, $625,
$856, and $1,538 for period August 1 to December 31, 1997, the period January 1
to July 31, 1997, and each of the years ended December 31, 1996 and 1995,
respectively.
(p) Cash Equivalents
For purposes of the consolidated statements of cash flows, Aqua-Chem
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
F-11
<PAGE> 122
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
(q) Impairment of Long-lived Assets.
Effective January 1, 1996, Aqua-Chem adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by a company be reviewed for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles be reported at the lower of carrying
amount or fair value less costs to sell. Aqua-Chem evaluates its long-lived
assets when changes in circumstances may indicate that the carrying amount of an
asset may not be recoverable. Adoption of this standard did not have a material
impact on Aqua-Chem's financial position or results of operations.
(r) Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value due to
the short maturity of these instruments unless otherwise stated. The carrying
amounts of the long-term debt and short-term borrowings approximate fair value
because their stated interest rates approximate current rates for similar
instruments with similar maturities as of December 31, 1997 and 1996.
(s) Reclassifications
Certain 1996 and 1995 amounts as originally reported have been reclassified
to conform with the 1997 presentation.
NOTE 3: RESTRUCTURING CHARGES
During 1994, Aqua-Chem adopted a restructuring plan ("1994 Plan") to reduce
its manufacturing costs and excess capacity within Cleaver-Brooks resulting in
charges of $4,593 and $9,011 in 1995 and 1994, respectively. The 1994 Plan
resulted in the elimination of 180 positions and the closure of the Lebanon
facility in June of 1995. A summary of restructuring activity for the 1994 Plan
is as follows:
<TABLE>
<CAPTION>
1995 ACTIVITY 1996 ACTIVITY
------------------------------------------------------------------- ---------------------------
BALANCE AT BALANCE AT BALANCE AT
DECEMBER 31, CHANGE IN ADDITIONAL DECEMBER 31, DECEMBER 31,
1994 ESTIMATE CHARGES EXPENDITURES 1995 EXPENDITURES 1996
------------ --------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
benefits $4,736 $(891) $ 606 $(3,686) $ 765 $(231) $ 534
Costs related to
closing/selling the
facility 1,381 -- 1,565 (2,220) 726 (256) 470
Other restructuring
costs 251 891 2,422 (3,564) -- -- --
------ ----- ------ ------- ------ ----- ------
Total restructuring
reserve $6,368 $ -- $4,593 $(9,470) $1,491 $(487) $1,004
====== ===== ====== ======= ====== ===== ======
<CAPTION>
1997 ACTIVITY
-------------------------------------
BALANCE AT
CHANGE IN JULY 31,
ESTIMATE EXPENDITURES 1997
--------- ------------ ----------
<S> <C> <C> <C>
Employee termination
benefits $119 -- $ 653
Costs related to
closing/selling the
facility -- (97) 373
Other restructuring
costs -- -- --
---- ---- ------
Total restructuring
reserve $119 $(97) $1,026
==== ==== ======
</TABLE>
F-12
<PAGE> 123
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
During 1996, Aqua-Chem adopted a separate restructuring plan ("1996 Plan")
focused on improving overall performance and profitability. The 1996 Plan
included an early retirement program for 47 salaried individuals and certain
organizational changes within its operating units. As a result, restructuring
charges of $5,038 were incurred in 1996. A summary of restructuring activity for
the 1996 Plan is as follows:
<TABLE>
<CAPTION>
1996 ACTIVITY 1997 ACTIVITY
------------------------------------- ----------------------------
BALANCE AT
INITIAL DECEMBER 31, BALANCE AT
CHARGES EXPENDITURES 1996 EXPENDITURES JULY 31, 1997
------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Employee termination benefits $3,045 $(1,915) $1,130 $(588) $542
Professional services 1,993 (1,993) -- -- --
------ ------- ------ ----- ----
Total restructuring reserve $5,038 $(3,908) $1,130 $(588) $542
====== ======= ====== ===== ====
</TABLE>
The balances in the reserves for the 1994 and 1996 Plans are included in
accrued expenses at December 31, 1996.
As a result of the Management Buy-Out, liabilities were established for the
balance in the reserves for the 1994 and 1996 Plans which are included in
accrued expenses at December 31, 1997.
NOTE 4: DIVESTITURES
During 1995, Aqua-Chem sold a product line and several sales territories
and recognized gains totaling $2,240. These gains, which included the disposal
of $572 of intangible assets, are included in other income in the consolidated
statements of operations. Notes receivable related to these sales were $325 and
$2,573 as of December 31, 1997 and 1996, respectively. Of these notes, $156 and
$1,309 are current and are included in prepaid expenses and other current assets
at December 31, 1997 and 1996, respectively.
NOTE 5: CONTRACTS IN PROGRESS
Components of contracts in progress, the majority of which are accounted
for under the percentage of completion method of revenue recognition, are as
follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Revenues in Excess of Billings
Costs and estimated earnings $76,996 $65,396
Billings 71,928 60,113
------- -------
$ 5,068 $ 5,283
======= =======
Billings in Excess of Revenues
Billings $29,139 $33,478
Costs and estimated earnings 23,485 31,698
------- -------
$ 5,654 $ 1,780
======= =======
</TABLE>
All receivables on contracts in progress are considered to be collectible
within twelve months. At December 31, 1997 and 1996, Aqua-Chem has accrued
estimated cumulative losses on contracts of $0 and $7,900, respectively, which
are primarily included within billings in excess of revenues and as a write-down
to inventory.
F-13
<PAGE> 124
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Land and land improvements $ 1,872 $ 1,643
Buildings and building improvements 9,715 14,090
Leasehold improvements 1,120 170
Machinery and equipment 15,700 29,263
Furniture and fixtures 4,058 7,159
------- -------
32,465 52,325
Less accumulated depreciation (910) (30,459)
------- -------
$31,555 $21,866
======= =======
</TABLE>
NOTE 7: LEASES
Aqua-Chem leases its corporate offices under a fifteen year operating lease
with two five-year renewal options. This building is owned by a partnership in
which Aqua-Chem has a limited interest.
The future minimum payments under noncancellable operating leases with
initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998 $1,468
1999 1,382
2000 1,026
2001 961
2002 839
Thereafter 2,095
------
Total minimum rental commitments $7,771
======
</TABLE>
Total rent expense for all operating leases was $632 and $891 for the
period from August 1, 1997 to December 31, 1997, and for the period from January
1, 1997 to July 31, 1997, respectively. Total rent expense for all operating
leases for the years ended December 31, 1996 and 1995 was $1,292 and $1,421,
respectively.
NOTE 8: SHORT TERM BORROWINGS
In 1996 and 1995, and in the period January 1 through July 31, 1997,
Aqua-Chem had an unsecured revolving credit agreement for up to $15,000 which
was terminated in conjunction with the Management Buy-Out. No amounts were
outstanding under this revolving credit agreement at December 31, 1996. Interest
under this revolving credit agreement was based on the prime rate, LIBOR or an
adjusted certificate of deposit rate plus a defined interest premium factor.
Aqua-Chem also had available in 1996 and 1995, and in the period January 1
through July 31, 1997 an additional unsecured bank line of credit of $6,500. No
amounts were outstanding under this line of credit at December 31, 1996. This
agreement also was terminated in conjunction with the Management Buy-Out.
F-14
<PAGE> 125
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 9: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
---------------- ---------------
DECEMBER 31, DECEMBER 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Secured term loan $39,000 --
Unsecured term loan -- $16,000
Revolving Credit Agreement -- --
Subordinated debt 21,000 --
Less: Unamortized portion of original issue
discount (427) --
Industrial revenue bonds -- 4,128
Note payable 118 --
------- -------
Total long-term debt 59,691 20,128
Less: Current maturities (1,055) (440)
------- -------
Long-term debt $58,636 $19,688
======= =======
</TABLE>
As part of the Management Buy-Out, Aqua-Chem entered into a revolving
credit agreement and a $40,000 secured term loan. The secured term loan is
payable in quarterly principal installments commencing on October 1, 1998,
through June 30, 2003. The term loan bears interest at the eurocurrency rate
(6.425% at December 31, 1997) plus 1.825%, payable in quarterly installments,
commencing on October 1, 1997. Mandatory prepayments are required if Aqua-Chem
has excess cash flow from operations or receives cash from certain asset
dispositions, as defined by the agreement. The term loan is secured by the
assets of Aqua-Chem. At December 31, 1997, $39,000 was outstanding under the
term loan. Among other restrictions, the credit agreements contain covenants
relating to financial ratios and other limitations, as defined by the agreement.
As of December 31, 1997, Aqua-Chem was in compliance with these covenants.
The revolving credit agreement allows maximum advances of $20,000, subject
to certain restrictions, to be made in the form of revolving credit notes. These
notes bear interest at a rate of either eurocurrency plus a factor as defined in
the agreement, prime plus a factor as defined in the agreement or the lender's
going rate. The revolving credit agreement will terminate on July 31, 2002. As
of December 31, 1997, there were no borrowings outstanding under the revolving
credit agreement.
Concurrent with the Management Buy-Out, Aqua-Chem issued seven year,
unsecured, subordinated notes payable bearing interest at 10.5%, payable
quarterly. A principal payment of $21,000 is due July 30, 2004, or upon the
consummation of an initial public offering or a change in ownership control.
Certain covenant requirements include the limitation of senior indebtedness as
defined in the note. As of December 31, 1997, Aqua-Chem was in compliance with
the covenant requirements.
The unsecured term loan, which bore interest at 6.25% at December 31, 1996,
was repaid in a single payment of $16,000 as part of the Management Buy-Out.
The industrial revenue bonds (IRBs), which bore interest at 5.31% at
December 31, 1996, were issued on October 18, 1995 in the amount of $3,000 and
on September 21, 1995 in the amount of $1,900, for expansions and improvements
at Aqua-Chem's Thomasville, GA and Monroe, WI manufacturing facilities,
respectively. The IRBs required combined annual principal payments of $440. The
IRBs were fully collateralized by certain buildings and equipment. As of the
Management Buy-Out date, the outstanding balances were fully escrowed and
subsequently paid on September 4, 1997.
F-15
<PAGE> 126
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
A summary of the minimum annual principal repayments of long-term debt at
December 31, 1997, is as follows:
<TABLE>
<S> <C>
1998 $ 1,055
1999 4,781
2000 7,282
2001 8,500
2002 10,250
Thereafter 27,823
-------
$59,691
=======
</TABLE>
NOTE 10: INCOME TAXES
The sources of income (loss) before income taxes and minority interest were
as follows:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING ------------------------------------
------------ YEARS ENDED DECEMBER
AUGUST 1 TO 31,
DECEMBER 31, JANUARY 1 TO --------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ------ -------
<S> <C> <C> <C> <C>
U.S. sources $5,058 $1,661 $3,535 $(6,417)
Foreign sources 714 785 1,297 100
------ ------ ------ -------
Income (loss) before income taxes and minority
interest $5,772 $2,446 $4,832 $(6,317)
====== ====== ====== =======
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING -----------------------------------
------------ YEARS ENDED
AUGUST 1 TO DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------
1997 JULY 31, 1997 1996 1995
------------ -------------- ----- ------
<S> <C> <C> <C> <C>
Current:
United States $ 3,258 -- $109 $(234)
Foreign 215 $271 310 142
State 600 150 88 47
------- ---- ---- -----
Total current 4,073 421 507 (45)
------- ---- ---- -----
Deferred:
United States (1,507) -- -- 234
Foreign -- -- -- --
State (277) -- -- --
------- ---- ---- -----
Total deferred (1,784) -- -- 234
------- ---- ---- -----
Total income tax provision $ 2,289 $421 $507 $ 189
======= ==== ==== =====
</TABLE>
F-16
<PAGE> 127
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
Total income tax expense differs from amounts expected by applying the
Federal statutory income tax rate to income (loss) before income taxes and
minority interest, as set forth in the following table.
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
--------------------- ---------------------------------------------------------------
YEARS ENDED DECEMBER 31,
AUGUST 1 TO JANUARY 1 TO -----------------------------------------
DECEMBER 31, 1997 JULY 31, 1997 1996 1995
--------------------- ------------------- ------------------- -------------------
TAX TAX TAX TAX
EXPENSE EXPENSE EXPENSE EXPENSE
(BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT
--------- -------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at
Federal statutory rate $1,962 34.0% $ 832 34.0% $ 1,643 34.0% $(2,148) (34.0)%
Alternative minimum tax -- -- -- -- 96 2.0 -- --
Impact of foreign subsidiary
income and tax rates (27) (0.5) 4 0.2 (131) (2.7) 109 1.7
Change in estimate of prior
year taxes -- -- -- -- -- -- (279) (4.4)
Change in valuation allowance -- -- (604) (24.7) (1,196) (24.7) 2,323 36.8
State income taxes, net of
Federal income tax benefit 215 3.7 150 6.1 88 1.8 47 0.7
Management Buy-Out goodwill
amortization 78 1.4 -- -- -- -- -- --
Other items 61 1.1 39 1.6 7 0.1 137 2.2
------ ---- ----- ----- ------- ----- ------- -----
Total income tax expense $2,289 39.7% $ 421 17.2% $ 507 10.5% $ 189 3.0%
====== ==== ===== ===== ======= ===== ======= =====
</TABLE>
F-17
<PAGE> 128
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Inventory $ 289 $ 526
Employee benefits 3,029 1,291
Litigation settlements 1,558 --
Start-up and warranty expenses 743 1,526
Restructuring charges 481 633
Net operating loss carryforward -- 3,023
Other 970 435
------ -------
Total deferred tax assets 7,070 7,434
Less -- valuation allowance -- (1,224)
------ -------
Total deferred tax assets 7,070 6,210
Deferred tax liabilities
Contract related transactions (112) (500)
Property, plant and equipment (494) (1,875)
Other (141) (81)
------ -------
Total deferred tax liabilities (747) (2,456)
------ -------
Net deferred tax asset $6,323 $ 3,754
====== =======
</TABLE>
The classification of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
-------------------- --------------------
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Current deferred tax asset $4,237 $ 4,884
Long-term deferred tax asset 2,086 --
Long-term deferred tax liability -- (1,130)
------ -------
Net deferred tax asset $6,323 $ 3,754
====== =======
</TABLE>
During 1995, Aqua-Chem incurred a tax net operating loss. Due to a January
1996 modification to the existing tax allocation agreement between Aqua-Chem and
the Parent, a carryback of the loss would not have resulted in a refund of cash
to Aqua-Chem. Accordingly, Aqua-Chem elected to carry the tax loss forward and a
valuation allowance was established.
During the period January 1, 1997 through July 31, 1997 and the year ended
December 31, 1996, Aqua-Chem had sufficient income to realize the value of a
portion of the net operating loss. Accordingly, the valuation reserve was
reduced in both periods by the amount of the benefit realized.
F-18
<PAGE> 129
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 11: STOCKHOLDERS' EQUITY AND PREFERRED STOCK WITH MANDATORY REDEMPTION
PROVISIONS
As of December 31, 1997, Aqua-Chem has 2,006,260 shares of authorized
capital stock, itemized by class and series as follows:
(i) 2,000,000 shares of Common Stock, par value $.01 per share, with
1,000,000 shares issued and outstanding;
(ii) 6,260 shares of Preferred Stock, par value $.01 per share, divided
into the following series:
(a) 130 shares of Series A Cumulative Preferred Stock, par value $0.01
per share, with 130 shares issued and outstanding.
(b) 130 shares of Series B Cumulative Preferred Stock, par value $0.01
per share, with 130 shares issued and outstanding.
(c) 6,000 shares of Series C Cumulative Preferred Stock, par value $.01
per share, with 2,755 shares issued and outstanding.
Holders of the nonvoting Series A Cumulative Preferred Stock ("Preferred
A") are entitled to receive cumulative cash dividends of $2,307.70 per share per
year beginning August 1, 1997 payable at redemption. Holders of Preferred A
generally have the right to require Aqua-Chem to redeem the Preferred A at the
$5,000 Redemption Price plus accrued dividends (i) simultaneous with the
occurrence of an "overall ownership shift," "employee ownership shift" or "asset
shift" (each as defined by Aqua-Chem's Certificate of Incorporation); (ii)
within the 120 day period following an initial public offering of Aqua-Chem's
equity securities; (iii) within the 120 day period following a refinancing and
retirement of the subordinated notes payable (see Note 9); or (iv) July 31,
2004. Aqua-Chem may call the outstanding shares at any time at the redemption
price of $5,000 plus accrued dividends. As the Preferred A carries a below
market dividend rate of 6%, Aqua-Chem recorded the Preferred A at a discount.
Aqua-Chem is accreting the discount over the term of the Preferred A with the
accretion charged to retained earnings. The carrying value, including accretion
and dividends, of the Preferred A at December 31, 1997 is $4,594.
Holders of the nonvoting Series B Cumulative Preferred Stock ("Preferred
B") are entitled to receive cumulative cash dividends of $1,538.47 per share per
year beginning August 1, 1997 payable at redemption. The redemption price of the
Preferred B shall be the "Normal Redemption Price," which shall generally be
based upon Aqua-Chem's Water Technologies division's cumulative earnings before
income taxes ("EBIT") for the period 1997 through 2001. The redemption price is
modified in the event that prior to December 31, 2001, either (i) the business
of Aqua-Chem's Water Technologies division is sold to an unrelated third party;
or (ii) there occurs an "overall ownership shift," "employee ownership shift" or
"asset shift" (each as defined by Aqua-Chem's Certificate of Incorporation). The
maximum redemption price, under any circumstance, shall be $7,500. The Holders
of Preferred B generally shall have the right to require Aqua-Chem to redeem the
Preferred B at the applicable Redemption Price plus accrued dividends (i)
simultaneous with the occurrence of an "overall ownership shift" (as defined by
Aqua-Chem's Certificate of Incorporation); (ii) within the 120 day period
following an initial public offering of Aqua-Chem's equity securities; (iii)
within the 120 day period following a refinancing and retirement of the
subordinated notes payable (see Note 9); or (iv) July 31, 2004. The carrying
value of the Preferred B is zero at December 31, 1997, as the redemption value
is contingent upon future events.
Holders of Series C Cumulative Preferred Stock ("Preferred C") are entitled
to receive quarterly cash dividends payable at redemption at the rate of 10.17%
per year on the original issue price per share ($964) beginning on August 1,
1997. The holders of the Preferred C generally shall have the right to require
Aqua-Chem to redeem all or any part of the Preferred C at a price equal to
$1,000 per share, plus accrued dividends upon (i) an "overall ownership shift,"
"employee ownership shift," or "asset shift" (each as defined
F-19
<PAGE> 130
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
by Aqua-Chem's Certificate of Incorporation); (ii) within the 120-day period
following an initial public offering; or (iii) July 31, 2005. Any time after
July 31, 2004, Aqua-Chem may call the outstanding shares at the redemption price
of $1,000 per share plus accrued dividends. Holders of the Preferred C are
entitled to voting rights equivalent to the rights of one share of common stock.
As the redemption price of $1,000 per share exceeds the original issue price of
$964, Aqua-Chem recorded the Preferred C at a discount. Similar to the Preferred
A, Aqua-Chem is accreting the discount over the term of the Preferred C with the
accretion charged to retained earnings. The carrying value, including dividends,
of the Preferred C at December 31, 1997 is $2,771.
NOTE 12: STOCK OPTIONS
In connection with the Management Buy-Out, Aqua-Chem adopted the Aqua-Chem,
Inc. 1997 Stock Option Plan (the "Plan"), which provides for the granting to key
employees, directors, and other individuals of options to purchase an aggregate
of 61,919 shares of Aqua-Chem common stock at a purchase price not less than the
greater of (i) $3.75, or (ii) fair market value as determined by the Plan.
Options vest primarily based upon Aqua-Chem achieving certain operating results
or within 7 years from the date of grant. As of December 31, 1997, there were no
options granted or outstanding under the Plan.
Under a separate agreement from the Plan, the option to purchase 600 shares
of common stock was granted to a director of Aqua-Chem. These options, which
vest one year after the effective date of the grant, allow the holder to
purchase common stock of Aqua-Chem at $3.75 per share, which does not differ
significantly from fair market value. As of December 31, 1997, no options were
exercised.
NOTE 13: COMMON STOCK PURCHASE WARRANTS
The holders of the subordinated notes payable (see Note 9) also received
warrants, whereby they can acquire, at any time through July 31, 2007, in total,
176,471 shares of Aqua-Chem's common stock. The exercise price issuable upon
exercise of the warrants is $.01 per share of stock, with adjustments made to
prevent dilution in the event of any changes in capitalization of Aqua-Chem.
After July 31, 2002, there are put and call features that may require
Aqua-Chem to purchase all or any part of warrants or the common stock obtained
by the exercise of such warrants at a price determined in the agreement. During
the period August 1, 1997 to December 31, 1997, no warrants were exercised.
The warrants were recorded as an increase to stockholders' equity at their
approximate fair value at the date of issuance.
NOTE 14: EMPLOYEE BENEFIT PLANS
(a) Pension Plans
Aqua-Chem is required to make payments to certain pension and employee
benefit funds, some of which are not controlled or administered by Aqua-Chem and
certain foreign subsidiary maintained government-mandated pension plans. Pension
expense of these plans for the period August 1 to December 31, 1997 and the
period January 1 to July 31, 1997, and for the years ended December 31, 1996 and
1995 was $189, $140, $266 and $233, respectively.
(b) Retirement and Savings Plans
Aqua-Chem maintains a defined contribution retirement plan which includes a
401(k) savings plan. Substantially all employees who are not members of
collective bargaining groups are eligible to participate. Aqua-Chem's retirement
contribution equals 4% of eligible compensation while 401(k) contributions equal
50% of employee contributions to a maximum Aqua-Chem contribution of 3%. Under
provisions of the
F-20
<PAGE> 131
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
401(k) savings plan, employees may voluntarily contribute a maximum of 13% of
eligible compensation. From the period August 1, 1997 to December 31, 1997, and
the period January 1, 1997 to July 31, 1997, Aqua-Chem contributed $675 and
$910, respectively, to this plan. Aqua-Chem contributed $1,462 and $1,534 for
each of the years ended December 31, 1996 and 1995, respectively.
(c) Postretirement Health Care Plans
Aqua-Chem maintains unfunded health care plans covering certain eligible
retirees and employees. The estimated costs of postretirement benefits,
principally health care, are accrued over the period the benefits are earned.
Aqua-Chem's policy is to fund postretirement benefits as incurred.
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF PRE-ACQUISITION BASIS OF ACCOUNTING
ACCOUNTING -----------------------------------
------------ YEARS ENDED
AUGUST 1 TO DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------
1997 JULY 31, 1997 1996 1995
------------ ------------- ---- ----
<S> <C> <C> <C> <C>
Service cost benefits attributed to service during
the year $ 6 $ 9 $ 24 $ 19
Interest cost on accumulated postretirement
benefit obligation 139 203 500 520
Amortization of transition obligation -- 248 426 426
Amortization of unrecognized gain -- (140) (75) (123)
---- ---- ---- -----
Net periodic postretirement benefit cost $145 $320 $875 $ 842
==== ==== ==== =====
</TABLE>
As a result of the plans being unfunded, the liability of the plans was as
follows:
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
-------------------- -------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $4,261 $ 4,359
Fully eligible active plan participants 106 99
Other active plan participants 340 302
Unrecognized transition obligation -- (6,695)
Unrecognized net gain (loss) (49) 4,217
------ -------
Accumulated postretirement benefit obligation
included in other long-term liabilities $4,658 $ 2,282
====== =======
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for December 31, 1997 and 1996. The
average inflation rates of medical costs over the life of the benefits were
assumed to be 9% in 1998, decreasing 1% per year to 5.5% in 2002 and thereafter.
An increase of 1% in the assumed medical costs trend rates would result in an
increase in the accumulated postretirement benefit obligation of $282 at
December 31, 1997 and an increase in 1997 net periodic postretirement benefit
cost of $9 and $12 for the period August 1 to December 31, 1997 and the period
January 1 to July 31, 1997, respectively.
F-21
<PAGE> 132
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
As a result of the 1996 restructuring plan and the related early retirement
program, Aqua-Chem incurred a curtailment charge of $387, which is included in
the restructuring charges in the year ended December 31, 1996 consolidated
statement of operations.
NOTE 15: SEGMENT INFORMATION
Industry Segments
<TABLE>
<CAPTION>
POST-
ACQUISITION
BASIS OF
ACCOUNTING PRE-ACQUISITION BASIS OF ACCOUNTING
------------ -------------------------------------------
AUGUST 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, JANUARY 1 TO ------------------------
SEGMENT 1997 JULY 31, 1997 1996 1995
- -------------------------------------------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Cleaver-Brooks $ 73,974 $ 80,868 $155,527 $144,711
Water Technologies 17,567 18,750 44,025 38,657
-------- -------- -------- --------
Total $ 91,541 $ 99,618 $199,552 $183,368
======== ======== ======== ========
Operating income (loss):
Cleaver-Brooks $ 7,588 $ 4,086 $ 8,146 $ (3,988)
Water Technologies 1,428 28 750 (2,656)
All others (944) (410) (2,274) (1,003)
-------- -------- -------- --------
Total $ 8,072 $ 3,704 $ 6,622 $ (7,647)
======== ======== ======== ========
Identifiable assets:
Cleaver-Brooks $ 33,707 $ 48,976 $ 65,577 $ 65,247
Water Technologies 13,077 22,734 20,708 19,283
All others 77,877 32,429 14,715 16,851
-------- -------- -------- --------
Total $124,661 $104,139 $101,000 $101,381
======== ======== ======== ========
Capital expenditures:
Cleaver-Brooks $ 337 $ 567 $ 2,339 $ 4,575
Water Technologies 188 1,240 265 187
All others 672 388 185 105
-------- -------- -------- --------
Total $ 1,197 $ 2,195 $ 2,789 $ 4,867
======== ======== ======== ========
Depreciation:
Cleaver-Brooks $ 686 $ 1,160 $ 2,083 $ 2,097
Water Technologies 198 285 462 495
All others 100 177 320 374
-------- -------- -------- --------
Total $ 984 $ 1,622 $ 2,865 $ 2,966
======== ======== ======== ========
</TABLE>
Aqua-Chem does not have any customers who represent 10% of consolidated
sales.
Geographic Segments
Aqua-Chem operates primarily in the United States, with manufacturing
facilities also located in Canada and Mexico. Canadian and Mexican operations
individually represent less than 10% of Aqua-Chem's consolidated net sales and
total assets.
F-22
<PAGE> 133
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
Aqua-Chem's export sales, defined as sales of existing divisions' products
made in the U.S. and sold by Aqua-Chem to foreign customers (excluding Canada
and Mexico) were approximately 19% of net sales for the period August 1, 1997
through December 31, 1997 and 22% for the period January 1, 1997 through July
31, 1997. Aqua-Chem's export sales for the years ended December 31, 1996 and
1995 were approximately 24% of net sales. Aqua-Chem's export sales are included
in the respective segments' sales presented above.
NOTE 16: COMMITMENTS AND CONTINGENCIES
Aqua-Chem and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. These claims arise
from a variety of factors, including suits alleging personal injury related to
the use and exposure to certain of Aqua-Chem's products (see the "Risk
Factors -- Product Liability Litigation" and "Business of Aqua-Chem -- Legal
Proceedings" sections of this Offering Circular for further information). The
Company has successfully resolved most closed claims and cases without payment
and is vigorously defending open claims, and believes that it has strong
defenses to all claims brought to date. Although Aqua-Chem believes the costs
and liabilities associated with these matters will not have a material adverse
effect on their results of operations or financial condition, there can be no
assurances to this effect.
In the ordinary course of business, Aqua-Chem is contingently liable for
performance under letters of credit totaling approximately $3,900 at December
31, 1997 and 1996, respectively. Additionally, at December 31, 1996, Aqua-Chem
had letters of credit outstanding of $5,000 which collateralized the IRB's.
Management does not expect any material losses to result from these off-balance
sheet instruments, and, therefore, is of the opinion that the fair value of
these instruments is zero.
NOTE 17: EARNINGS PER SHARE
In 1997, Aqua-Chem adopted SFAS No. 128, "Earnings per Share" for all
periods presented. The new standard simplified the computation of earnings per
share (EPS) and provides improved comparability with international standards.
SFAS No. 128 replaces primary EPS with "Basic" EPS, which excludes dilution and
is computed by dividing net earnings or (loss) by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS is computed similarly to
primary EPS by reflecting the potential dilution that occurs if securities or
other contracts to issue common stock were exercised or converted to common
stock or resulted in the issuance of common stock that then shared in the
earnings. The following reconciles the numerators and denominators of the basic
and diluted earnings per share computations.
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF
ACCOUNTING
----------------
AUGUST 1 TO
DECEMBER 31,
1997
----------------
<S> <C>
Basic Earnings Per Share:
Net Income $ 3,309
Less: Preferred Stock Dividends 260
---------
Net Income $ 3,049
=========
Weighted Average Number of Shares 1,000,000
=========
Basic Earnings Per Share $ 3.05
=========
</TABLE>
F-23
<PAGE> 134
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION
BASIS OF
ACCOUNTING
----------------
AUGUST 1 TO
DECEMBER 31,
1997
----------------
<S> <C>
Diluted Earnings Per Share:
Net Income applicable to common $ 3,049
=========
Weighted Average Number of Shares-Basic 1,000,000
Effect of Dilutive Securities:
Warrants 176,471
---------
Weighted Average Number of Shares-Diluted 1,176,471
=========
Diluted Earnings Per Share $ 2.59
=========
</TABLE>
NOTE 18: SUBSEQUENT EVENTS
Subsequent to December 31, 1997, Aqua-Chem entered into two separate
product performance settlements relating to products sold in 1993. Aqua-Chem
paid $2,150 subsequent to year end and agreed to pay an additional $1,050 in
1998 and $900 in 1999. These amounts have been recorded at December 31, 1997 as
accrued litigation settlements for amounts paid or payable in 1998 and within
other long-term liabilities for amounts due in 1999.
On May 28, 1998, Aqua-Chem entered into a definitive agreement to purchase
substantially all of the assets of National Dynamics Corporation ("NDC"),
located principally in Nebraska, for approximately $47,000 in cash plus the
assumption of certain liabilities. The transaction is subject to the completion
of due diligence.
Aqua-Chem has reached a tentative decision to close its Greenville,
Mississippi facility and has taken steps to initiate discussions concerning this
decision with the Union representing its production workers. Under the proposed
plan, work currently performed at the Greenville facility will be transferred to
other Aqua-Chem facilities and/or outsourced. Aqua-Chem estimates that closing
the Greenville facility will cost approximately $5,500, to be expended in 1998
and 1999.
F-24
<PAGE> 135
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,300 $ 11,936
Accounts receivable, less allowances of $1,331 at June 30,
1998
and $638 at December 31, 1997 36,590 33,332
Revenues in excess of billings 2,834 5,068
Inventories 33,443 20,814
Deferred income taxes 3,903 4,237
Prepaid expenses and other current assets 3,263 1,093
-------- --------
Total current assets 89,333 76,480
Property, plant and equipment -- net 38,439 31,555
Intangible assets, less accumulated amortization of $444 at
June 30, 1998 and $273 at December 31, 1997 38,792 10,174
Deferred income taxes 1,640 2,086
Other assets 7,530 4,366
-------- --------
TOTAL ASSETS $175,734 $124,661
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities on long-term debt $ -- $ 1,055
Accounts payable
Trade 9,057 10,685
Other 4,839 5,324
Billings in excess of revenues 4,671 5,654
Compensation and profit sharing 2,998 5,318
Accrued litigation settlements 1,575 3,200
Accrued expenses 19,359 17,624
-------- --------
Total current liabilities 42,499 48,860
Long-term debt 125,000 58,636
Other long-term liabilities 4,642 5,573
-------- --------
Total other liabilities 129,642 64,209
Minority interest 500 589
Preferred stock with mandatory redemption provisions 4,704 7,365
Stockholders' equity:
Common stock, $.01 par value. Authorized 2,000,000 shares;
issued and outstanding 1,000,000 shares at June 30,
1998 and December 31, 1997 10 10
Additional paid-in capital 90 90
Retained earnings (2,151) 3,049
Warrants 468 433
Cumulative translation adjustment (28) 56
-------- --------
Total stockholders' equity (deficit) (1,611) 3,638
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $175,734 $124,661
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-25
<PAGE> 136
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $76,222 $83,211
Cost of goods sold 55,930 62,087
------- -------
Gross margin 20,292 21,124
Costs and expenses:
Selling, general and administrative 17,446 18,069
Restructuring charges 4,720 --
------- -------
Operating income (loss) (1,874) 3,055
Other income (expense):
Interest income 209 390
Interest expense (3,004) (597)
Other, net 26 22
------- -------
(2,769) (185)
------- -------
Income (loss) before income taxes, minority interest and
extraordinary item (4,643) 2,870
Income tax expense (benefit) (1,448) 494
Minority interest in earnings of consolidated subsidiary 136 136
------- -------
Net income (loss) before extraordinary item (3,331) 2,240
Extraordinary item, net of tax benefit of $840 1,260 --
------- -------
Net income (loss) $(4,591) $ 2,240
Preferred stock dividends (310) --
------- -------
Net income (loss) applicable to common $(4,901) $ 2,240
======= =======
Other comprehensive income (loss), net of tax
Cumulative translation adjustment (84) (209)
------- -------
Other comprehensive (loss) (84) (209)
------- -------
Comprehensive income (loss) $(4,675) $ 2,031
------- -------
PER SHARE DATA:
Basic net (loss) per share of common stock $ (4.90) N.A.
Diluted net (loss) per share of common stock (4.90) N.A.
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-26
<PAGE> 137
AQUA-CHEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
------------------- -------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,591) $ 2,240
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,902 1,723
Deferred tax expense 1,007 --
Minority interest in earnings of consolidated
subsidiary 136 136
Extraordinary item, net of tax benefit 1,260 --
Restructuring charges 4,720 --
Increase (decrease) in cash due to changes in:
Accounts receivable 7,199 6,286
Revenues in excess of billings 2,234 (2,102)
Inventories (4,094) (247)
Prepaid expenses and other current assets 139 (27)
Accounts payable -- trade (4,151) (3,302)
Accounts payable -- other (1,086) (877)
Billings in excess of revenues (3,507) 780
Accrued expenses and other current liabilities (10,523) (3,052)
Other, net (987) 208
-------- -------
Total adjustments (5,751) (474)
-------- -------
Net cash provided by (used in) operating activities (10,342) 1,766
Cash flows from investing activities:
Purchase of National Dynamics Corporation (47,900) --
Proceeds from sales of property, plant and equipment and
other assets 11 38
Additions to property, plant and equipment (1,023) (1,097)
Additions to intangibles -- (269)
Proceeds from notes receivable -- 1,363
-------- -------
Net cash provided by (used in) investing activities (48,912) 35
Cash flows from financing activities:
Issuance of Notes 125,000 --
Proceeds from revolving credit agreement 3,000 --
Issuance of notes payable -- 118
Principal payments on debt (63,063) (49)
Redemption of preferred stock (3,269) --
Deferred financing costs (5,050)
-------- -------
Net cash provided by (used in) financing activities 56,618 69
-------- -------
Net (decrease) increase in cash and cash equivalents (2,636) 1,870
Cash and cash equivalents at beginning of period 11,936 8,627
-------- -------
Cash and cash equivalents at end of period $ 9,300 $10,497
======== =======
Cash paid during the period for:
Interest $ 2,909 $ 595
Taxes $ 2,033 $ 11
Details of Acquisition of NDC:
Fair value of assets acquired $ 29,174
Goodwill 28,807
Liabilities assumed (10,081)
--------
Cash paid for assets $ 47,900
========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-27
<PAGE> 138
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) In the opinion of Management, the accompanying unaudited financial
statements of Aqua-Chem, Inc. contain all adjustments which are of a normal
recurring nature necessary to present fairly the financial position as of
June 30, 1998, and the results of operations and cash flows for the periods
indicated. Interim financial results are not necessarily indicative of
operating results for an entire year.
(2) Certain notes and other information have been condensed or omitted from
these interim consolidated condensed financial statements. Therefore, these
statements should be read in conjunction with the Aqua-Chem, Inc.
Consolidated Financial Statements as of December 31, 1997 and 1996.
(3) On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100%
owned subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a Limited
Liability Company owned by certain management of OLDCO and Whitney Equity
Partners L.P. Also on July 31, 1997, A-C Acquisition acquired the assets of
OLDCO (the "Management Buy-Out") for $125,747, which includes $69,196 of
liabilities assumed and $5,000 of Series A Cumulative Preferred Stock
issued to the sellers. The amount paid does not include contingent
consideration to be paid to the sellers based on cumulative earnings of
certain operations of Aqua-Chem subsequent to the Management Buy-Out. The
Management Buy-Out was accounted for by Aqua-Chem using the purchase method
of accounting.
(4) The consolidated condensed financial statements for the six months ended
June 30, 1997 were prepared using OLDCO's historical basis of accounting
(the "pre-acquisition basis of accounting"). The consolidated condensed
financial statements for the six months ended June 30, 1998 were prepared
under a new basis of accounting that reflects the fair values of assets
acquired and liabilities assumed, the related financing costs and all debt
incurred in connection with the Management Buy-Out (the "post-acquisition
basis of accounting"). Accordingly, the accompanying financial statements
are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows
of two separate entities.
(5) Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials and work-in-process $25,744 $16,963
Finished goods 7,699 3,851
------- -------
Total inventories $33,443 $20,814
======= =======
</TABLE>
(6) On June 23, 1998 Aqua-Chem issued $125,000 in unsecured senior subordinated
notes. The notes carry an interest rate of 11 1/4% and are due July 1,
2008. Interest is payable semi-annually beginning January 1, 1999. Proceeds
from the notes were used to repay Aqua-Chem's existing debt, to redeem
$3,269 of Aqua-Chem's Series A Preferred Stock, to acquire substantially
all of the assets of National Dynamics Corporation ("NDC") (see note (9)),
to pay the accrued interest and dividends, fees and expenses associated
with the foregoing, and for general corporate purposes.
In conjunction with the issuance of the notes and the acquisition of NDC,
Aqua-Chem entered into a revised $45,000 secured revolving credit facility.
Borrowings under this facility are made in the form of revolving credit
notes. These notes bear interest at a rate of either eurocurrency plus a
factor as defined in the agreement, prime, or federal funds rate plus 100
basis points. The revolving credit agreement will terminate June 23, 2003.
The facility is secured by substantially all of the assets of the Company.
At June 30, 1998 there were no borrowings outstanding. Among other
restrictions, the credit agreement contains covenants relating to financial
ratios and other limitations, as defined by the agreement. As of June 30,
1998, the Company was in compliance with these covenants.
(7) On June 25, 1998 the Board of Directors approved a plan of closure for the
Greenville, Mississippi facility and the agreement reached with the Union
representing the facility's production workers. As a result, the Company
recorded a restructuring charge of $4,720 to operations in the six months
ended June 30, 1998. Work currently performed at the facility will be
transferred to other Company facilities and/or outsourced. The plan will
result in the elimination of 149 positions and closure of the facility
within approximately one year. The provision includes $3,021 to write down
the value of certain fixed assets and inventory, $1,460 of employee
termination benefits and $239 of other costs.
F-28
<PAGE> 139
(8) On June 23, 1998, Aqua-Chem acquired substantially all the assets of
National Dynamics Corporation for $57,981, which includes $10,081 of
liabilities assumed. The acquisition was accounted for using the purchase
method of accounting. The total purchase cost was allocated first to
identified tangible and intangible assets and liabilities based upon their
respective fair values, with the remainder of $28,807 being allocated to
goodwill, which will be amortized on a straight-line basis over 40 years.
The financial statements reflect the preliminary estimates of allocating
purchase price and may be revised at a later date. The Company does not
expect the final purchase price allocation to be materially different from
preliminary estimates.
(9) The following information presents pro forma condensed consolidated
statements of operations assuming OLDCO and National Dynamics Corporation
had been acquired by Aqua-Chem as of January 1, 1997. Such information
includes adjustments to reflect additional interest expense and
depreciation expense, amortization of goodwill and other intangibles, a
reduction of other expenses to Management Buy-Out-related payments being
made by OLDCO and the net elimination of employment costs of the former
owners of National Dynamics Corporation.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $98,495 $112,833
Net loss applicable to common shares (4,971) (49)
Loss per common share (basic) $ (4.97) $ (0.05)
</TABLE>
(10) Effective January 1, 1998, Aqua-Chem adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
130"). This statement establishes standards for reporting and display of
comprehensive income and its components. Components of comprehensive income
are net income and all other non-owner changes in equity. SFAS No. 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement for the period in which they are
recognized. Aqua-Chem has chosen to disclose comprehensive income in the
Consolidated Statements of Operations. Prior years have been restated to
conform to the SFAS No. 130 requirements.
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" was issued by The
American Institute of Certified Public Accountants in March of 1998 and is
effective for fiscal years beginning after December 15, 1998. Aqua-Chem's
accounting for costs of computer software developed or obtained for
internal use is consistent with the guidelines established in the SOP and,
as a result, Aqua-Chem does not anticipate that the adoption of this
statement will have a material impact on Aqua-Chem's financial position or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as an asset or liability measured at its fair
value. Statement 133 is effective for fiscal years beginning after June 15,
1999. The Company has not determined the timing of or method of adoption,
but does not anticipate that the adoption of this standard will have a
material impact on its financial statements.
(11) In connection with the Management Buy-Out, Aqua-Chem adopted the Aqua-Chem
1997 Stock Option Plan (the "Plan"), which provides for the granting to key
employees, directors, and other individuals of options to purchase an
aggregate of 61,919 shares of Aqua-Chem common stock at a purchase price
not less than the greater of (i) $3.75, or (ii) fair market value as
determined by the Plan. Options vest primarily based upon Aqua-Chem
achieving certain operating results or within 7 years from the date of
grant. As of June 30, 1998, there were no options granted or outstanding
under the Plan.
Under separate agreements from the Plan, the option to purchase 1,725
shares of common stock have been granted to two directors of Aqua-Chem.
Under the terms of the agreements, the option to purchase 600 shares vests
one year from the effective date of the grant, with the remaining 1,125
options vesting at a rate of 225 per year commencing on December 31, 1998
and continuing through December 31, 2002. These options allow the holder to
purchase common stock of Aqua-Chem at $3.75 per share, which does not
differ significantly from fair market value. As of June 30, 1998, no
options were exercised.
F-29
<PAGE> 140
AQUA-CHEM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------
BALANCE CHARGED CHARGED
AT TO COSTS TO BALANCE
BEGINNING AND OTHER AT END
OF PERIOD EXPENSES ACCOUNT DEDUCTIONS OF PERIOD
--------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
January 1 to June 30, 1998..................... $638 $125 $750(a) $182 $1,331
==== ==== ==== ==== ======
August 1 to December 31, 1997.................. $684 $ 28 $ -- $ 74 $ 638
==== ==== ==== ==== ======
January 1 to July 31, 1997..................... $659 $136 $ -- $111 $ 684
==== ==== ==== ==== ======
Year ended December 31, 1996................... $596 $205 $ -- $142 $ 659
==== ==== ==== ==== ======
Year ended December 31, 1995................... $746 $ 97 $ -- $247 $ 596
==== ==== ==== ==== ======
</TABLE>
- ------------------------------------
(a) Reflects the balance acquired as a result of the acquisition of National
Dynamics Corporation.
F-32
<PAGE> 141
AQUA-CHEM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
POST-ACQUISITION PRE-ACQUISITION
BASIS OF ACCOUNTING BASIS OF ACCOUNTING
--------------------------------- -------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
JANUARY 1 TO AUGUST 1 TO JANUARY 1 TO JANUARY 1 TO -----------------------------------
JUNE 30, 1998 DECEMBER 31, 1997 JULY 31, 1997 JUNE 30, 1997 1996 1995 1994 1993
------------- ----------------- ------------- ------------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........ $(4,591) $3,309 $1,854 $2,240 $4,094 $(6,454) $(4,678) $2,752
Add:
Interest............... 2,837 2,414 753 597 1,448 1,663 1,200 1,075
Amortization of
capitalized debt
expense.............. 167 145 -- -- -- -- -- --
Income tax expense
(benefit)............ (1,448) 2,289 421 494 507 189 (2,806) 2,191
Extraordinary item (net
of tax).............. 1,260 -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- ------
Earnings (loss)
as defined.... $(1,775) $8,157 $3,028 $3,331 $6,049 $(4,602) $(6,284) $6,018
======= ====== ====== ====== ====== ======= ======= ======
Interest................. 2,837 2,414 753 597 1,448 1,663 1,200 1,075
Amortization of
capitalized debt
expense................ 167 145 -- -- -- -- -- --
------- ------ ------ ------ ------ ------- ------- ------
Fixed charges as
defined....... $ 3,004 $2,559 $ 753 $ 597 $1,448 $ 1,663 $ 1,200 $1,075
Ratio of earnings to
fixed charges.......... --(a) 3.2x 4.0x 5.6x 4.2x --(b) --(c) 5.6x
======= ====== ====== ====== ====== ======= ======= ======
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $4,779 for the six months
ended June 30, 1998.
(b) Earnings were inadequate to cover fixed charges by $6,265 for the year ended
December 31, 1995.
(c) Earnings were inadequate to cover fixed charges by $7,484 for the year ended
December 31, 1994.
F-33
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Dynamics Corporation:
We have audited the accompanying balance sheets of National Dynamics
Corporation as of October 31, 1997 and 1996 and the related statements of
earnings and retained earnings and cash flows for each of the years in the
three-year period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Dynamics
Corporation as of October 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the years in the three-year period ended October
31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
December 23, 1997
F-34
<PAGE> 143
NATIONAL DYNAMICS CORPORATION
BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current assets:
Cash $ 66,883 222,415
Trade accounts receivable (including retainage of
$1,822,957 and $1,003,154 in 1997 and 1996,
respectively, net of allowance for doubtful accounts of
$750,000 and $1,534,000 in 1997 and 1996, respectively) 13,398,380 11,279,456
Inventories 2,589,595 1,807,447
Costs in excess of billings on uncompleted contracts 2,711,606 2,661,098
Prepaid expenses 134,807 181,937
----------- ----------
Total current assets 18,901,271 16,152,353
----------- ----------
Property, plant and equipment, at cost 11,251,137 9,835,805
Less accumulated depreciation 4,871,991 4,377,549
----------- ----------
Net property, plant and equipment 6,379,146 5,458,256
----------- ----------
Other assets 710,920 533,505
----------- ----------
$25,991,337 22,144,114
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current liabilities:
Note payable to bank $ 1,422,000 1,472,000
Accounts payable 4,247,628 4,017,391
Accrued expenses 3,545,127 3,744,727
Billings in excess of cost on uncompleted contracts 1,471,422 1,393,237
Stockholders' dividends payable 500,000 500,000
----------- ----------
Total current liabilities 11,186,177 11,127,355
Deferred compensation 140,000 130,000
----------- ----------
Total liabilities 11,326,177 11,257,355
----------- ----------
Stockholders' equity:
Common stock of $1 par value per share.
Authorized 20,000 shares; issued and outstanding 8,000
shares 8,000 8,000
Additional paid-in capital 81,186 81,186
Retained earnings 14,575,974 10,797,573
----------- ----------
Total stockholders' equity 14,665,160 10,886,759
----------- ----------
Commitments and contingencies
$25,991,337 22,144,114
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 144
NATIONAL DYNAMICS CORPORATION
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $59,292,002 54,852,771 49,717,216
Cost of sales 45,861,865 43,460,577 40,915,723
----------- ---------- ----------
Gross profit 13,430,137 11,392,194 8,801,493
Selling, general and administrative expenses 5,814,695 5,515,591 6,600,609
----------- ---------- ----------
Operating income 7,615,442 5,876,603 2,200,884
Other income 298,186 153,884 170,924
Other deductions, including interest expense of
$182,770, $42,765 and $135,442 in 1997, 1996 and 1995,
respectively (185,227) (133,494) (254,029)
----------- ---------- ----------
Net earnings 7,728,401 5,896,993 2,117,779
Retained earnings at beginning of year 10,797,573 8,245,741 8,020,962
Dividends declared ($493.75, $418.15 and $236.63 per
share in 1997, 1996 and 1995, respectively) (3,950,000) (3,345,161) (1,893,000)
----------- ---------- ----------
Retained earnings at end of year $14,575,974 10,797,573 8,245,741
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 145
NATIONAL DYNAMICS CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,728,401 5,896,993 2,117,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 496,938 462,719 449,909
Loss on sale and disposal of assets 843 2,581 --
Change in assets and liabilities:
Accounts receivable (2,118,924) 1,005,589 (4,077,443)
Inventories (782,148) (210,511) (146,864)
Costs in excess of billings on uncompleted
contracts (50,508) (37,063) 127,112
Prepaid expenses 47,130 (84,946) (31,297)
Other assets (177,415) (8,341) (117,749)
Accounts payable 230,237 (125,914) 1,209,740
Accrued expenses (199,600) (1,011,590) 1,371,415
Billings in excess of costs on uncompleted
contracts 78,185 (472,180) (858,567)
Deferred compensation 10,000 10,000 10,000
----------- ----------- -----------
Net cash provided by operating activities 5,263,139 5,427,337 54,035
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,419,271) (570,767) (1,758,158)
Proceeds from sale of property, plant and equipment 600 -- --
Net payments on note receivable -- -- 582,611
----------- ----------- -----------
Net cash used by investing activities (1,418,671) (570,767) (1,175,547)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid (3,950,000) (2,845,161) (1,893,000)
Net (payments) advances on note payable to bank (50,000) (662,000) 2,028,000
Proceeds on issuance of long-term debt -- 200,000 1,300,000
Principal payments on long-term debt -- (1,432,136) (351,500)
----------- ----------- -----------
Net cash provided by (used in) financing activities (4,000,000) (4,739,297) 1,083,500
----------- ----------- -----------
Net increase (decrease) in cash (155,532) 117,273 (38,012)
Cash at beginning of year 222,415 105,142 143,154
----------- ----------- -----------
Cash at end of year $ 66,883 222,415 105,142
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ 7,129 102,881 210,562
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 146
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION
National Dynamics Corporation (the Company) has the following operating
divisions: Lincoln Manufacturing Company (LMC), Nebraska Boiler Company
(Boiler), Energy Recovery International (ERI) and Gonzales Manufacturing Company
(GMC).
Boiler, the largest of the operating divisions, contracts to manufacture,
markets and sells large industrial-use boilers. The boilers are used for
purposes of heat and energy generation in large buildings and at construction
sites. ERI's operations consist of the manufacture and installation of systems
used to operate the boilers at the most efficient rate. LMC is involved in the
manufacture of roadside structure equipment and specialty products. GMC's
operations consist mainly of steel fabrication work for use in the manufacture
of boilers. All significant transactions between divisions have been eliminated
in the financial statements.
The Company's customers are located in the United States and foreign
countries. Sales to foreign customers are transacted in US dollars. Foreign
customers represent 6.8%, 16.2% and 3.5% of net sales for 1997, 1996 and 1995,
respectively. Foreign sales in 1996 included a $6,500,000 sale to a customer in
Thailand.
The Company is an S Corporation and, as such, the income tax liabilities of
an S Corporation are the responsibility of the shareholders, therefore, no
provisions for federal and state income tax expense at the corporate level is
necessary.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories, primarily raw materials, are stated as cost under the last-in,
first-out (LIFO) method, which is less than net realizable value.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment is carried at cost less accumulated
depreciation. Expenditures for maintenance, repairs and renewals of relatively
minor items are generally charged to expense as incurred. Major renewals and
improvements are capitalized. Depreciation is computed on the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 10 years
Buildings................................................... 40 years
Cranes and building improvements............................ 10 - 40 years
Machinery and equipment..................................... 5 - 10 years
Transportation equipment.................................... 5 years
</TABLE>
Upon retirement or other disposition of property, plant and equipment, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in income for the period.
REVENUE RECOGNITION
Revenue is recognized on boiler sales utilizing the completed contract
method of accounting. Revenue is recognized in accordance with contract terms,
when title passes, either at shipment or when the equipment is ready for
shipment, but held at customer's request. In such instances, revenues are
recognized when the customer accepts the related billing and contracts for
storage and all risks of ownership pass to customer. Related costs incurred to
date are relieved from inventories and charged to cost of sales at the time
revenue is recognized. Shipping, inspection and other costs required to install
the boilers are provided for in the appropriate accounts at the time revenues
are recognized. Any losses on contracts are recognized in the period in which
they become estimable and accruable. This method is used because the typical
contract is completed in three months or less and financial position and results
of operations do not vary significantly from those which would result from use
of the percentage of completion method.
For nonboiler, noncontract sales, revenues and cost of sales are recognized
at the time of shipment.
F-36
<PAGE> 147
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
WARRANTY
The Company offers its customers a limited warranty for approximately
eighteen months after installation of the boilers or other manufactured items.
The estimated costs of warranty are accrued and expensed at the time revenue is
recognized. Expense for the years ended October 31, 1997, 1996 and 1995 was
$300,000, $198,000 and $407,000, respectively.
ADVERTISING AND RESEARCH AND DEVELOPMENT
All advertising and promotion as well as research and development costs are
expensed as incurred and are not material to the Company's operations.
OTHER ASSETS
Other assets are primarily comprised of cash surrender value of life
insurance policies and tax deposits required of S Corporations.
LONG-LIVED ASSETS
Long-lived to be held and used are reviewed for impairment whenever events
or change in circumstance dictate that the related carrying amount may not be
recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future cash flows expected to
be generated by the asset. There have been no write-downs for impairment in the
financial statements.
SELF-INSURANCE
The Company is self-insured for payment of health claims for its employees.
The Company has established a voluntary benefit trust account (VEBA) and funds
the VEBA from time to time, as necessary, from operations. The Company has
stop-loss insurance coverage for individual claims in excess of $50,000 per
person.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) INVENTORIES
Shown below is selected financial information reported under the LIFO
method of inventory valuation for the Company. These amounts are compared to
results had the FIFO method, which approximates replacement cost, been used for
all divisions.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
AS REPORTED IF REPORTED AS REPORTED IF REPORTED AS REPORTED IF REPORTED
UNDER LIFO UNDER FIFO UNDER LIFO UNDER FIFO UNDER LIFO UNDER FIFO
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inventories, including costs
incurred on uncompleted
contracts................... $ 6,539,065 $ 7,088,195 $ 5,471,695 $ 5,991,505 $ 5,234,632 $ 5,776,433
Cost of sales................. $45,861,865 $45,782,545 $43,460,577 $43,482,568 $40,915,723 $40,856,236
Net earnings.................. $ 7,728,401 $ 7,807,721 $ 5,896,993 $ 5,875,002 $ 2,117,779 $ 2,177,266
</TABLE>
F-37
<PAGE> 148
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $3,949,470 $3,664,248
Billings on uncompleted contracts........................... 2,709,286 2,396,387
---------- ----------
$1,240,184 $1,267,861
========== ==========
</TABLE>
Included in the accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Costs in excess of billings on uncompleted contracts........ $2,711,606 $2,661,098
Billings in excess of costs on uncompleted contracts........ 1,471,422 1,393,237
---------- ----------
$1,240,184 $1,267,861
========== ==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, 1997 and 1996, at cost, are
shown below:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land................................................. $ 306,211 $ 306,211
Land improvements.................................... 398,012 327,781
Building............................................. 5,316,118 4,387,037
Cranes and building fixtures......................... 1,194,695 1,136,888
Machinery and equipment.............................. 3,694,322 3,380,120
Transportation equipment............................. 341,779 297,768
----------- ----------
$11,251,137 $9,835,805
=========== ==========
</TABLE>
(6) NOTE PAYABLE TO BANK
The Company has a revolving loan agreement with a bank with a $6,000,000
maximum credit line available which expires April 1, 1999. The note accrues
interest at the rate of one percentage point under the prime rate (7.5% at
October 31, 1997). There was $1,422,000 and $1,472,000 outstanding under this
agreement at October 31, 1997 and 1996, respectively.
Substantially all assets are pledged as collateral on the revolving loan
agreement. The revolving loan agreement contains certain limitations on
additional borrowing and fixed asset additions, as well as minimum net worth,
working capital, current ratio, cash flow and debt to tangible net worth levels.
The Company was in compliance with all the loan covenants at October 31, 1997
and 1996.
(7) BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
union employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
Net pension cost for 1997, 1996 and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the
period........................................ $ 67,762 72,786 127,406
Interest cost on projected benefit obligation... 60,266 56,709 73,870
Actual return on plan assets.................... (70,143) (30,046) (97,392)
Net amortization and deferral................... 11,856 (19,181) 9,016
-------- ------- -------
Net periodic pension cost....................... $ 69,741 80,268 112,900
======== ======= =======
</TABLE>
F-38
<PAGE> 149
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The funded status of the pension plan as of August 1, 1997, 1996 and 1995,
the most recent actuarial valuation dates, is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- ----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested -- current employees............................ $ 716,313 510,090 820,983
Nonvested.............................................. 18,355 3,932 94,590
----------- -------- ----------
Accumulated benefit obligation................. 734,668 514,022 915,573
----------- -------- ----------
Projected benefit obligation for service rendered to
date................................................... $(1,266,479) (841,301) (1,502,344)
Fair market value of plan assets......................... 875,521 681,002 1,100,627
----------- -------- ----------
Projected benefit obligation in excess of plan assets.... (390,958) (160,299) (401,717)
Unrecognized net gain (loss) from past experience
different from that assumed and effects of changes in
assumptions............................................ 143,303 (146,829) 16,763
Prior service costs...................................... 99,675 105,344 156,192
Unrecognized net asset at August 1, 1997, 1996 and 1995
being recognized ratably over approximately 13 years... (33,509) (38,049) (41,086)
----------- -------- ----------
Accrued pension cost included in accrued expenses........ $ (181,489) (239,833) (269,848)
----------- -------- ----------
</TABLE>
The assumptions used as of August 1, 1997, 1996 and 1995 in determining the
funded status information and pension expense were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 6.50% 7.25 6.50
Expected long-term inflation rate...................... 4.86 4.86 4.00
Expected long-term rate of return on assets............ 7.50 7.50 7.50
</TABLE>
Effective January 1, 1996, the Company adopted the National Dynamics
Corporation 401(k) Plan (the Plan). This qualified Plan is a defined
contribution plan covering all nonunion employees of the Company who have one
year of service and have attained the age of twenty-one. Participants may
contribute up to 15% of their pay in pretax dollars. Participants' contributions
are 100% vested at all times. The Company made a matching contribution of 50% of
each participant's contributions, up to 5% of pay for 1997 and 1996. This
discretionary matching contribution by the Company may vary from year to year.
Additional amounts may be contributed at the option of the Company's Board of
Directors. Vesting in Company contributions is 100% after five years in the
Plan. Plan expenses were $112,727 and $102,709 for the years ended October 31,
1997 and 1996, respectively.
(8) ACCRUED EXPENSES
Accrued expenses at October 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Accrued wages and bonuses and commissions.............. $ 938,989 1,217,315
Accrued compensated absences........................... 360,000 241,000
Accrued warranty and costs to install.................. 1,735,728 1,810,793
Accrued pension benefits............................... 181,489 239,833
Other.................................................. 328,921 235,786
---------- ---------
$3,545,127 3,744,727
========== =========
</TABLE>
(9) DEFERRED COMPENSATION
The Company has entered into nonqualified deferred compensation agreements
with four key employees. Each employee, upon meeting certain requirements, would
receive annual payments ranging from $10,000 to $30,000 for ten years subsequent
to retirement.
Benefits will be funded with life insurance contracts purchased by the
Company. The cost of these benefits is being charged to expense and accrued
using a present value method over the expected term of employment. Expense for
the years ended 1997, 1996 and 1995 was $10,000 annually.
F-39
<PAGE> 150
NATIONAL DYNAMICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, trade accounts receivable, note payable to bank, accounts payable and
accrued expenses -- The carrying amount approximates the fair market value due
to the short maturity, less than one year, of these instruments.
(11) LETTERS OF CREDIT
The Company is a party to six letters of credit totaling $3,651,549 at
October 31, 1997. These letters of credit are issued on behalf of the Company by
banks for certain customers as the beneficiaries. The letters of credit are for
specific jobs that are in process and expire on various dates through February
11, 1999. Management does not expect any material losses to result from these
off-balance sheet instruments because performance is not expected to be
required.
(12) LITIGATION
In the normal course of business, the Company is involved in various claims
and suits, the majority of which are covered by insurance. Management does not
believe any of these claims or suits will result in settlements which would
materially affect the financial statements of the Company.
During 1997, a dissident minority shareholder filed suit seeking a variety
of actions. Subsequent to year-end, a conditional settlement was reached with no
cost other than insignificant legal fees to the Company.
(13) LEASE
The Company leases a vehicle under a noncancelable operating lease that
expires in August 1998. The monthly lease expense is $1,330 and the future
minimum lease payments as of October 31, 1997 are $13,300.
F-40
<PAGE> 151
NATIONAL DYNAMICS CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1998 AND OCTOBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, OCTOBER 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents of $3,292,000 and $-0- in 1998
and 1997, respectively $ 3,544,149 66,883
Trade accounts receivable (including retainage of
$1,270,445 and $1,822,957 in 1998 and 1997,
respectively, net of allowance for doubtful accounts of
$750,000 in 1998 and 1997) 11,837,261 13,398,380
Inventories 1,552,911 2,589,595
Costs in excess of billings on uncompleted contracts -- 2,711,606
Prepaid expenses -- 134,807
----------- ----------
Total current assets 16,934,321 18,901,271
----------- ----------
Property, plant and equipment, at cost 11,473,539 11,251,137
Less accumulated depreciation 5,071,615 4,871,991
----------- ----------
Net property, plant and equipment 6,401,924 6,379,146
----------- ----------
Other assets 739,565 710,920
----------- ----------
$24,075,810 25,991,337
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- 1,422,000
Accounts payable 3,348,533 4,247,628
Accrued expenses 3,040,248 3,545,127
Billings in excess of cost on uncompleted contracts 625,169 1,471,422
Stockholders' dividends payable -- 500,000
----------- ----------
Total current liabilities 7,013,950 11,186,177
Deferred compensation 144,200 140,000
----------- ----------
Total liabilities 7,158,150 11,326,177
----------- ----------
Stockholders' equity:
Common stock of $1 par value per share. Authorized 20,000
shares; issued and outstanding 8,000 shares 8,000 8,000
Additional paid-in capital 81,186 81,186
Retained earnings 16,828,474 14,575,974
----------- ----------
Total stockholders' equity 16,917,660 14,665,160
----------- ----------
Commitments and contingencies
$24,075,810 25,991,337
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-41
<PAGE> 152
NATIONAL DYNAMICS CORPORATION
CONDENSED STATEMENTS OF EARNINGS
FIVE-MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $25,561,029 21,722,260
Cost of sales 19,972,678 17,150,280
----------- ----------
Gross profit 5,588,351 4,571,980
Selling, general and administrative expenses 2,471,501 1,887,790
----------- ----------
Operating income 3,116,850 2,684,190
Other income 397,661 312,024
Other deductions, including interest expense of $60,772 and
$75,933 in 1998 and 1997, respectively (62,011) (76,214)
----------- ----------
Net earnings $ 3,452,500 2,920,000
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-42
<PAGE> 153
NATIONAL DYNAMICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
FIVE-MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from operating activities:
Net earnings $ 3,452,500 2,920,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 199,625 192,999
Change in assets and liabilities:
Accounts receivable 1,561,119 (2,994,452)
Inventories 1,036,684 730,968
Costs in excess of billings on uncompleted contracts 2,711,606 2,661,098
Prepaid expenses 134,807 (168,897)
Other assets (28,645) (26,175)
Accounts payable (899,095) (444,702)
Accrued expenses (504,879) (834,268)
Billings in excess of costs on uncompleted contracts (846,253) 1,118,364
Deferred compensation 4,200 4,200
----------- ----------
Net cash provided by operating activities 6,821,669 3,159,135
----------- ----------
Cash flows from investing activities:
Capital expenditures (222,403) (262,493)
----------- ----------
Cash flows from financing activities:
Dividends paid (1,700,000) (1,100,000)
Net payments on note payable to bank (1,422,000) (1,472,000)
----------- ----------
Net cash used in financing activities (3,122,000) (2,572,000)
----------- ----------
Net increase in cash and cash equivalents 3,477,266 324,642
Cash and cash equivalents at beginning of year 66,883 222,415
----------- ----------
Cash and cash equivalents at end of year $ 3,544,149 547,057
=========== ==========
Supplemental cash flow information:
Cash paid for interest $ 60,772 75,993
=========== ==========
</TABLE>
See accompanying note to financial statements.
F-43
<PAGE> 154
NATIONAL DYNAMICS CORPORATION
NOTE TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of National
Dynamics Corporation (the Company), include all adjustments necessary for a fair
statement of earnings for each period shown, in the opinion of management. All
such adjustments made are of a normal recurring nature. The balance sheet at
October 31, 1997 is derived from the audited balance sheet as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Management believes that the disclosures made
are adequate and that the information is fairly presented; costs and billings on
uncompleted contracts are presented net in the interim financial statement. The
results for the interim periods are not necessarily indicative of the results
for the full year. These financial statements should be read in conjunction with
the audited financial statements and notes thereto for the years ended October
31, 1997, 1996 and 1995.
F-44
<PAGE> 155
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY INITIAL PURCHASER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE SUCH DATE. UNTIL , 19 ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.............................. 1
Risk Factors......................... 15
The Exchange Offer................... 22
Capitalization....................... 32
Unaudited Pro Forma Financial Data... 33
Selected Financial Data of
Aqua-Chem.......................... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Aqua-Chem......... 41
Selected Financial Data of NDC....... 46
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of NDC............... 47
Business of the Company.............. 49
Management........................... 60
Capital Stock and Principal
Stockholders....................... 66
Certain Relationships and Related
Transactions....................... 71
The Acquisition...................... 73
Description of Certain
Indebtedness....................... 74
Description of the Notes............. 75
Certain United States Federal Income
Tax Considerations................. 102
Plan of Distribution................. 104
Legal Matters........................ 105
Independent Auditors................. 105
Available Information................ 105
Incorporation of Certain Documents by
Reference.......................... 106
Index to Financial Statements........ F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
[AQUA-CHEM LOGO]
$125,000,000
11 1/4% Senior
Subordinated Notes
Due 2008
PROSPECTUS
------------------------------------------------------
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended,
provides in regards to indemnification of directors and officers as follows:
145. Indemnification of Officers, Directors, Employees
and Agents; Insurance.
(a) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the
fact that the person is or was
<PAGE> 157
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in subsections
(a) and (b)of this section, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination,
(1) by a majority vote of the directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (4) by the stockholders.
<PAGE> 158
(e) Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors or officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnity him against such liability under this section.
(h) For purposes of this Section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint
<PAGE> 159
venture, trust or other enterprise, shall stand in the same position
under the provisions of this section with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner
such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a
person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys
fees).
<PAGE> 160
Section 102(b)(7) of the Delaware General Corporation Law, as
amended, provides in regard to the limitation of liability of directors
and officers as follows --
(b) In addition to the matters required to be set forth in the
certificate of incorporation by subsection (a) of this section, the
certificate of incorporation may also contain any or all of the
following matters:
* * * *
(7) A provision eliminating or limiting the personal liability
of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director: (i)
for any breach of the director's duty of loyalty to the corporation or
its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii)
under Section 174 of this title; or (iv) for any transaction from which
the director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act or
omission occurring prior to the date when such provision becomes
effective. All references to this paragraph to a director shall also be
deemed to refer (x) to a member of the governing body of a corporation
which is not authorized to issue capital stock, and (y) to such other
person or persons, if any, who, pursuant to a provision of the
certificate of incorporation in accordance with ss.141(a) of this
title, exercise or perform any of the powers or duties otherwise
conferred or imposed upon the board of directors by this title.
Article 7 of the Registrant's Certificate of Incorporation, as amended,
provides in regard to the limitation of liability of directors and officers as
follows:
No director shall be liable to the Company or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of director's duty of
loyalty to the Company or its stockholders, (2) acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of the law, (3) liability under Section 174 of the Delaware
General Corporation Law or (4) a transaction from which the director
derived an improper personal benefit, it being the intention of the
foregoing provision to eliminate the
<PAGE> 161
liability of the Company's directors to the Company or its stockholders
to the fullest extent permitted by Section 102(b)(7) of the Delaware
General Corporation Law, as amended from time to time. The Company
shall indemnify to the fullest extent permitted by Sections 102(b)(7)
and 145 of the Delaware General Corporation Law, as amended from time
to time, each person that such Sections grant the Company the power to
indemnify.
Article 8 of Registrant's By-Laws provide, in summary, that the
corporation will indemnify present or former directors, officers employees or
agents (including those acting at the request of the Corporation in such role
for another entity) against amounts owed in connection with any proceeding
regarding action taken while serving in such role. The indemnification is to the
fullest extent as permitted by applicable law. With regard to directors and
officers, repeal or modification of that section of the by-laws or other
applicable laws will not change the obligations of the corporation in effect at
the time of the act giving rise to the proceeding. The right to indemnification
is not exclusive of any other rights to which the parties may be entitled. The
Corporation shall also have the power to purchase and maintain insurance on
behalf of any such person, without regard to whether the Corporation has the
power to indemnify that person under the by-laws or applicable law.
The Registrant has entered into indemnification agreements with
Jeffrey A. Miller, the Registrant's Chairman, President and Chief Executive
Officer and William B. Killian and James W. Hook, each a Director of the
Registrant, pursuant to which the Registrant has agreed to indemnify them
against Expenses (as defined therein) and Liability (as defined therein)
arising out of their employment by or position as a director of the Registrant.
Rights to indemnification under these indemnification agreements are generally
consistent with, and are specifically defined to include, the fullest extent
of the rights under the Delaware General Corporation Law, and the Registrant's
Certificate of Incorporation and Bylaws set forth as described above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The Exhibit Index attached hereto following the Signature Pages is
incorporated herein by reference.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and persons
controlling the Registrant pursuant to the foregoing
<PAGE> 162
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or person controlling the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(3) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first-class mail or equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date responding to the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aqua- Chem,
Inc. has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee,
State of Wisconsin, on this 19th day of August, 1998.
By: Jeffrey A. Miller *
------------------------------------
Name: Jeffrey A. Miller
Title: Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the date indicated below.
- ---------------------------- ---------------------------
Signature Title
Principal Executive Officer:
Jeffrey A. Miller *
- ------------------------------- President and Chief
Jeffrey A. Miller Executive Officer
Principal Financial and Accounting Officer:
/s/ J. Scott Barton
- ------------------------------- Vice President, Chief
J. Scott Barton Financial Officer
Board of Directors:
Jeffrey A. Miller *
- ------------------------------- Director (Chairman of
Jeffrey A. Miller the Board)
James H. Fordyce * Director
- -------------------------------
James H. Fordyce
<PAGE> 164
- -------------------------- --------------------------------
Signature Title
James W. Hook *
- -------------------------
James W. Hook Director
William P. Killian *
- ------------------------- Director
William P. Killian
Michael R. Stone *
- ------------------------- Director
Michael R. Stone
* J. Scott Barton, by signing his name hereto does sign this document on
behalf of the persons indicated above as of this 19th day of August, 1998,
pursuant to the powers of attorney duly executed by such persons and filed
as Exhibit 24.1 to this Amendment No. 1 to Form S-4 Registration Statement.
By: /s/ J. Scott Barton
----------------------------
J. Scott Barton
Attorney-in-Fact
<PAGE> 165
EXHIBIT INDEX
TO
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON FORM S-4
OF
AQUA-CHEM, INC.
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
Number HEREWITH
2.1 Asset Purchase Agreement dated May X
28, 1998 among Aqua-Chem, Inc.,
National Dynamics Corporation, and
certain shareholders of National
Dynamics Corporation
3.1 Aqua-Chem, Inc. Certificate of (1)
Incorporation (incorporating amendments)
3.2 Aqua-Chem, Inc. Bylaws (1)
4.1 Indenture of Trust dated June 23, (1)
1998 between Aqua-Chem, Inc. and
United States Trust Company of New
York, as Trustee
4.2 Form of Aqua-Chem, Inc. 11-1/4% (2)
Senior Subordinated Note Due 2008,
to be issued in the Exchange Offer
subject to this Registration
Statement
4.3 Form of Aqua-Chem, Inc. 11-1/4% (3)
Senior Subordinated Note Due 2008
issued on June 23, 1998
----------------
(1) Previously filed.
(2) Included as Exhibit A to the Indenture of
Trust included as Exhibit 4.1 to this
Amendment No. 1 to Registration Statement.
(3) Included as Exhibit 1 to the Rule 144A/
Regulation S Appendix to the Indenture
of Trust included as Exhibit 4.1 to this
Amendment No. 1 to Registration Statement.
<PAGE> 166
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
4.4 Common Stock Purchase Warrant dated July 31, 1997 (1)
5.1 Opinion as to legality of securities (4)
subject to this Registration
Statement
9.1 Stockholders' and Members' Agreement (1)
dated July 31, 1997 among the
Stockholders of Aqua-Chem, Inc. and
the Members of Rush Creek, LLC.
10.1 Credit Agreement dated June 23, 1998 (1)
among Aqua-Chem, Inc. and Comerica
Bank
10.2 Registration Rights Agreement dated (1)
June 18, 1998 among Aqua-Chem,
Inc., Credit Suisse First Boston
Corporation, and Bear, Stearns &
Co. Inc.
10.3 Employment Agreement dated July 31, (1)
1997 between Aqua-Chem, Inc. and
Jeffrey A. Miller, as amended
10.4 Employment Agreement dated February (1)
5, 1997 between Aqua-Chem, Inc.
and Rand E. McNally, as amended
10.5 Employment Agreement dated January (1)
20, 1997 between Aqua-Chem, Inc.
and J. Scott Barton, as amended
10.6 Employment Agreement dated January 7, 1997 (1)
between Aqua-Chem, Inc. and
Charles J. Norris, as amended
10.7 Employment Agreement dated September 1, 1997 (1)
between Aqua-Chem, Inc. and
Daniel L. Johnson, as amended
------------------
(1) Previously filed.
(4) To be filed by amendment.
<PAGE> 167
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
10.8 Interim Management Agreement dated July 8, (1)
1996 between Aqua-Chem, Inc.,
J. Miller Management, Inc. and Jeffery A.
Miller
10.9 Aqua-Chem, Inc. 1997 Stock Option (1)
Plan Amended and Restated
10.10 Aqua-Chem, Inc. Management Incentive X
Plan approved November 15, 1996
10.11 Aqua-Chem, Inc. Executive Management (1)
Incentive Plan approved November
15, 1996
10.12 Aqua-Chem, Inc. 1998 Phantom Stock Plan (1)
10.13 Amendment to Interim Management Agreement (4)
between Aqua-Chem, Inc., J. Miller Management,
Inc. and Jeffrey A. Miller
10.14 Aqua-Chem, Inc. 11 1/4% Senior Subordinated (1)
Notes Due 2008, Purchase Agreement dated
June 18, 1998
10.15 Consulting Agreement with Verlyn Westra dated (1)
June 19, 1998
10.16 Consulting Agreement with Roger Swanson dated (1)
June 19, 1998
10.17 Amended and Restated Securities Purchase (1)
Agreement dated December 5, 1997 by and among
Rush Creek, LLC, A-C Acquisition Corp., CB-Kramer
Sales and Service, Inc., Whitney Subordinated Debt
Fund, LP, and Whitney Equity Partners, LP
10.18 First Amendment and Consent Agreement dated June (1)
23, 1998, by and among Rush Creek, LLC,
A-C Acquisition Corp., CB-Kramer Sales and
Service, Inc., Whitney Subordinated Debt Fund, LP,
and Whitney Equity Partners, LP
10.19 Letter Agreement with William P. Killian X
dated December 17, 1997
10.20 Letter Agreement with James W. Hook dated (1)
February 11, 1998
- ------------------
(1) Previously filed.
(4) To be filed by amendment.
<PAGE> 168
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
10.21 Agreement and Plan of Reorganization X
dated July 31, 1997 among Lyonnaise
American Holding, Inc., Gestra
Corporation N.V., Rush Creek LLC,
Aqua-Chem, Inc., A-C Acquisition
Corp. and Jeffrey A. Miller
[REDACTED PORTIONS ARE SUBJECT TO A REQUEST
FOR CONFIDENTIAL TREATMENT ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION]
10.22 Amendment dated June 22, 1998 to Agreement X
and Plan of Reorganization among
Lyonnaise American Holding, Inc.,
Gestra Corporation N.V., Rush Creek
LLC, Aqua-Chem, Inc., A-C
Acquisition Corp. and Jeffrey A.
Miller
[REDACTED PORTIONS ARE SUBJECT TO A REQUEST
FOR CONFIDENTIAL TREATMENT ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION]
12.1 Statements Regarding Computation of Ratios (5)
16.1 Letter regarding change in Certifying Accountant X
21.1 Subsidiaries of the Registrant (1)
23.1 Consent of Arthur Andersen LLP X
23.2 Consent of KPMG Peat Marwick, LLP, Milwaukee,
Wisconsin X
23.3 Consent of KPMG Peat Marwick, LLP, Omaha,
Nebraska X
23.4 Consent of Whyte Hirschboeck Dudek S.C. (1)
24.1 Powers of Attorney of Directors and Officers of
Aqua-Chem, Inc. X
25.1 Statement of Eligibility of United States Trust (1)
Company of New York as Trustee under the Indenture
on Form T-1 under the Trust Indenture Act of 1939,
as amended
27.1 Financial Data Schedule (12 months ended 12/31/95) (1)
27.2 Financial Data Schedule (12 months ended 12/31/96) (1)
27.3 Financial Data Schedule (7 months ended 7/31/97) (1)
27.4 Financial Data Schedule (5 months ended 12/31/97) (1)
27.5 Financial Data Schedule (6 months ended 6/30/98) (1)
99.1 Letter of Transmittal (4)
- -------------------------
(1) Previously filed.
(4) To be filed by amendment.
(5) Included in the Prospectus which forms a part of this Amendment
No.1 to Registration Statement immediately following the
consolidated condensed financial statements of Aqua-Chem, Inc.
<PAGE> 169
- --------------------------------------------------------------------------------
EXHIBIT DESCRIPTION FILED
NUMBER HEREWITH
99.2 Instructions to Holders of Aqua-Chem, Inc. (4)
11-1/4% Senior Subordinated Notes Due 2008
99.3 Notice of Guaranteed Delivery (4)
- ----------------------------------
(4) To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
AQUA-CHEM, INC.,
NATIONAL DYNAMICS CORPORATION
AND
THE SHAREHOLDERS OF
NATIONAL DYNAMICS CORPORATION
MAY 28, 1998
-------------------------------------------------------------------
EXHIBITS TO ASSET PURCHASE AGREEMENT BY AND AMONG AQUA-CHEM, INC., NATIONAL
DYNAMICS CORPORATION AND THE SHAREHOLDERS OF NATIONAL DYNAMICS CORPORATION
DATED MAY 28, 1998
--------------------------------------------------
SCHEDULES TO ASSET PURCHASE AGREEMENT BY AND AMONG AQUA-CHEM, INC. ("BUYER")
AND NATIONAL DYNAMICS CORPORATION ("SELLER"), DANIEL T. SCULLY, ROGER L. SWANSON
AND VERLYN L. WESTRA (THE "SHAREHOLDERS") DATED MAY 28, 1998
-------------------------------------------------------------------
<PAGE> 2
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
AQUA-CHEM, INC.,
NATIONAL DYNAMICS CORPORATION
AND
THE SHAREHOLDERS OF
NATIONAL DYNAMICS CORPORATION
MAY 28, 1998
<PAGE> 3
EXHIBIT 2.1
TABLE OF CONTENTS
Tab No.
1. Asset Purchase Agreement By and Among Aqua-Chem, Inc., National
Dynamics Corporation And The Shareholders of National Dynamics
Corporation Dated May 28, 1998
*Letter dated May 28, 1998 to Roger L. Swanson from J. Scott
Barton at Aqua-Chem, Inc.*
2. Exhibits to Asset Purchase Agreement By and Among Aqua-Chem, Inc.,
National Dynamics Corporation And The Shareholders of National
Dynamics Corporation Dated May 28, 1998
Exhibit A: Assumed Liabilities
Exhibit B: Liability
Exhibit C: Excluded Assets in Addition to
Those Identified as "Excluded
Assets" in Section 1 of the Asset
Purchase Agreement
Exhibit D: Purchase Price Escrow Agreement
Exhibit E: Warranty and Start Up Escrow
Agreement
Exhibit F: Closing Balance Sheet Example
Exhibit G: Assignments, Bills of Sale and Deeds
Exhibit H: Assumption Agreement
Exhibit I: Allocation of Purchase Price
Exhibit J: Financial Statements
Exhibit K: Schedule of Title Insurance Amounts
Exhibit L: Opinion of Seller's Legal Counsel
Exhibit M: Roger L. Swanson Consulting
Agreement
Exhibit N: Verlyn L. Westra Consulting
Agreement
Exhibit O: Opinion of Buyer's Legal Counsel
-i-
<PAGE> 4
EXHIBIT 2.1
TABLE OF CONTENTS
(Continued)
3. Schedules to Asset Purchase Agreement By And Among Aqua-Chem,
Inc., ("Buyer") And National Dynamics Corporation ("Seller"),
David T. Scully, Roger L. Swanson And Verlyn L. Westra (The
"Shareholders")
Schedule 1 Acquired Assets
Schedule 3(a) Organization of the Seller
Schedule 3(b) Authorization of Transaction
Schedule 3(c) Noncontravention
Schedule 3(d) Brokers' Fees
Schedule 3(e) Title to Assets
Schedule 3(f) Subsidiaries
Schedule 3(g) Financial Statements
Schedule 3(h) Events Subsequent to Most Recent
Fiscal Year End
Schedule 3(i) Undisclosed Liabilities
Schedule 3(j) Legal Compliance
Schedule 3(k) Real Property
Schedule 3(l) Intellectual Property
Schedule 3(m) Tangible Assets
Schedule 3(n) Inventory
Schedule 3(o) Contracts
Schedule 3(p) Notes and Accounts Receivable
Schedule 3(q) Accounts and Powers of Attorney
Schedule 3(r) Insurance
Schedule 3(s) Litigation
Schedule 3(t) Employees
Schedule 3(u) Employee Benefits
-ii-
<PAGE> 5
EXHIBIT 2.1
TABLE OF CONTENTS
(Continued)
Schedule 3(v) Guaranties
Schedule 3(w) Environment, Health and Safety
Schedule 3(x) Taxes
Schedule 3(y) Product Warranty
Schedule 3(z) Shareholder Authorization
Schedule 3(aa) Noncontravention
Schedule 3(ab) Seller shares
Schedule 3(ac) Certain Business Relationships with
the Seller
Schedule 3(ad) Disclosure
Schedule 5.2(f) Confidentiality Agreement
-iii-
<PAGE> 6
EXHIBIT 2.1
TABLE OF CONTENTS
1. Definitions............................................................ -1-
2. Basic Transaction...................................................... -6-
(a) Purchase and Sale of Assets....................................... -6-
(b) Assumption of Liabilities......................................... -6-
(c) Purchase Price.................................................... -6-
(d) The Closing....................................................... -8-
(e) Deliveries at the Closing......................................... -8-
(f) Allocation........................................................ -8-
3. Representations and Warranties of the Shareholders..................... -8-
(a) Organization of the Seller........................................ -9-
(b) Authorization of Transaction...................................... -9-
(c) Noncontravention.................................................. -9-
(d) Brokers' Fees..................................................... -9-
(e) Title to Assets................................................... -9-
(f) Subsidiaries...................................................... -10-
(g) Financial Statements.............................................. -10-
(h) Events Subsequent to Most Recent Fiscal Year End.................. -10-
(i) Undisclosed Liabilities........................................... -12-
(j) Legal Compliance.................................................. -12-
(k) Real Property..................................................... -12-
(l) Intellectual property............................................. -13-
(m) Tangible Assets........................................... -15-
(n) Inventory......................................................... -16-
(o) Contracts......................................................... -16-
(p) Notes and Accounts Receivable..................................... -17-
(q) Accounts, Letters of Credit, Bonds and Powers of Attorney......... -17-
(r) Insurance......................................................... -17-
(s) Litigation........................................................ -17-
(t) Employees......................................................... -18-
(u) Employee Benefits................................................. -18-
(v) Guaranties........................................................ -20-
(w) Environment, Health and Safety............................ -20-
(x) Taxes............................................................. -20-
(y) Product Warranty............................................. -20-
(z) Shareholder Authorization......................................... -20-
(aa) Noncontravention............................................. -21-
(ab) Seller Shares............................................. -21-
(ac) Certain Business Relationships With the Seller............ -21-
(ad) Disclosure................................................ -21-
(ae) Disclaimer of Other Representations and Warranties........ -21-
-i-
<PAGE> 7
EXHIBIT 2.1
4. Representations and Warranties of the Buyer............................ -21-
(a) Organization of the Buyer......................................... -22-
(b) Authorization of Transaction...................................... -22-
(c) Noncontravention.................................................. -22-
(d) Brokers' Fees..................................................... -22-
(e) Disclosure........................................................ -22-
(f) Disclaimer of Other Representations and Warranties................ -22-
5.1 Pre-Closing Covenants.................................................. -23-
(a) General........................................................... -23-
(b) Financing......................................................... -23-
(c) Notices and Consents.............................................. -23-
(d) Operation of Business Section..................................... -23-
(e) Preservation of Business Section.................................. -23-
(f) Full Access Section............................................... -24-
(g) Exclusivity....................................................... -24-
(h) Title Insurance................................................... -24-
(i) Surveys........................................................... -24-
(j) Effect of Disclosure.............................................. -25-
5.2 Other Covenants....................................................... -26-
(a) General........................................................... -26-
(b) Litigation Support................................................ -26-
(c) Seller and Shareholder Confidentiality............................ -26-
(d) Covenant Not to Compete........................................... -27-
(e) Non Assignable Contracts.......................................... -27-
(f) Buyer Confidentiality............................................. -28-
(g) Warranty, Make Good and Start Up Liability and Work............... -28-
(i) Liability for Warranty, Make-Good and Startup............. -28-
(ii) Performance of Warranty, Make-Good and Startup Work...... -28-
(iii) Payment for Warranty Work, Make-Good Work and Startup
Performed for Seller by Buyer..................................... -29-
(iv) Warranty, Startup, Accounts and Notes Receivable Escrow
Account .......................................................... -29-
(h) Accounts and Notes Receivable..................................... -30-
(i) Product Liability................................................. -31-
(j) Surety Bonds and Letters of Credit................................ -31-
(k) Certain Employment Related Matters............................... -31-
(l) Certain Environmental Matters..................................... -33-
(m) Tax Returns and Employee Benefit Plan Returns and Reports. -33-
6. Conditions to Obligation to Close...................................... -34-
(a) Conditions to Obligation of the Buyer............................. -34-
(b) Conditions to Obligation of the Seller............................ -35-
7. Termination............................................................ -36-
(a) Mutual Consent.................................................... -36-
-ii-
<PAGE> 8
EXHIBIT 2.1
(b) Passage of Time................................................... -36-
(c) Non-Satisfaction of Section6(a) Conditions........................ -36-
(d) Non-Satisfaction of Section6(b) Conditions........................ -36-
(e) Failure to Obtain Financing...................................... -36-
(f) Matters Disclosed in Updates to Disclosure Schedule............... -36-
(g) Title Insurance and Survey........................................ -37-
(h) Further Due Diligence............................................. -37-
8. Remedies.............................................................. -37-
(a) Survival of Representations and Warranties........................ -37-
(b) Indemnification Provisions for Benefit of the Buyer............... -37-
(c) Indemnification Provisions for Benefit of the Seller and the
Shareholders...........................................................
-38-
(d) Limitations....................................................... -39-
(e) Indemnification Procedures........................................ -40-
(f) Recoupment........................................................ -41-
(g) Payment........................................................... -41-
(h) General........................................................... -42-
9. Miscellaneous.......................................................... -43-
(a) Bulk Transfer Laws................................................ -43-
(b) Press Releases and Public Announcements........................... -43-
(c) No Third Party Beneficiaries...................................... -43-
(d) Entire Agreement.................................................. -43-
(e) Succession and Assignment......................................... -43-
(f) Counterparts...................................................... -43-
(g) Headings.......................................................... -43-
(h) Notices........................................................... -43-
(i) Governing Law..................................................... -44-
(j) Amendments and Waivers............................................ -44-
(k) Severability...................................................... -45-
(l) Expenses.......................................................... -45-
(m) Incorporation of Exhibits and Schedules................... -45-
(n) Construction...................................................... -45-
(o) Submission to Jurisdiction........................................ -45-
(p) Specific Performance.............................................. -45-
-iii-
<PAGE> 9
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AGREEMENT made and entered into as of May ____,1998, by and among
AQUA-CHEM, INC., a Delaware corporation (the "Buyer"), NATIONAL DYNAMICS
CORPORATION, a Nebraska corporation (the "Seller") and DANIEL T. SCULLY, ROGER
L. SWANSON, and VERLYN L. WESTRA, the holders of eighty-three and 25/100 percent
(83.25%) of the issued and outstanding shares of the Seller (the
"Shareholders"). The Buyer, the Seller and the Shareholders are referred to
collectively herein as the "Parties."
WITNESSETH:
WHEREAS, the Buyer desires to purchase and acquire the Seller's assets
and business as a going concern and assume certain liabilities of Seller on the
terms and conditions hereinafter set forth and
WHEREAS, the Seller and the Shareholders desire that the Seller sell
its assets and business as a going concern to the Buyer on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Seller as of the Closing Date as hereinafter defined,
including, without limitation, all of its (a) real property, leaseholds and
subleaseholds therein, improvements, fixtures, and fittings thereon, and
easements, rights-of-way, and other appurtenants thereto (such as appurtenant
rights in and to public streets), (b) tangible personal property (such as
machinery, equipment, inventories of raw materials and supplies, manufactured
and purchased parts, goods in process and finished goods, furniture,
automobiles, trucks, tractors, trailers, tools, jigs, and dies), (c)
Intellectual Property, goodwill associated therewith, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, remedies
against infringements thereof, and rights to protection of interests therein
under the laws of all jurisdictions, (d) leases, subleases, and rights
thereunder, (e) those agreements, contracts, indentures, mortgages, instruments,
Security Interests, guaranties, other similar arrangements, and rights
thereunder as listed in Section 1 of the Disclosure Schedule (as hereinafter
defined), (f) accounts, notes, and other receivables, (g) claims, deposits,
prepayments, refunds, causes of action, choses in action, rights of recovery,
rights of set off, and rights of recoupment, excluding any of the foregoing
items which relate to Taxes paid by Seller, Excluded Assets and/or obligations
or liabilities of Seller which are not Assumed Liabilities, (h) franchises,
approvals, permits, licenses, orders, registrations, certificates, variances,
and similar rights obtained from governments and governmental agencies, (i)
books, records, ledgers, files, documents, correspondence, lists, plats,
architectural plans, drawings, and specifications, creative
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<PAGE> 10
EXHIBIT 2.1
materials, advertising and promotional materials, studies, reports, and
other printed or written materials, and (j) Cash; provided, however, that the
Acquired Assets shall not include the "Excluded Assets" (as hereinafter
defined).
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Applicable Rate" means the corporate base rate of interest announced
from time to time in the Midwest Edition of the Wall Street Journal or any
successor publication.
"Assumed Liabilities" means, as of the Closing Date, (a) all
Liabilities of the Seller to the extent of the dollar amount reflected on the
Closing Balance Sheet (as hereinafter defined) and taken into account in the
calculation of the Closing Net Asset Value (as hereinafter defined), (b) all
obligations of the Seller under the agreements, contracts, leases, licenses, and
other arrangements referred to in the definition of Acquired Assets either (i)
to furnish goods, services, and other non-Cash benefits to another party after
the Closing or (ii) to pay for goods, services, and other non-Cash benefits that
another party will furnish to it after the Closing, and (c) those other
Liabilities and obligations of the Seller set forth in Exhibit A attached
hereto, provided, however, that the Assumed Liabilities shall not include (i)
any Liability of the Seller for Taxes, except to the extent of the dollar amount
of those Taxes reflected on the Closing Balance Sheet which relate to tax
returns the Buyer is required to file pursuant to Section 5.2(m) of this
Agreement, (ii) any Liability of the Seller for the unpaid Taxes of any Person,
as a transferee or successor, by contract, or otherwise, (iii) any obligation of
the Seller to indemnify any Person (including any of the Shareholders) by reason
of the fact that such Person was a director, officer, employee, or agent of the
Seller or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement, or otherwise),
(iv) any Liability or obligation of the Seller under this Agreement; (v) any
Liabilities or obligations directly or indirectly relating to or arising in
connection with the EGT Projects (as hereinafter defined), (vi) any Liabilities
or obligations (including, without limitation liabilities for personal injury
and property damage) directly or indirectly relating to or arising in connection
with Products Sold (as hereinafter defined) on or before the Closing Date (as
hereinafter defined), except for the obligation of Buyer to perform product
warranty, make-good and startup work for the Seller as hereinafter specifically
set forth in Section 5.2(g) of this Agreement, or any Liability listed on
Exhibit B attached hereto and/or (vii) any Liabilities under the Seller's VEBA.
"Buyer" has the meaning set forth in the preface above.
"Cash" means cash excluding marketable securities and short term
investments
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<PAGE> 11
EXHIBIT 2.1
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Balance Sheet" has the meaning set forth in Section 2(c)(2)
below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Buyer and/or the Seller that is not already
available to the public.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health and Safety Requirements" means all applicable
federal, state, local, administrative and foreign statutes, rules, regulations,
and ordinances concerning public health and safety, worker health and safety,
and pollution or protection of the environment, including without limitation,
all those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
industrial, chemical, toxic or hazardous materials, substances or wastes (as
such terms are defined under any applicable federal, state, local or foreign
statute, rule, regulation or ordinance), as such requirements are enacted and in
effect on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means the following assets owned by the Seller: (i)
life insurance policies (including any cash surrender values) on the lives of
Daniel T. Scully, Roger L. Swanson and Verlyn L. Westra; (ii) product liability
insurance policies; (iii) art work and bronzes, which have previously been
removed from the Seller's Premises; (iv) accounts receivable (all of which have
previously been written off) or liabilities relating to the European Gas
Turbines on projects identified as Browning Ferris Gas Services, Inc. ("BFGSI")
Pine Bend, MN Project, BFGSI Arbor Hills, MI Project, Anheuser Busch Newark
Brewery Project and Princeton University Project as more fully described in the
Disclosure Schedule (collectively the "EGT Projects"); (v) any and all other
insurance policies other than the policies of life insurance on the lives of
David N. Bouquet, Gary D. Johnson, Lawrence H. Miller and Harry W. Kumpula (the
"Executives") which serve as the funding vehicle for the
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<PAGE> 12
EXHIBIT 2.1
Seller's deferred compensation obligations to the Executives (the "Deferred
Compensation Obligations"); (vi) the corporate charter, qualifications to
conduct business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other identification numbers,
seals, minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation, or any of the rights of the Seller under this Agreement; (vii)
marketable securities, short-term investments and/or tax deposits; (viii) those
prepaid expenses and other items specifically listed in Exhibit C attached
hereto and (ix) any assets related to the Seller's VEBA.
"Extremely Hazardous Substance" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 3(g) below.
"GAAP" means generally accepted accounting principles as in effect in
the United States as of the date of this Agreement.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
bills of material, customer and supplier lists, customer job files, pricing and
cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means that which is actually known or, after reasonable
investigation, should have been known by the Shareholders.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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<PAGE> 13
EXHIBIT 2.1
"Most Recent Fiscal Month End" has the meaning set forth in Section
3(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section
3(g) below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Real Estate Encumberances" means those defects,
encroachments, easements, covenants and other restrictions set forth in the
title commitments or the surveys referenced in Section 3(k) of the Disclosure
Schedule and approved by the Buyer in accordance with Section 3(k) of the
Disclosure Schedule.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Products Sold" means those products which under GAAP, applied on a
basis consistent with prior years, the Seller is permitted or required to
regard, under the completed contract method of accounting, as having been sold
on or before the Closing Date and with respect to which Seller has, accordingly,
been required or permitted to recognize profit or loss Section
"Prohibited Transaction" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, adverse claim, deed of trust or other security interest, other than (a)
mechanic's, materialmen's, and similar liens arising in connection with the
Assumed Liabilities, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business which arise in
connection with an Assumed Liability and were not incurred in connection with
the borrowing of money.
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<PAGE> 14
EXHIBIT 2.1
other liens arising in the Ordinary Course of Business which arise in connection
with an Assumed Liability and were no incurred in connection with the borrowing
of money.
"Subsidiary" means any partnership, corporation, limited liability
company, business trust, or any other entity with respect to which Seller has an
equity interest or has the power to vote or direct the voting of equity
securities.
"Survey" has the meaning set forth in Section 5.1(i) below.
"Seller" has the meaning set forth in the preface above.
"Shareholder" shall have the meaning set forth in the preface above.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section 2.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, the Buyer covenants and agrees at the Closing to
assume and become solely responsible for all of the Assumed Liabilities. From
and after Closing, the Buyer shall pay and perform all amounts and obligations
arising out of or in connection with the Assumed Liabilities promptly as the
same become due and shall not suffer or permit the same to become delinquent or
in default. The Buyer will not assume or have any responsibility, however, with
respect to any obligation or Liability of the Seller not specifically included
within the definition of Assumed Liabilities.
(c) Purchase Price.
(1) The Purchase Price, subject to adjustment as set forth below, shall
be Forty-Seven Million Dollars ($47,000,000), Thirty Eight Million
Dollars ($38,000,000) of which shall be paid to the Seller by wire
transfer of immediately available funds on the Closing Date, Five
Million Dollars ($5,000,000) of which shall be deposited by wire
transfer of immediately available
<PAGE> 15
EXHIBIT 2.1
funds in an escrow account (the "Purchase Price Escrow Account") with
Bank One Trust Company, N.A.(the "Escrow Agent") to be held in
accordance with a Purchase Price Escrow Agreement substantially in the
form of Exhibit D and disbursed as set forth in Section 2(c)(3) and
Section 2(e) below and Four Million Dollars ($4,000,000) of which shall
be deposited by wire transfer of immediately available funds in an
escrow account (the "Warranty, Startup, Accounts and Notes Receivable
Escrow Account") with the Escrow Agent to be held in accordance with a
Warranty and Startup Escrow Agreement substantially in the form of
Exhibit E and disbursed as set forth in Section 5.2(g) and
Section 5.2(h) below. The Buyer and the Seller shall each pay one-half
of the fees and expenses of the Escrow Agent.
(2) A physical inventory shall be jointly conducted by the Seller and
the Buyer as of the close of business on the Closing Date subject to
the provisions of Section 2(c)(4) below. As promptly as possible, but
not later than 60 days after the Closing, the Buyer shall prepare and
deliver to the Seller an audited balance sheet certified by Arthur
Andersen (the "Closing Balance Sheet"), dated as of the Closing Date,
prepared from the Company's books and records in accordance with the
accounting conventions set forth in Section 2(c)(4) below and a
calculation of the Closing Net Asset Value (as hereinafter defined).
The Parties hereby acknowledge and agree that the Closing Net Asset
Value shall be calculated in the manner and utilizing the methodology
set forth on Exhibit F attached hereto. In the event the Seller
disagrees with any items set forth on the Closing Balance Sheet or the
calculation of the Closing Net Asset Value, the Seller shall by
written notice to the Buyer within 30 days of receipt of the Closing
Balance Sheet specify the disputed items and the basis for
disagreement (the "Seller's Notice") and the Buyer and the Seller
shall thereafter attempt to resolve any such differences. The Buyer
shall permit the Seller and its representatives to observe the
processes used and to review any work papers prepared by Arthur
Andersen in connection with the audit of the Closing Balance Sheet.
Buyer shall pay all of the fees of Arthur Andersen in connection
herewith. In the event that all disputed items have not been resolved
by the Seller and the Buyer within 30 days after the Buyer's receipt
of the Seller's Notice, upon the written request of either the Seller
or the Buyer, any unresolved disputed items shall be submitted to the
independent accounting firm of Coopers & Lybrand (the "Accountants"),
whose decision, which shall be made within thirty (30) days after
submission of the disputed items, shall be final and binding upon the
Buyer, the Seller and the Shareholders. The Buyer and the Seller shall
cooperate with the Accountants and make available to the Accountants
all work papers, records and other information as may be requested. If
Seller's Notice is given, the Buyer and the Seller shall each pay
one-half (1/2) of the reasonable fees and expenses of the Accountants
and shall execute such agreements as the Accountants may reasonably
request in connection with such services.
(3) In the event that (i) the book value of the Acquired Assets (net of
depreciation and amortization) as set forth on the Closing Balance
Sheet, minus (ii) the sum of (A) the "Agreed Upon Reserve" (as
hereinafter defined), plus (B) the book value of the Assumed
Liabilities as set forth on the Closing Balance Sheet (the "Closing Net
Asset Value"), is less than $17,125,160, the Purchase Price shall be
reduced by the amount of such deficiency. The Purchase Price, as
reduced by any adjustment required under the preceding sentence, or the
original Purchase Price of Forty Seven Million Dollars ($47,000,000),
if no adjustment is
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<PAGE> 16
EXHIBIT 2.1
required under the preceding sentence, is hereinafter referred to as
the "Final Purchase Price". If the Final Purchase Price is more than
Forty Two Million Dollars ($42,000,000), the Escrow Agent will pay the
Seller by wire transfer of immediately available funds an amount equal
to (a) the Final Purchase Price, minus (b) Forty Two Million Dollars
($42,000,000) and return the balance, if any, of the original principal
amount of the Purchase Price Escrow Account to the Buyer. If the Final
Purchase Price is less than Forty Two Million Dollars ($42,000,000),
(a) the Escrow Agent will return all funds in the Purchase Price Escrow
Account to the Buyer and (b) the Seller will pay the Buyer by wire
transfer of immediately available funds an amount equal to (a) Forty
Two Million Dollars ($42,000,000), minus (b) the Final Purchase Price.
Any earnings on the Purchase Price Escrow Account shall be distributed
to the Seller and/or the Buyer on a basis proportionate with the
distribution of the principal distributions to the Seller and/or the
Buyer from the Escrow Account.
(4) Each accounting term used herein shall have the meaning that is
applied thereto in accordance with GAAP and each account included in
the Closing Balance Sheet shall be calculated in accordance with GAAP
and shall be consistent with the books and records of the Company;
provided, that all known arithmetic errors shall be taken into account
in the calculation of each account set forth above, regardless of their
materiality and with respect to the calculation of the levels of the
accounts set forth above and, provided further, that in determining the
Closing Net Asset Value there shall be no reserves for: vacation pay,
product warranty, make good and start-up liability and work, excess,
obsolete, damaged or defective inventory, product liability, bad debts,
the Seller's VEBA, or any unfunded liabilities associated with either
the Defined Benefit Plan (except for the Agreed Upon Reserve) or the
Deferred Compensation Obligations. As used in this Agreement, the term
"Agreed Upon Reserve" shall mean an amount equal to (i) the sum of (A)
the reserve for the Defined Benefit Plan (as hereinafter defined) as
set forth in Most Recent Fiscal Year End Financial Statements, plus (B)
the addition thereto for current service costs for the period from
November 1, 1997 through the Closing Date, minus (ii) contributions
made by the Seller on or after November 1, 1997 to the Defined Benefit
Plan.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Whyte Hirschboeck
Dudek SC, 2100 Bank One Plaza, Milwaukee, WI 53202, commencing at 10:00 a.m.
local time on such date as the Buyer and the Seller may agree upon, but not
later than the fifth business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself), (the "Closing Date").
However, in no event shall Closing occur later than July 18, 1998.
(e) Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6(a) below; (ii) the Buyer will deliver to the Seller
the various certificates, instruments, and documents referred to in
Section 6(b) below; (iii) the Seller will execute, acknowledge, and deliver to
the Buyer (A) assignments, bills of sale, deeds in the forms attached hereto as
Exhibits G1, G2 and G3 and (B) such other instruments of sale, transfer,
conveyance, and assignment (including motor vehicle and Intellectual Property
transfer documents)
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<PAGE> 17
EXHIBIT 2.1
as the Buyer and its counsel reasonably may request; (iv) the Buyer will
execute and deliver to the Seller (A) an assumption agreement in the form
attached hereto as Exhibit H and (B) such other instruments of assumption as
the Seller and its counsel reasonably may request; (v) the Seller, the
Shareholders, the Buyer and the Escrow Agent will execute and deliver the
Purchase Price Escrow Agreement in the form of Exhibit B and the Warranty and
Startup Escrow Agreement in the form of Exhibit C; (vi) the Buyer will
deliver to the Seller and the Escrow Agent an aggregate amount of Forty-Seven
Million Dollars ($47,000,000) as provided in Section 2(c) above; (vii) the
Buyer and Roger L. Swanson will execute the Swanson Consulting Agreement (as
hereinafter defined); the Buyer and Verlyn L. Westra will execute the Westra
Consulting Agreement (as hereinafter defined)
(f) Allocation. The Parties agree to allocate the Purchase Price (and
all other capitalizable costs) among the Acquired Assets in accordance with the
allocation attached hereto as Exhibit I, and to use such allocation for all tax
reporting purposes connected herewith.
3. Representations and Warranties of the Shareholders. The Seller and
the Shareholders jointly and severally represent and warrant to the Buyer that,
notwithstanding any investigation by the Buyer, the statements contained in this
Section 3 are true, correct and complete as of the date of this Agreement and
will be true, correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3. Any matter reasonably
disclosed in one section of the Disclosure Schedule shall be deemed to be
disclosed for purposes of other sections of the Disclosure Schedule without the
necessity of specific cross reference. The Seller or any Shareholder may
periodically update the Disclosure Schedule as necessary between the date
hereof and the Closing Date by delivery of a copy of such update to Buyer as
provided in Section 9(h). Matters reasonably disclosed in the Disclosure
Schedule or in such updates shall constitute express exceptions to and
limitations of the representations and warranties of the Seller and the
Shareholders as hereinafter set forth.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nebraska.
(b) Authorization of Transaction. The Seller has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the board of directors of the Seller and the
Shareholders have duly authorized the execution, delivery, and performance of
this Agreement by the Seller. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or any
provision of the articles of incorporation or bylaws of the Seller
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<PAGE> 18
EXHIBIT 2.1
or (ii) except for any required third party consents or approvals, conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). The Seller does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in Section 2
above) other than as required pursuant to the Hart-Scott-Rodino Act, and such
authorizations, consents or approvals as may be required to assign the
agreements, contracts, leases, instruments and other arrangements included in
the Acquired Assets to Buyer as contemplated herein.
(d) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated, except to extent accrued on the Closing Balance Sheet.
(e) Title to Assets. Subject to the exceptions set forth in
Section 3(k)(i)(A), Section 5.1(h) and Section 5.1(i) relating to real
property, the Seller has, or will at Closing have, good and marketable title
to, or a valid leasehold interest in, the Acquired Assets free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Seller has no Subsidiaries and has had no
Subsidiaries for the prior eight years.
(g) Financial Statements. Attached hereto as Exhibit J are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended October 31, 1995,
1996, and 1997 (the "Most Recent Fiscal Year End") for the Seller; and (ii)
unaudited balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
five (5) months ended March 31, 1998 (the "Most Recent Fiscal Month End") for
the Seller. The Financial Statements (including the Notes thereto) have been
prepared in accordance with GAAP applied on a basis consistent with Seller's
prior year end audited Financial Statements, and present fairly the financial
condition of the Seller as of such dates and the results of operations of the
Seller for such periods; provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any occurrence, event, incident,
action, failure to act, or transaction outside the ordinary course of business
involving the Seller which would have a material adverse effect on the business
or financial results of Seller or a material adverse effect on the Acquired
Assets. Without limiting the generality of the foregoing, since that date:
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EXHIBIT 2.1
(i) the Seller has not sold, leased, transferred, or assigned any
of the Acquired Assets, other than for a fair consideration in the
Ordinary Course of Business;
(ii) the Seller has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases,
and licenses) either involving more than $10,000 or outside the
Ordinary Course of Business;
(iii) no party (including the Seller) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) to which
the Seller is a party or by which it is bound;
(iv) the Seller has not had imposed any Security Interest upon any
of the Acquired Assets;
(v) the Seller has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions)
outside the Ordinary Course of Business;
(vii) the Seller has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation;
(viii) the Seller has not delayed and/or postponed the payment of
accounts payable or other Liabilities outside the Ordinary Course of
Business;
(ix) the Seller has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(x) the Seller has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) the Seller has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in
cash or in kind) which will result in the Closing Net Asset Value being
less than $15,031,850, or redeemed, purchased, or otherwise acquired
any of its capital stock;
(xii) the Seller has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to the
Acquired Assets;
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EXHIBIT 2.1
(xiii) the Seller has not made any loan to, or entered into any
other transaction with, any of its directors, officers, employees or
any other Person outside the Ordinary Course of Business;
(xiv) the Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(xv) the Seller has not granted any increase in the base
compensation of any of its directors, officers, and/or employees;
(xvi) the Seller has not adopted, amended, modified or terminated
any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors,
officers, and/or employees (or taken any such action with respect to
any other Employee Benefit Plan);
(xvii) the Seller has not made any other change in employment
terms for any of its directors, officers, and/or employees;
(xviii) the Seller has not made or pledged to make any charitable
or other capital contribution;
(xix) except for market or economic conditions which are matters
of general knowledge in the industry, there has not been any other
occurrence, event, incident, action, failure to act, or transaction
outside the Ordinary Course of Business involving the Seller which
would have a material adverse effect on the business or financial
results of Seller or a material adverse effect on the Acquired Assets;
and
(xx) the Seller has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Seller has no Liabilities (and there
are no pending or threatened actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, or demands against Seller which
could reasonably be expected to give rise to any Liability), except for (i)
Liabilities to the extent reflected in the Most Recent Balance Sheet; (ii)
Liabilities which have arisen after the date of the Most Recent Fiscal Month End
Balance Sheet in the Ordinary Course of Business (none of which results from,
arises out of, relates to, or was caused by any material breach of contract,
breach of warranty, tort, infringement, or violation of law); and (iii)
Liabilities arising under this Agreement or in connection with agreements,
contracts, leases, licenses and other arrangements which are included in the
Assumed Liabilities as to which Seller is not in default.
(j) Legal Compliance. Each of the Seller and its predecessors have
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply.
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EXHIBIT 2.1
(k) Real Property.
(i) Section 3(k)(i) of the Disclosure Schedule contains the legal
description of all real property that the Seller owns. With respect to
each such parcel of owned real property:
(A) the Seller has good and marketable title to the parcel
of real property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for Permitted
Real Estate Encumberances, real estate taxes and installments of
special assessments not yet delinquent and applicable zoning laws
and building restrictions
(B) To the Knowledge of the Seller, there are no pending
or threatened condemnation proceedings, lawsuits, or
administrative actions relating to the property or other matters
having an adverse effect on its current use, or Seller's occupancy
thereof;
(C) Seller has received all approvals of governmental
authorities (including licenses and permits) required in
connection with the ownership or operation of the real property as
currently used by Seller, and has operated and maintained the same
in accordance with applicable laws, rules, and regulations;
(D) there are no leases, subleases, licenses, concessions,
or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of the real
property;
(E) there are no outstanding options or rights of first
refusal to purchase the real property, or any portion thereof or
interest therein; and
(F) there are no parties (other than the Seller) in
possession of the real property, other than tenants under any
leases disclosed in the Disclosure Schedule who are in possession
of space to which they are entitled.
(ii) Section 3(k)(ii) of the Disclosure Schedule sets forth the
legal description of all real property leased or subleased to the
Seller, and contains a true and correct copy of each lease and
sublease of real property to the Seller. With respect to each lease
and sublease listed in Section 3(k)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, except that such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or other
similar laws now or hereafter in effect relating to creditors'
rights generally and to general principles of equity;
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<PAGE> 22
EXHIBIT 2.1
(B) except for any required third party consents or
approvals, the lease or sublease will continue to be legal, valid,
binding, enforceable in accordance with its terms, and in full
force and effect on identical terms following the consummation of
the transactions contemplated hereby (including the assignments
and assumptions referred to in Section 2 above), except that such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or other
similar laws now or hereafter in effect relating to creditors'
rights generally and to general principles of equity;
(C) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated
any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) the Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest
in the leasehold or subleasehold; and
(H) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof as currently used by Seller, and have been operated and
maintained in accordance with applicable laws, rules, and
regulations.
(l) Intellectual property.
(i) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Seller as
presently conducted. Each item of Intellectual Property owned or used
by the Seller immediately prior to the Closing hereunder, except for
required third party approvals or consents, will be owned or available
for use by the Buyer on identical terms and conditions immediately
subsequent to the Closing hereunder. The Seller has taken all necessary
action to maintain and protect each item of Intellectual Property that
it owns or uses, including, without limitation, maintaining all
engineering drawings, bills of material and other documentation
necessary to manufacture the products of the Seller's business.
(ii) The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and the Seller has never
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EXHIBIT 2.1
received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation
(including any claim that the Seller must license or refrain from
using any Intellectual Property rights of any third party). To the
Knowledge of the Seller, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Seller.
(iii) Section 3(l)(iii) of the Disclosure Schedule identifies
each patent or registration which has been issued to the Seller with
respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Seller
has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the
Seller has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). Except for the
terms of licenses or restrictions which are set forth in the body of
pre-packaged or off-the-shelf software, the Seller has delivered to
the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and has made available to the Buyer correct and
complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item.
Section 3(l)(iii) of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by the Seller in connection with
any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 3(l)(iii) of the
Disclosure Schedule:
(A) the Seller possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or,
to the Knowledge of the Seller, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item;
and
(D) the Seller has not ever agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 3(l)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Seller uses pursuant to license, sublicense, agreement, or permission,
except any pre-packaged or off-the-shelf software. Except for licenses
or restrictions contained in the body of pre-packaged or off-the-shelf
software, the Seller has delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 3(l)(iv) of the
Disclosure Schedule;
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<PAGE> 24
EXHIBIT 2.1
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect, except that such
enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or the
similar laws now or hereafter in effect relating to creditors'
rights generally and to general principles of equity;
(B) except for any required third party consents or
approvals, the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable in accordance
with their terms, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby (including the assignments and assumptions referred to in
Section 2 above), except that such enforceability may be subject
to bankruptcy, insolvency, reorganization, moratorium (whether
general or specific) or the similar laws now or hereafter in
effect relating to creditors' rights generally and to general
principles of equity;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no event
has occurred which with notice or lapse of time would constitute
a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or,
to the Knowledge of the Seller, is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Seller has not granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(M) Tangible Assets. The Seller owns or leases all
buildings, machinery, equipment, and other tangible assets used in the conduct
of its businesses as presently conducted. Each such tangible asset has been
maintained in accordance with normal industry practice, is in good operating
condition (subject to normal wear and tear), and as currently used by Seller is
suitable for the purposes for which it is presently used and is free from known
defects,
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<PAGE> 25
EXHIBIT 2.1
(n) Inventory. The inventory of the Seller consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is free from damage or defects and merchantable and fit for
the purpose for which it was procured or manufactured.
(o) Contracts. To the extent the same are included in the Assumed
Liabilities, Section 3(o) of the Disclosure Schedule lists the following
contracts and other agreements to which the Seller is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year or
involves consideration in excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis or providing severance
benefits;
(ix) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees; or
(x) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement (as amended to date) listed in Section 3(o) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect, except that such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or other similar laws now or hereafter
in effect relating to creditors' rights generally and
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<PAGE> 26
EXHIBIT 2.1
to general principles of equity; (B) except for third party consents or
approvals, the agreement will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby (including the assignments and assumptions
referred to in Section 2 above), except that such enforceability may be
subject to bankruptcy, insolvency, reorganization, moratorium (whether general
or specific) or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity; (C) no party
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(p) Notes and Accounts Receivable. All notes and accounts receivable of
the Seller are reflected properly on its books and records, are valid
receivables, properly aged and the result of bona fide sales.
(q) Accounts, Letters of Credit, Bonds and Powers of Attorney. The Seller
has no outstanding powers of attorney, bank accounts, brokerage or similar
accounts or letters of credit or bonds.
(r) Insurance. With respect to each insurance policy included in the
Acquired Assets, Section 3(r) of the Disclosure Schedule sets forth the
following information:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured; and
(iii) the policy number and the period of coverage.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect, except that such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or other similar laws now or hereafter
in effect relating to creditors' rights generally or to general principles of
equity; (B) subject to necessary consents and approvals, each policy, if any, to
be included among the Acquired Assets will continue, subject to Buyer's
compliance with all terms of the policy, to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby (including the assignments
and assumptions referred to in Section 2 above) except that such
enforceability may be subject to bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or other similar laws now or hereafter
in effect relating to creditors' rights generally or to general principles of
equity; (C) neither the Seller nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has
repudiated any provision thereof.
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EXHIBIT 2.1
(s) Litigation. Section 3(s) of the Disclosure Schedule sets forth each
instance in which the Seller (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. The Seller has no Knowledge that any such
action, suit, proceeding, hearing, or investigation may be brought or threatened
against the Seller. Section 3(s) of the Disclosure Schedule also lists and
describes all litigation the Seller has been involved in or, to the Seller's
Knowledge, threatened with during the preceding five years in which the
plaintiff sought either equitable relief or the recovery of more than $25,000.
(t) Employees. To the actual knowledge of the Shareholders (without any
investigation), except for Roger L. Swanson and Verlyn L. Westra, no executive,
key employee, or group of employees has any plans to terminate employment with
the Seller. The Seller is not party to or bound by any collective bargaining
agreement, nor since November 1, 1994, has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. Since November 1, 1994, the Seller has not committed any unfair labor
practice. The Seller does not have any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Seller.
(u) Employee Benefits.
(i) Section 3(u) of the Disclosure Schedule lists each Employee
Benefit Plan that the Seller maintains or to which the Seller contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in
all respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part
6 of Subtitle B of Title I of ERISA and of Code Section 4980B have
been met with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or
before the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of the Seller . All premiums or other
payments for all periods ending on or before the Closing Date have
been paid with respect to each such Employee Benefit Plan which is
an Employee Welfare Benefit Plan.
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<PAGE> 28
EXHIBIT 2.1
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Section 401(a) and a favorable determination letter
regarding the Defined Benefit Plan was received from the Internal
Revenue Service in January of 1996.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder determined in accordance
with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan as provided in the report of the
Principal Financial Group prepared as of November 1, 1997, a copy of
which is included in Section 3(u) of the Disclosure Schedule.
(F) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Seller ever
has maintained or to which it contributes, ever has contributed, or ever
has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been instituted
or, to the Knowledge of any of the Shareholders, threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of
any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or, to the Knowledge
any of the Shareholders, threatened. None of the Shareholders has
any Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(C) The Seller has not incurred, and none of the Shareholders
has any reason to expect that the Seller will incur; any Liability
to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal Liability) or under the
Code with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
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<PAGE> 29
EXHIBIT 2.1
(iii) The Seller has never contributed to, or ever has been required
to contribute to any Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) The Seller does not maintain and never has maintained or
contributed, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code Section 4980B).
(v) Guaranties. The Seller is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
(w) Environment, Health and Safety.
(i) The Seller and its predecessors have complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure so to
comply or asserting that the Seller or its predecessors have any Liability
under any Environmental, Health, and Safety Laws nor do any of the
Shareholders have any Knowledge of any basis for any of the foregoing.
Without limiting the generality of the preceding sentence, each of the
Seller and its predecessors has obtained and been in compliance with all
of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Seller has no Liability (and the Seller and its
predecessors have not handled or disposed of any substance, arranged for
the disposal of any substance, exposed any employee or other individual to
any substance or condition, or owned or operated any property or facility
in any manner that could form the Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against the Seller giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface), for any illness
of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of the
Seller and its predecessors have been free of asbestos, PCB's, methylene
chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(x) Taxes. The Seller has timely filed all Tax returns required to be
filed by it and timely paid all Taxes owed by it. To the extent the same are
related to Taxes which are included in the Assumed Liabilities, the reserve for
Taxes set forth on the Closing Balance Sheet is adequate to cover all Taxes
which may be assessed in the future relating to periods ending on or before the
Closing Date including, without limitation, prorated real estate and personal
property taxes.
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EXHIBIT 2.1
(y) Product Warranty. To the Knowledge of the Shareholders, no product
manufactured, sold, leased, or delivered by the Seller or any predecessor is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Section 3(y) of the Disclosure
Schedule includes copies of the standard terms and conditions of sale or lease
for the Seller (containing all applicable guaranty, warranty, and indemnity
provisions).
(z) Shareholder Authorization. Each Shareholder has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of each Shareholder, enforceable in accordance with its terms and conditions.
(aa) Noncontravention. Neither the execution and the delivery of this
Agreement by any Shareholder, nor the performance by any Shareholder of his
obligations hereunder, will (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, stipulation, ruling, or other
restriction of any government, governmental agency, or court to which the
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Shareholder is a party or by which he is bound or to which any of his assets
is subject.
(ab) Seller Shares. The names of each of the stockholders of the Seller
and the number of shares of stock of the Seller owned by each stockholder are as
set forth in Section 3(ab) of the Disclosure Schedule
(ac) Certain Business Relationships With the Seller. None of the
Shareholders and/or their families has been involved in any business arrangement
or relationship with the Seller within the past 12 months, and none of the
Shareholders and/or their families owns any asset, tangible or intangible, which
is used in the business of the Seller.
(ad) Disclosure. The representations and warranties contained in this
Section 3, as modified by the Disclosure Schedule and any updates thereto, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 3 not misleading.
(ae) Disclaimer of Other Representations and Warranties. EXCEPT AS
EXPRESSLY SET FORTH IN THIS SECTION 3, THE SELLER AND THE SHAREHOLDERS MAKE NO
REPRESENTATION OR WARRANTY, EXPRESS OF IMPLIED, AT LAW OR IN EQUITY, IN RESPECT
OF ANY OF THE SELLER'S ASSETS (INCLUDING, WITHOUT LIMITATION, THE ACQUIRED
ASSETS), LIABILITIES (INCLUDING, WITHOUT LIMITATION THE ASSUMED LIABILITIES) OR
OPERATIONS AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY
DISCLAIMED. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT TO THE EXTENT
SPECIFICALLY SET
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EXHIBIT 2.1
FORTH IN THIS SECTION 3, THE BUYER IS PURCHASING THE ACQUIRED ASSETS
ON AN "AS-IS" "WHERE-IS" BASIS.
4. Representations and Warranties of the Buyer. The Buyer represents,
warrants and covenant to and with the Seller that, notwithstanding any
investigation by the Seller, the statements contained in this Section 4 are
true, correct and complete as of the date of this Agreement and will be true,
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout
this Section 4), except as set forth in the Disclosure Schedule. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4. Any matter fairly disclosed
in one section of the Disclosure Schedule shall be deemed to be disclosed for
purposes of other sections of the Disclosure Schedule without the necessity of
specific cross reference. The Buyer shall periodically update the Disclosure
Schedule as necessary between the date hereof and the Closing Date. If any
matters disclosed in such updates by the Buyer are not acceptable to the
Seller, the Seller shall, notwithstanding anything to the contrary in this
Agreement, have the right to unilaterally terminate this Agreement without
liability to the Buyer. If the matters disclosed in such updates by the Buyer
are acceptable to the Seller, such updates shall be initialed by the Buyer and
the Seller and the same shall constitute exceptions to the representations and
warranties hereinafter set forth.
(a) Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. The Buyer, subject to the fulfilment of
the Buyer's financing contingency, has full power and authority (including full
corporate power and authority) to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer, enforceable in accordance with its
terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or any
provision of the articles of incorporation or bylaws of the Buyer or (ii)
subject to the fulfillment of the Buyer's financing contingency, conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). The Buyer does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties
to consummate the transactions contemplated by this Agreement (including the
assignments and assumptions referred to in Section 2 above) other than as
required pursuant to the Hart-Scott-Rodino Act, and such authorizations,
consents or approvals as may be required in connection with the Buyer's
financing and to assign the
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EXHIBIT 2.1
contracts, leases and agreements included in the Acquired Assets to Buyer as
contemplated herein all of which shall unless waived by the Buyer be obtained
by the Seller prior to Closing.
(d) Brokers' Fees. The Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller or the
Shareholders could become liable or obligated.
(e) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(f) Disclaimer of Other Representations and Warranties. EXCEPT AS
EXPRESSLY SET FORTH IN THIS SECTION 4, THE BUYER MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OF IMPLIED, AT LAW OR IN EQUITY, AND ANY SUCH OTHER
REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
5.1 Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will, commencing as of the date of this
Agreement and continuing until the close of business on July 18,1998, use its
best efforts consistent with commercial reasonableness to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, performing all acts required by this Agreement to be performed by
such Party at or before Closing and all acts necessary to make such Party's
representations and warranties true and correct at and as of the Closing Date.
However, nothing herein shall be deemed or construed to require either party to
extend the Closing Date beyond July 18, 1998, or agree to pay any cost or
expense referred to in Section 5.1(c) in excess of $25,000.
(b) Financing. The Buyer shall use its best efforts to obtain, on a
commercially reasonable basis, the financing it needs in order to refinance its
existing debt, consummate the transactions contemplated hereby and meet its
future capital requirements. In the event that the Buyer becomes aware of any
material adverse development that is reasonably likely to jeopardize its ability
to obtain such financing, Buyer shall promptly provide written notice to Seller
describing in detail such material adverse development.
(c) Notices and Consents. The Seller will give any notices to third
parties, and the Seller will use its best efforts consistent with a standard of
commercial reasonableness to obtain any third party approvals or consents that
may be necessary to transfer any agreement, contract, lease, license, instrument
or other arrangement included in the Acquired Assets to Buyer at Closing. Each
of the Parties will give any notices to, make any filings with, and use its
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred
to in Section 3(c) and Section 4(c) above. Without limiting the generality of
the foregoing, each of the Parties will file any Notification and Report Forms
and related material that it may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department
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EXHIBIT 2.1
of Justice under the Hart-Scott-Rodino Act, and will make any further filings
pursuant thereto that may be necessary, proper, or advisable in connection
therewith, provided that any extension of the applicable waiting period shall be
approved in writing by Seller unless such extension would cause the closing to
be delayed beyond July 18, 1998.. The Buyer agrees to pay any filing fees
required in connection with such filings under the Hart-Scott-Rodino Act. The
Parties have retained the services of Collier, Shannon, Rill & Scott, PLLC to
act as their legal counsel in connection with such filings, and have agreed to
divide the legal fees and expenses of such firm in connection with such filings
on a 50-50 basis up to total legal fees of $50,000.00, after which amount the
fee and expense division shall be subject to re-negotiation by the Parties.
(d) Operation of Business. The Seller will operate its business in the
Ordinary Course of Business consistent with prior custom and practice. Without
limiting the generality of the foregoing, the Seller will not (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock to the extent the same could reasonably be expected to reduce the Closing
Net Asset Value below $15,031,850 or (ii) redeem, purchase, or otherwise acquire
any of its capital stock
(e) Preservation of Business. The Seller will use its best efforts
consistent with commercially reasonable practice to keep its business and
properties substantially intact, including its present operations, physical
facilities, and relationships with lessors, licensors, suppliers, customers, and
employees.
(f) Full Access. The Seller will permit representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to interfere
with the normal business operations of the Seller , to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to the Seller.
(g) Exclusivity. Neither the Seller nor any of the Shareholders will (i)
solicit, initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of the Seller (including
any acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Seller will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) Title Insurance. The Seller will use its best efforts consistent with
a standard of commercial reasonableness to obtain the following title insurance
commitments, policies, and riders at standard rates in preparation for the
Closing. With respect to each parcel of real estate that the Seller owns, an
ALTA Owner's Policy of Title Insurance Form B-1987 (or equivalent policy
reasonably acceptable to the Buyer if the real property is located in a state in
which an ALTA Owner's Policy of Title Insurance Form B-1987 is not available)
from Chicago Title Company issued through Nebraska Title Co. (with respect to
real estate located in Nebraska) and from Stewart Title Guarantee Company issued
through Burchard Abstract Corporation (with respect to real estate located in
Texas) as the land title insurance agencies, in the amounts shown in Exhibit K
hereto, in each instance insuring title to
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EXHIBIT 2.1
such real property in the Buyer as of the Closing (subject only to the title
exceptions described above in Section 3(k)(i)(A) of this Agreement. Each title
insurance policy delivered under Section 5(h) above shall (A) insure title to
the real property and all recorded easements benefitting such real property,
(B) contain GAP and "extended coverage" endorsements insuring over the general
exceptions contained customarily in such policies, (C) contain an ALTA Zoning
Endorsement 3.1 (or equivalent), (D) contain an endorsement insuring that the
real property described in the title insurance policy is the same real estate
as shown on the Survey delivered with respect to such property, (E) contain an
endorsement insuring that each street adjacent to the real property is a public
street and that there is direct and unencumbered pedestrian and vehicular
access to such street from the real property, (F) if the real property consists
of more than one record parcel, contain a "contiguity" endorsement insuring
that all of the record parcels are contiguous to one another, (G) contain a
"non-imputation" endorsement to the effect that title defects known to the
officers, directors, and stockholders of the owner prior to the Closing shall
not be deemed "facts known to the insured" for purposes of the policy and (H)
contain a "Comprehensive" endorsement for improved land. The cost of such
policy or policies and the endorsements shall be divided equally between Buyer
and Seller. In the event Seller is unable to obtain such title insurance or any
one or more of the foregoing endorsements at standard rates, Buyer's sole
remedy with respect to such failure shall be to terminate this Agreement,
unless Seller elects to share equally with Buyer the increased costs thereof.
(i) Surveys. With respect to each parcel of real property as to which a
title insurance policy is to be procured pursuant to Section 5(h) above, the
Seller will procure in preparation for the Closing a current survey of the
real property certified to the Buyer, prepared by a licensed surveyor and (A)
with respect to real estate located in Nebraska, conforming to current ALTA
Minimum Standard Detail Requirements for Land Title Surveys and the Accuracy
Standards of an Urban Survey, and (B) with respect to real estate located in
Texas, conforming to boundary survey requirements customarily imposed for the
preparation of commercial surveys in Texas for commercial real estate
transactions, with all of the foregoing surveys disclosing the location of all
improvements, easements, party walls, sidewalks, roadways, utility lines, water
courses, drains and sewers, applicable set back lines, and other matters shown
customarily on such surveys, and showing access affirmatively to public streets
and roads (the "Survey").The cost of such Surveys shall be divided equally
between Buyer and Seller. In the event that the Survey discloses any defect or
encroachment from, onto or otherwise affecting the real property, then unless
the same is waived by Buyer, the Seller shall have the option, but not the
obligation, to correct such defect to Buyer's reasonable satisfaction. In the
event such defect is not cured, Buyer's sole remedy with respect to such defect
shall be to terminate this Agreement.
(j) Effect of Disclosure
(i) To the extent that any state of fact, item or information
reasonably disclosed in the Disclosure Schedule as of the date of this
Agreement is contrary to any representation or warranty of the Seller
and/or the Shareholders herein or in any certificate or document furnished
by the Seller and/or one or more of the Shareholders to Buyer hereunder,
Buyer's execution of this Agreement shall constitute an acceptance of such
state of fact, item or information as an express exception to and
limitation of such representation or warranty and shall be conclusively
deemed to constitute an irrevocable agreement by Buyer to waive and
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EXHIBIT 2.1
forego the right to seek indemnification pursuant to Section
8(b)(i)(A) of this Agreement from either the Seller or any one or more of
the Shareholders with respect to any Adverse Consequence which any Buyer
Indemnified Party (as hereinafter defined) may suffer in connection
therewith.The provisions of this subparagraph (i) shall not apply to any
Liability of the Seller which is not an Assumed Liability and the
disclosure of a Liability of the Seller, which does not otherwise
constitute an Assumed Liability, in the Disclosure Schedule shall not
cause such Liability of the Seller to become an Assumed Liability.
(ii) To the extent any updates to the Disclosure Schedule are made
by the Seller and/or any one or more of the Shareholders and reasonably
disclose any state of fact, item or information which is/are contrary to
any representation or warranty of the Seller and/or the Shareholders
herein or in any certificate or document furnished by the Seller or any
one or more of the Shareholders to Buyer hereunder or in the event such
update reasonably discloses that the Seller cannot, after the exertion of
commercially reasonable efforts, obtain any approval, consent or
authorization required hereunder then, in such event, the Buyer's sole and
exclusive remedy with respect to the information set forth in such update
shall be to (A) waive such item, information, state of facts or such
authorization, consent or approval and proceed to Closing, in which event
Buyer shall be conclusively deemed to have agreed to irrevocably waive and
forego its right to seek indemnification from either the Seller or any one
or more of the Shareholders with respect to any Adverse Consequences which
Buyer may suffer in connection therewith; or (B) terminate this Agreement
prior to Closing in accordance with Section 7 hereof.The provisions of
this subparagraph (ii) shall not apply to any Liability of the Seller
which is not an Assumed Liability and the disclosure of a Liability of
the Seller, which does not otherwise constitute an Assumed Liability, in
any update ot the Disclosure Schedule shall not cause such Liability of
the Seller to become an Assumed Liability.
5.2 Other Covenants. In addition to the covenants and agreements set forth
elsewhere in this Agreement, the Parties agree as follows:
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Asset Purchase
Agreement, each of the Parties will use commercially reasonable efforts to take
such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Asset Purchase Agreement specifically
including, but not limited to the collection of any account receivable or note
Seller or Shareholders repurchase pursuant to Section 5.2(h) hereof, or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Seller, each of the other Parties will
cooperate with the contesting or defending Party and his or its counsel in the
contest or defense, make available his or its personnel, and provide such
testimony and access to his or its books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or
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EXHIBIT 2.1
defending Party (unless the contesting or defending Party is
entitled to indemnification as hereinafter provided).
(c) Seller and Shareholder Confidentiality. Following the Closing, the
Seller and each of the Shareholders will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his or its possession.
In the event that the Seller or any of the Shareholders is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, the Seller or that
Shareholder will notify the Buyer promptly of the request or requirement so that
the Buyer may seek an appropriate protective order or waive compliance with the
provisions of this section. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Seller or any of the Shareholders is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, the Seller or that Shareholder may
disclose the Confidential Information to the tribunal; provided, however, that
the disclosing Party shall use his or its reasonable best efforts to obtain, at
the reasonable request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. Any costs or
expenses incurred by Seller or the Shareholders in connection with the foregoing
shall be paid by Buyer. Until Closing or in the event the transactions
contemplated by this Agreement do not close on or before July 18, 1998, or such
later date as may be agreed to by the Parties, thereafter, the Confidentiality
and Non-Disclosure Agreement between Buyer and Seller dated March 26, 1998 (the
"Confidentiality Agreement") shall continue in full force and effect.
(d) Covenant Not to Compete. For a period of four years from and after the
Closing Date, neither the Seller nor any of the Shareholders will in any
capacity whatsoever engage directly or indirectly in:
(i) the design, manufacture, sale or repair of industrial watertube
boilers, ducts, stacks, and/or waste heat boilers which compete with those
sold, offered for sale or under design by the Seller during the one year
period preceding the Closing Date and which are destined for use in the
United States or any foreign country within which the Seller sold or
offered to sell the same during the one year period preceding the Closing
Date;
(ii) the design, manufacture, sale or repair of fabricated metal products
which are of a type similar to those fabricated metal products designed,
manufactured, sold or repaired by the Seller during the one year period
preceding the Closing Date (specifically including, but not limited to,
guard rails, motorcycle jacks, tire repair equipment and/or ovens) and
which are destined for use in the United States or any foreign country
within which the Seller sold or offered to sell the same during the one
period preceding the Closing Date;
(iii) the solicitation or attempted solicitation of business (of the type
engaged in by the Seller during the one year period preceding the Closing
Date) from any Person who was a customer
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EXHIBIT 2.1
of the Seller (or from whom the Seller solicited business) during the one
year period preceding the Closing Date;
(iv) any action that is intended or designed to have the effect of
discouraging any Person who was an employee, agent, lessor, licensor,
customer, supplier, or other business associate of the Seller during the
twelve month period preceding the Closing Date from maintaining the same
business relationships with the Buyer as were maintained with the Seller;
and/or
(v) any effort to attempt to hire or otherwise obtain the services of any
person who was employed by the Seller during the one year period preceding
the Closing Date.
The ownership of less than 5% of the outstanding stock of any publicly traded
corporation shall not be deemed to violate the foregoing provisions. The Parties
hereby acknowledge and agree that (a) the Seller's business is international in
scope, (b) the Seller's most significant asset is its goodwill, as is evidenced
by the allocation of the Purchase Price as set forth in Exhibit I attached
hereto, (c) the foregoing restrictions are reasonable and necessary to protect
such goodwill, (d) without such restrictions the Seller and the Shareholders
would by virtue of their prior experience and contacts be in a position to
unfairly compete with the Buyer and destroy the value of the goodwill which the
Buyer is purchasing, (e) the Buyer would suffer irreparable harm in the event of
a breach of the foregoing restrictions and, accordingly (f) the Buyer, in
addition to any other remedies available to it, shall be entitled to injunctive
relief without the posting of a bond or other collateral. The Parties also agree
that the term of the foregoing restrictions shall without further action by the
Parties be automatically extended by any period the Seller and/or any of the
Shareholders are determined to have been in violation of any such restrictions.
(e) Non Assignable Contracts In the event that the Seller is unable to
obtain any required third party consents to the assignment of any contract and
the Buyer waives the condition to its obligation to close in connection
therewith and proceeds with the Closing, the Seller and the Buyer agree to
cooperate with each other and take any and all commercially reasonable actions
necessary or desirable, including without limitation sucontracting where
appropriate, to accomplish the intended economic result that would have been
obtained from the assignment of such contract.
(f) Buyer Confidentiality. Prior to the Closing, except as may be
otherwise required by law or the final non-appealable order of a court of
competent jurisdiction, the Buyer shall continue to be bound by the
Confidentiality Agreement (a copy of which is included in the Disclosure
Schedule); provided, however, that (i) the Buyer may incorporate information
concerning the Seller in preliminary drafts of offering documents being prepared
by the Buyer and its underwriters in connection with the Buyer's high yield
offering if all Persons provided such preliminary drafts acknowledge and agree
to maintain the confidentiality of all such information, and (ii) upon the
expiration of the HSR waiting period , the Buyer may make such disclosures to
any Persons as are necessary or desirable in connection with the Buyer's high
yield offering. Except with respect to the foregoing, the Confidentiality
Agreement shall continue in effect (i) in the event that Closing does not occur,
and (ii) with regard to matters relating to the Shareholders.
(g),Warranty, Make Good and Start Up Liability and Work
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EXHIBIT 2.1
(i) Liability for Warranty, Make-Good and Startup . The Seller and the
Shareholders shall jointly and severally be responsible for all express
and/or implied warranty, make good and/or startup (which shall include all
work necessary to complete a contract in accordance with it s express
terms) obligations relating to Products Sold. The Buyer shall be
responsible for all other express and/or implied warranty, make good and/
or startup obligations relating to products sold after the Closing Date.
(ii) Performance of Warranty, Make-Good and Startup Work. With respect to
Products Sold, the Buyer shall perform for the Seller product warranty,
make good and startup work to the extent the (A) startup work is required
by the contract with the customer, (B) warranty work is required as the
result of a defect or failure that first occurs within the express
warranty period as set forth in the sales contract with the customer, (C)
make-good work which is approved in advance by the Seller (which approval
will not unreasonably be withheld in light of the Seller's past practices)
and arises in connection with product sales which are part of a turn key
project and arises from a defect or failure that first occurs after the
expiration of the express warranty period as set forth in the contract
with the customer but prior to 18 months after startup, unless the Seller
has contracted for an extended express warranty period and/or (D)
make-good work which is approved in advance by the Seller (in its sole
discretion) and arises in connection with product sales which are not part
of a turn key project and arises from a defect or failure that first
occurs after the expiration of the express warranty period as set forth in
the contract with the customer but prior to 18 months after startup,
unless the Seller has contracted for an extended express warranty period.
Buyer shall use commercially reasonable efforts to promptly and thoroughly
investigate all startup, warranty and make-good claims relating to
Products Sold. To the extent such startup or warranty work is determined,
in the Buyer's reasonable discretion, to be required by the terms of this
paragraph (g)(ii) or to the extent that the Seller approves such make good
work, Buyer shall use commercially reasonable efforts to promptly
undertake and diligently pursue to completion the performance of such
startup, warranty or make-good work on behalf of the Seller. In its
performance of such startup, warranty work or make-good work, the Buyer
shall use its best efforts, consistent with a standard of commercial
reasonableness and the prior customs and practices of the Seller, to
perform such work as efficiently and in as economic a manner as is
reasonably possible under the circumstances then existing.
(iii) Payment for Warranty Work, Make-Good Work and Startup Performed for
Seller by Buyer. The Seller and the Shareholders jointly and severally
agree to pay and reimburse Buyer for the costs actually incurred by Buyer
in connection with performing the startup, warranty and make-good work
(provided that, with respect to make good work the required approval of
the Seller under paragraph (g)(ii) above is obtained) which Buyer performs
on behalf of the Seller pursuant to paragraph (g)(ii) above. For purposes
of this Agreement, Buyer's costs shall mean only those costs which are
reasonably and necessarily incurred by Buyer in the performance of such
work as provided in paragraph (g)(ii) above and shall include only Buyer's
cost for labor (including the burden associated with the Service
Department but excluding any other charges for sales, general or
administration expenses), Buyer's costs (labor, material and burden) for
parts and materials, and Buyer's other out-of-pocket expenses. Buyer shall
bill Seller and the Shareholders, for the cost of warranty work, make-good
work and/or startup which Buyer performs on behalf of Seller as provided
in paragraph (g)(ii) above,
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EXHIBIT 2.1
and Seller and the Shareholders jointly and severally agree to pay or
cause such invoices to be paid to Buyer on a net basis within thirty (30)
days of receipt.
(iv) Warranty, Startup, Accounts and Notes Receivable Escrow Account. To
the extent that adequate funds are available in the Warranty, Startup,
Accounts and Notes Receivable Escrow Account, the obligation of the Seller
and the Shareholders to pay and reimburse the Buyer as set forth in
paragraph (g)(iii) above and Section 5.2(h) below shall be satisfied by
payment from the Warranty and Startup Escrow Account. In the event the
balance in the Warranty, Startup, Accounts and Notes Receivable Escrow
Account should at any time or times fall below $250,000, the Seller and
the Shareholders jointly and severally agree within five (5) days of
written notice thereof to wire transfer sufficient funds to restore the
balance of the Warranty, Startup, Accounts and Notes Receivable Escrow
Account to $500,000. At such time as all warranty periods (pursuant to the
terms of the Seller's express warranty provisions) for all Products Sold
have expired and all amounts due to the Buyer at such date pursuant to
paragraph (g)(ii) above have been paid, the Buyer and the Seller shall (A)
if there are as of such date no pending claims for work within the scope
of paragraph (g)(ii) above and no accounts or notes receivable which are
included among the Acquired Assets which have not been paid in full,
notify the Escrow Agent that the Warranty, Startup, Accounts and Notes
Receivable Escrow is to be terminated and all funds distributed to the
Seller, or (B) if there are as of such date pending claims for work within
the scope of paragraph (g)(ii) above and/or uncollected accounts or notes
receivable which are within the scope of Section 5.2(h), attempt in good
faith to estimate the amount reasonably likely to be become due the Buyer
under paragraph (g)(iii) for completing such work and/or Section 5.2(h)
with respect the uncollected accounts and/or notes receivable and notify
the Escrow Agent and instruct it to distribute to the Seller all funds in
the Warranty, Startup, Accounts and Notes Receivable Escrow Account that
are in excess thereof. At such time as all warranty periods (pursuant to
the terms of the Seller's express warranty provisions) for all Products
Sold have expired, all amounts due to the Buyer at such date pursuant to
paragraph (g)(ii) above have been paid, there remain no pending claims for
work within the scope of paragraph (g)(ii) above, and all accounts and
notes receivable which are within the scope of Section 5.2(h) have been
collected in full or repurchased by the Seller, the Buyer and the Seller
shall notify the Escrow Agent and instruct it that the Warranty, Startup,
Accounts and Notes Receivable Escrow is to be terminated and all funds
therein distributed to the Seller. The fact that there are insufficient
funds in the Warranty , Startup, Accounts and Notes Receivable Escrow
Account or that such account has been terminated shall not alter or
diminish the obligations of the Seller and the Shareholders to make any
payments otherwise due to the Buyer pursuant to paragraph (g)(iii) above
and/or Section 5.2(h) or the obligation of the Buyer to perform warranty,
startup or make good work on behalf of the Seller or the Shareholders
pursuant to paragraph (g)(ii) above.
(h) Accounts and Notes Receivable. Following Closing, Buyer shall use
reasonable efforts to collect all accounts receivable or notes which are
included in the Acquired Assets. To the extent any accounts receivable or note
included in the Acquired Assets remains uncollected as of the twelve (12) month
anniversary of the Closing Date, then, unless the reason for nonpayment is on
account of a bona fide claim by the customer that startup, warranty and or make
good work which is within the scope of work the Buyer is required to perform
pursuant to Section 5.2(g)(ii) above has not been performed, the Seller and
Shareholders jointly and severally agree to repurchase such account
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EXHIBIT 2.1
receivable or note from Buyer at a price equal to the remaining unpaid face
amount of such account receivable or note. If any accounts receivable or notes
included in the Acquired Assets which remain uncollectible on the twelve (12)
month anniversary of the Closing have not been collected at that time due to a
bona fide claim by the customer that startup, warranty and or make good work
which is within the scope of work the Buyer is required to perform pursuant to
Section 5.2(g)(ii) above has not been performed, then the Seller and the
Shareholders, jointly and severally agree to repurchase such account receivable
or note from the Buyer at a price equal to unpaid face amount of such account
receivable or note at the earlier of (A) 30 days after the time at which all
such work required under Section 5.2(g)(ii) has been performed, or (B) eighteen
(18) months after startup. Notwithstanding anything to the contrary in this
Agreement, in the event the Seller refuses to approve product make-good work
pursuant to Section 5.1(g)(ii) above (with respect to which there is an unpaid
account receivable or note which has not been paid due to a bona fide claim by
the customer that it is entitled to have such work performed), the Seller and
Shareholders jointly and severally agree to repurchase such account receivable
or note from Buyer within 30 days after the date on which the Buyer requested
such approval at a price equal to the remaining unpaid face amount of such
account receivable or note. The fact that an account or note receivable has been
repurchased pursuant to this Section 5.2(h) shall not alter or diminish any
obligation of the Buyer to perform startup, warranty and/or make good work
required pursuant to Section 5.2(g)(ii) hereof. As used in this Section 5.2(h),
reasonable business efforts shall include but not be limited to, the following
actions to be taken by Buyer in connection with the collection of accounts
receivable or notes:
(i) Buyer shall issue statements with respect to the accounts receivable
and notes on a monthly basis, and pursue such other collection efforts,
including personal contact by phone or in person with the debtor, as may
be consistent with Buyer's normal and customary business practice, but
excluding the commencement of litigation; provided, however, that if the
Seller notifies the Buyer that the Seller, due to the expiration of the
statute of limitations or any tolling agreement entered into in connection
therewith, desires that litigation be commenced, the Buyer shall either
itself commence such litigation or assign such account receivable or note
back to the Seller so as to enable the Seller to commence such litigation,
in either of which events the Seller and the Shareholders shall jointly
and severally indemnify the Buyer from all Liabilities, costs and
expenses, including reasonable attorneys' fees, in connection with such
litigation
(ii) Buyer shall take commercially reasonable efforts, consistent with the
Seller's prior normal and customary business practices, to (A) perfect
and/or preserve any and all material claims, rights or causes of action
against the debtor or any third party and (B) avoid having the same lapse,
expire or otherwise become unenforceable because of lack of notice,
passage of time or otherwise
(iii) Buyer shall promptly undertake and diligently pursue to completion
all warranty work or make good work required to be performed by the Buyer
pursuant to Section 5(g)(ii) to the extent that such work may be necessary
or appropriate to address and resolve any defect or failure in any
Products Sold to the account or note debtor which constitutes the basis in
whole or in part for nonpayment of any such account receivable or note.
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EXHIBIT 2.1
(i) Product Liability. Seller shall retain all Liabilities and
obligations with respect to Products Sold, including, without limitation,
Liability for personal injury or property damage occurring at any time caused by
Products Sold. Seller shall purchase and cause to remain in force for a period
of at least (10) ten years product liability insurance providing coverage of at
least $10,000,000 (subject to standard exceptions and limitations) for personal
injury and property damage occurring at any time caused by Products Sold on or
prior to the Closing Date. To the extent the same is available, the Seller shall
cause the Buyer to be named as an additional insured on such policy; provided
that if such endorsement involves an additional cost, the Buyer, if it desires
to be added as an additional insured, shall pay the cost of such endorsement.
Buyer shall be solely responsible for all other Liabilities and obligations with
respect to products other than Products Sold, including, without limitation,
Liability for personal injury or property damage caused by products other than
Products Sold.
(j) Surety Bonds and Letters of Credit. From and after the Closing Date,
the Buyer shall either assume all surety bonds and letters of credit which are
listed in Section (3)(q) of the Disclosure Schedule or shall provide substitute
surety bonds and letters of credit, acceptable to the beneficiaries thereof, in
order that Seller's surety bonds and letters of credit are released and any
liabilities thereunder are extinguished. The foregoing requirement, or any
action in fulfilment thereof, shall not, however, convert any underlying
obligation of the Seller to the beneficiary of such surety bond or letter of
credit, which is not expressly assumed by the Buyer pursuant to the other terms
of this Agreement, to become an Assumed Liability.
(k) Certain Employment Related Matters
(i) The Seller shall use reasonable efforts to obtain a one year
extension (upon terms which are satisfactory to the Buyer) to the
existing Labor Agreement between Nebraska Boiler Company and the
International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers, Lodge No. 83 ( the "Union" and the
"CBA"). If the CBA is so extended, the Buyer will assume the CBA as of
the Closing Date and the Seller will obtain the Union's written consent
and approval to such assumption. If the CBA is not so extended, the
Buyer, at its option, may elect to assume the CBA as of the Closing Date
and the Seller will obtain the Union's written consent and approval to
such assumption. In either of such events, except for the Unfunded
Liability (as hereinafter defined), the Buyer will only be responsible
for the liabilities and responsibilities of the Seller under the CBA
which accrue and are based upon acts or occurrences which take place
after the Closing Date and the same shall constitute Assumed Liabilities.
Except as hereinafter specifically provided to the contrary with respect
to the Unfunded Liability, the Buyer shall have no responsibility for any
liabilities or responsibilities under the CBA which accrued or are based
upon acts or occurrences which took place on or prior to the Closing
Date. The written consent and agreement of the Union shall incorporate
the foregoing division of responsibility between the Buyer and the Seller
and acknowledge that the assumption of the CBA by the Buyer is contingent
upon the consummation of the transactions contemplated by this Agreement.
The Buyer acknowledges that the Seller has not given any WARN Act notice
to its employees and the Buyer shall be solely responsible for any and
all obligations and liabilities as a result thereof and the same shall
constitute Assumed Liabilities.
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EXHIBIT 2.1
(ii) The Buyer, provided that it assumes the CBA as set forth above and
the Seller obtains the Union's consent and approval in connection with the
Buyer's assumption of the CBA, shall also assume (A) those obligations of
the Seller, which accrue or are based upon acts or occurrences which take
place after the Closing Date, as sponsor of the National Dynamics
Corporation Pension Plan, a/k/a Nebraska Boiler Company, Inc. Defined
Benefit Plan, for the benefit of the employees covered by the CBA, which
has been in effect since November 1, 1981 and which is currently
administered under a prototype plan document of Principal Financial Group
(the "Defined Benefit Plan") and (B) all of he Seller's unfunded
liabilities under the Defined Benefit Plan (the "Unfunded Liability") and
the same shall constitute Assumed Liabilities. Except for the Unfunded
Liability, the Buyer shall have no responsibility for any liabilities or
responsibilities under the Defined Benefit Plan which accrued or are based
upon acts or occurrences which took place on or prior to the Closing Date
except for the processing and coordinating the payment by The Principal
Group of benefit claims which have not been completed as of the Closing
Date.
(iii) The Buyer shall not assume any of the Seller's obligations under the
Seller's existing VEBA but will provide health insurance coverage and
other benefits similar in all material respects to those provided under
the VEBA; provided, however, that the preceding commitment shall not
prevent the Buyer from making such future changes as it deems appropriate
and which are in all material respects similar to fringe benefit programs
at one or more of Buyer's other locations
(iv) Until such time as Daniel T. Scully, Roger L. Swanson and Verlyn L.
Westra, respectively, reach age 65, the Buyer shall, at its sole cost and
expense, cause health insurance to be provided to Daniel T. Scully, Roger
L. Swanson and Verlyn L. Westra and their spouses under the Buyer's group
health insurance programs with coverage and at levels which the Buyer
provides or otherwise makes available to the executives of the Buyer who
are employed at or who have primary responsibility for the Buyer's
Lincoln, Nebraska facility. At such time as Daniel T. Scully, Roger L.
Swanson and Verlyn L. Westra attain age 65, the Buyer shall permit each
such individual's spouse to make a COBRA election and continue coverage
for 18 months thereafter provided that such spouse reimburses the Buyer
for the cost of such insurance.
(l) Certain Environmental Matters. The Buyer shall initially pay all costs
associated with any work recommended in the draft Clayton Environmental Report,
a copy of which has been furnished to the Seller ( "Recommended Environmental
Work"). The Buyer, the Seller and the Shareholders hereby agree that the further
testing recommended in the aforementioned draft Clayton Environmental Report
shall not constitute Required Environmental Work (as hereinafter defined). The
Seller and the Shareholders jointly and severally agree to promptly reimburse
the Buyer for one-half of the cost of Recommended Environmental Work that is
required to comply with Environmental, Health and Safety Requirements ("Required
Environmental Work"). The The Seller and the Shareholders shall not be required
to reimburse the Buyer for any Recommended Environmental Work that is not
Required Environmental Work and the maximum amount that the Sellers and the
Shareholders shall be required to reimburse the Buyer for Required Environmental
Work under the preceding sentence shall be $100,000. Notwithstanding anything to
the contrary in this Agreement, in the event that all of the costs initially
paid (and not taking into account any reimbursement from the
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EXHIBIT 2.1
Seller and the Shareholders) by the Buyer for Required Environmental Work exceed
$200,000, then an amount equal to such excess shall be deemed to be Adverse
Consequences for which the Buyer is entitled to indemnification pursuant to
Section 8(b)(i)(A). For purposes of the limitations of Section 8(d) in
connection with determining whether the $500,000 limitation has been exceeded,
only one $10,000 limitation shall be applied to all costs incurred by the Buyer
in performing Required Environmental Work. Prior to the Closing, the Seller, at
its expense, shall cause all drums and barrels located on any property owned or
occupied by the Seller to be properly disposed of in accordance with all
applicable Environmental, Health and Safety Requirements and the disposal cost
incurred by the Seller in connection therewith shall reduce on a dollar for
dollar basis the $100,000 maximum reimbursement requirement as set forth above,
(m) Tax Returns and Employee Benefit Plan Returns and Reports. The Buyer
shall prepare and file or cause to be filed at its expense on or prior to the
due date thereof (including extensions) all Tax returns and reports and all
other returns and reports relating to the Defined Benefit Plan which the Buyer
is required by law to file and which are due after the Closing Date and shall
include therein, as appropriate to the particular form or report, the results of
the Seller's operations on or before the Closing Date, to the extent such
reflection of the Seller's operations on or before the Closing Date is required
or permitted under applicable reporting laws, rules and/or regulations. The
Seller shall prepare and file or cause to be filed at its expense on or prior to
the due date thereof (including extensions) all other Tax returns and reports
relating to the Seller's operations on or before the Closing Date and all other
returns and reports relating to the Seller's Employee Benefit Plans (other than
the Defined Benefit Plan) which the Seller is required by law to file. The
preceding allocation of responsibility for the filing of Tax returns and reports
and other returns and reports relating to Employee Benefit Plans shall not alter
the definition of Acquired Assets, Excluded Assets or Assumed Liabilities and
any Party receiving a Tax refund check shall promptly deliver the same to the
Party entitled to the same pursuant to such definitions and the responsibility
for any Taxes determined to be due at any time shall be determined pursuant to
such definitions. The Buyer will provide the Seller and its representatives,
upon reasonable notice and during normal working hours, access to records,
information and personnel at no expense to the Seller as necessary to permit the
Seller to prepare the returns and reports it is required to prepare and file.
The Buyer will retain and maintain such records and information for the periods
of statutes of limitation applicable to the state and federal income tax returns
of the Seller and the Shareholders.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
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EXHIBIT 2.1
(iii) the Seller shall have procured all of the third party consents
specified in Section 5.1(c) above, all of the title insurance
commitments, policies, riders and surveys specified in Section 5.1(i)
and (j) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
materially affect adversely the right of the Buyer to own the Acquired
Assets, to operate the former businesses of the Seller, (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Section
6(a)(i)-(iv) is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof,
provided that Seller has consented in writing to any such extensions)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Seller and the Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vii) the Buyer shall have received from counsel to the Seller an
opinion substantially in the form of Exhibit L attached hereto, addressed
to the Buyer, and dated as of the Closing Date;
(viii) the Buyer shall have obtained on terms and conditions
reasonably satisfactory to it all of the financing it needs in order to
refinance its existing debt, consummate the transactions contemplated
hereby and fund its future capital requirements;
(ix) the Buyer shall have entered into consulting arrangements with
Roger L. Swanson and Verlyn L. Westra in the form of Exhibits M (the
"Swanson Consulting Agreement) and N (the "Westra Consulting Agreement")
attached hereto, the Seller shall have made reasonable efforts to assist
the Buyer to obtain satisfactory employment arrangements with certain of
the Seller's other management employees and the Buyer shall have arrived
at satisfactory arrangements with the Seller's employees who are covered
by the Seller's existing collective bargaining agreement; and
(x) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing; provided, however,
that if the Seller is unable to obtain the Union's consent to either a one year
extension of the CBA (upon terms which are reasonably satisfactory to the
Buyer) or the
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EXHIBIT 2.1
Buyer's assumption of the existing CBA as set forth in Section 5.2(k)(i) and the
Buyer waives such condition to closing and consummates the transactions
contemplated by this Agreement, then in such event and notwithstanding anything
to the contrary in this Agreement, the Buyer shall assume the Seller's
obligations under the Defined Benefit Plan as described in Section 5.2(k)(ii)
and the same shall constitute an Assumed Liability.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and
no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section 6(b)
(i)-(iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Seller and the Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(c) and Section 4(c) above;
(vi) the Seller shall have received from counsel to the Buyer an
opinion substantially in the form of Exhibit O attached hereto, addressed
to the Seller, and dated as of the Closing Date; and
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby specifically
including, but not limited to, the payment of the Purchase Price as
provided in Section 2 shall have been taken and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller.
The Seller may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
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EXHIBIT 2.1
7. Termination. This Agreement may be terminated and the sale and purchase
of the Acquired Assets may be abandoned at any time prior to Closing as follows:
(a) Mutual Consent. By mutual consent of the Seller, the Shareholders
and Buyer;
(b) Passage of Time. By either the Seller and the Shareholders on the one
hand or the Buyer on the other hand (the "Terminating Party"), if the Closing
has not occurred on or before July 18, 1998 (the "Termination Date") other than
as the result of a material breach of any covenant or agreement contained in
this Agreement by the Terminating Party;
(c) Non-Satisfaction of Section 6(a) Conditions. By the Buyer, in the
event that the conditions to its obligations set forth in Section 6(a) hereof
have not been satisfied or waived at or prior to the Termination Date, unless
the Buyer is then in material breach of any covenant contained in this
Agreement
(d) Non-Satisfaction of Section 6(b) Conditions. By the Seller, in the
event that the conditions to its obligations set forth in Section 6(b) hereof
have not been satisfied or waived at or prior to the Termination Date unless
the Seller or the Shareholders are then in material breach of any covenant
contained in this Agreement;
(e) Failure to Obtain Financing By the Seller or the Shareholders, in
the event that Buyer provides Seller any notice as required pursuant to
Section 5.1(b) above.
(f) Matters Disclosed in Updates to Disclosure Schedule. By the Buyer,
upon 5 days prior written notice to Seller and the Shareholders following the
Buyer's receipt of any update to the Disclosure Schedule, or within such shorter
period as may be reasonable if the update is received by Buyer less than 5 days
prior to Closing, in the event Buyer is not willing to accept the state of
fact(s), item(s) or information set forth in such update as an express exception
to and limitation of the representations and warranties of Seller and the
Shareholders hereunder or under any certificate or document furnished to Buyer
by the Seller or any Shareholders hereunder or waive any authorization, consent
or approval identified therein as not having been obtained, whichever may be
appropriate under the circumstances, and in the further event that the Buyer is
not willing to waive and agree to forego its right to indemnification in respect
thereto as contemplated by Section 5.1(j) hereof.
(g) Title Insurance and Survey. By Buyer in the event Seller does not
obtain title insurance which is required by Section 5.1(h) or in the event the
survey required by Section 5.1(i) shall disclose defects or encroachments
which are not cured by Seller prior to Closing and which Buyer is not willing
to waive.
(h) Further Due Diligence. By the Buyer within ten days after the date of
the signing of this Agreement by all of the Parties, if the results of the
further due diligence to be conducted by the Buyer after such signing of this
Agreement (which shall be limited to reviewing and analyzing (i) the Seller's
order backlog, (ii) the Seller's outstanding proposals to customers and (iii)
the warranty and Liability exposure relating to products manufactured by the
Seller) are not, in the sole discretion of the Buyer, satisfactory to the Buyer.
If this Agreement is terminated pursuant to this Section 7 all rights,
obligations and liabilities of the Parties hereunder shall terminate and be of
no further force or effect whatsoever except for (i) the
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EXHIBIT 2.1
respective right and obligation of the Parties set forth in Section 5.2(f),
9(b) and 9(l), which shall survive termination of this Agreement and shall
continue to be enforceable in accordance with their terms, and (ii) the
liability of any party which is in material breach of any covenant or agreement
of this Agreement prior to the effective date of such termination, which shall
also survive termination of this Agreement.
8. Remedies.
(a) Survival of Representations and Warranties. The respective
representations and warranties of the Seller, the Shareholders and the Buyer as
contained herein or in any certificates or other documents delivered at the
Closing shall survive the Closing for a period of twenty four months, except
that the representations and warranties set forth in Section 3(a), (b), (d),
(e), (z) and (ab) and Section 4(a), (b), (c) and (d) shall survive for the
period of the applicable statute of limitations. The provisions of this
Section 8(a) shall not otherwise limit any covenant or agreement of the Parties
hereto which, by its terms, contemplates performance after the Closing Date.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) the Seller and the Shareholders jointly and severally agree to
defend. indemnify and hold the Buyer and its officers, directors,
employees, shareholders, subsidiaries, successors and assigns (the "Buyer
Indemnified Parties") harmless from and against any Adverse Consequences
the Buyer Indemnified Parties may incur as a result of, without
duplication:
(A) subject to the limitations set forth in Section 8(d)
and (h) hereof, the breach of any representation or warranty given
to Buyer by the Seller or the Shareholders pursuant to this
Agreement or any certificate or other document furnished to Buyer
by the Seller or any one or more of the Shareholders hereunder
(provided that the Seller and the Shareholders are given written
notice of such breach during the survival period specified in
Section 8(a) above);
(B) subject to the limitations in Section 8(h), the breach
of any covenant or agreement of the Seller or any Shareholder as
set forth in this Agreement; and
(C) subject to the limitations in Section 8(h), any
Liability of the Seller other than the Assumed Liabilities.
For purposes of this Section 8(b) any claim for indemnification made
after the Closing Date by a Buyer Indemnified Party on the basis that the
Seller and/or the Shareholders violated the provisions of Section 5.1(a)
by failing to perform all acts necessary to make their representations
and warranties true and correct at and as of the Closing Date shall be
recoverable only under and subject to the limitations of Section
8(b)(i)(A) above and no amount shall be recoverable under Section
8(b)(i)(B) above. Notwithstanding anything to the contrary in this
Agreement, the right of any Buyer Indemnified Party to be indemnified for
any Liability of the Seller which is not an Assumed Liability shall be
governed solely by subparagraph (C) above and shall not be subject to any
of the limitations of Section 8(d) of this Agreement.
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EXHIBIT 2.1
(c) Indemnification Provisions for Benefit of the Seller and the
Shareholders.
(i) the Buyer agrees to defend. indemnify and hold the Seller and
its officers, directors, employees, shareholders, successors and assigns
(the "Seller Indemnified Parties") harmless from and against any Adverse
Consequences the Seller Indemnified Parties may suffer as a result of,
without duplication,
(A) subject to the limitations in Section 8(d) and (h), the
breach of any representation or warranty given to Seller or any
Shareholder by the Buyer pursuant to this Agreement or any
certificate or other document furnished to Seller or any
Shareholder by the Buyer (provided that the Buyer is given written
notice of such breach during the survival period specified in
Section 8(a) above);
(B) subject to the limitations in Section 8(h), the breach
of any covenant or agreement of the Buyer as set forth in this
Agreement;
(C) subject to the limitations in Section 8(h), the failure
of the Buyer to timely pay, perform and discharge any of the
Assumed Liabilities, including its obligations under Section
5.2(g)(ii) hereof, or any Liabilities arising from the Buyer's
operation of the Seller's business after the Closing Date, and
(D) subject to the limitations in Section 8(h), the Buyer's
financing as contemplated pursuant to Section 5.1(b) hereof to the
extent that the same is not the result of or attributable to the
breach of a representation or warranty set forth in Section 3
hereof.
For purposes of this Section 8(c) any claim for indemnification made
after the Closing Date by a Seller Indemnified Party on the basis that
the Buyer violated the provisions of Section 5.1(a) by failing to
perform all acts necessary to make its representations and warranties
true and correct at and as of the Closing Date shall be recoverable only
under and subject to the limitations of Section 8(c)(i)(A) above and no
amount shall be recoverable under Section 8(c)(i)(B) above.
Notwithstanding anything to the contrary in this Agreement, the right of
any Seller Indemnified Party to be indemnified for any Liability which is
an Assumed Liability, including the Buyer's obligations under Section
5.2(g)(ii) hereof, or any Liabilities arising from the Buyer's operation
of the Seller's business after the Closing Date shall be governed solely
by subparagraph (C) above and shall not be subject to any of the
limitations of Section 8(d) of this Agreement
(d) Limitations.
(i) Neither the Seller nor any Shareholder shall be required to
indemnify any Buyer Indemnified Party for any Adverse Consequence which
any Buyer Indemnified Party may incur as a result of any occurrence
referred to in and governed by Section 8(b)(i)(A) above (other than
Adverse Consequences arising out of any breach under Sections 3(a), (b),
(d), (e), (z) and (ab), which shall be subject to no limitations
whatsoever), unless (i) the Buyer Indemnified Party seeking
indemnification delivers written notice of the claim for breach of
representation or
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<PAGE> 49
EXHIBIT 2.1
warranty to the Seller and the Shareholders prior to the expiration of the
survival period for such representation and warranty as set forth in
Section 8(a) above and (ii) the aggregate of all Adverse Consequences
incurred by all Buyer Indemnified Parties with respect to all occurrences
referred to in Section 8(b)(i)(A) above exceed $500,000, in which event
the Buyer Indemnified Parties shall be entitled to indemnification for
all Adverse Consequences (i.e., back to the first dollar). For purposes
of determining whether the preceding $500,000 threshold has been exceeded
the Adverse Consequences arising from any single breach of a
representation or warranty shall not be included unless the total Adverse
Consequences arising from such single breach of representation or
warranty exceed $10,000.00. However, in the event that the Adverse
Consequences arising from such breach exceed $10,000, then all Adverse
Consequences (i.e., back to the first dollar) arising from such breach
shall be included in such determination. For purposes of determining
whether the preceding $10,000 and $500,000 thresholds have been exceeded,
Adverse Consequences shall not be reduced by the amount of any Insurance
Benefit (as hereinafter defined) derived from an insurance policy owned
by any Buyer Indemnified Party or Tax Benefit (as hereinafter defined).
Further, (except for Adverse Consequences arising out of any breach under
Sections 3(a), (b), (d) , (e), (z) and (ab) which shall be subject to no
limitations whatsoever) the obligation of the Seller and the Shareholders
to indemnify any Buyer Indemnified Party for all occurrences referred to
in and governed Section 8(b)(i)(A) above shall in total be subject to a
maximum aggregate cap of $14,665,160.
(ii) The Buyer shall not be required to indemnify any Seller
Indemnified Party for any Adverse Consequence which any Seller Indemnified
Party may incur as a result of any occurrence referred to in and governed
by Section 8(c)(i)(A) above (other than Adverse Consequences arising out
of any breach under Sections 4(a), (b) or (d), which shall be subject to
no limitations whatsoever), unless (i) the Seller Indemnified Party
seeking indemnification delivers written notice of the claim for breach
of representation or warranty to the Buyer prior to the expiration of the
survival period for such representation and warranty as set forth in
Section 8(a) above and (ii) the aggregate of all Adverse Consequences
incurred by all Seller Indemnified Parties with respect to all
occurrences referred to in and governed by Section 8(c)(i)(A) above
exceed $500,000, in which event the Seller Indemnified Parties shall be
entitled to indemnification for all Adverse Consequences (i.e., back to
the first dollar). For purposes of determining whether the preceding
$500,000 threshold has been exceeded, the Adverse Consequences arising
from a single breach of a representation or warranty shall not be
included unless the total Adverse Consequences arising from such breach
of representation or warranty exceed $10,000.00. However, in the event
that the Adverse Consequences arising from such breach exceed $10,000,
then all Adverse Consequences arising from such breach shall be included
in such determination (i.e., back to the first dollar). For purposes of
determining whether the preceding $10,000 and $500,000 thresholds have
been exceeded, Adverse Consequences shall not be reduced by the amount of
any Insurance Benefit (as hereinafter defined) derived from any insurance
policy owned by any Seller Indemnified Party or Tax Benefit (as
hereinafter defined). Further, (except for Adverse Consequences arising
out of any breach under Sections 4(a), (b) or (d), which shall be subject
to no limitations whatsoever) the obligation of the Buyer to indemnify
any Seller Indemnified Party for all occurrences referred to in and
governed by Section 8(c)(i)(A) above shall in total be subject to a
maximum aggregate cap of $14,665,160.
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<PAGE> 50
EXHIBIT 2.1
(e) Indemnification Procedures.
(i) Any person making a claim for indemnification pursuant to
Section 8(b) or 8(c) above (each, an "Indemnified Party") must give the
party from whom indemnification is sought (an "Indemnifying Party")
written notice of such claim promptly after the Indemnified Party
receives any written notice of any action, lawsuit, proceeding,
investigation or other claim (a "Proceeding") against or involving the
Indemnified Party by any person or otherwise discovers the liability,
obligation or facts giving rise to such claim for indemnification;
provided, that the failure to notify or delay in notifying an
Indemnifying Party will not relieve the Indemnifying Party of its or
their obligations pursuant to Section 8(b) or 8(c) above, as applicable,
except to the extent that such failure actually and materially harms the
Indemnifying Party.
(ii) With respect to the defense of any Proceeding brought by any
Person who is not a party to this Agreement against or involving an
Indemnified Party in which any Person in question seeks only the recovery
of a sum of money (and not for injunctive or equitable relief) for which
indemnification is provided in Section 8(b) or 8(c) above, at its option
an Indemnifying Party may appoint as lead counsel of such defense any
legal counsel selected by the Indemnifying Party and reasonably
acceptable to the Indemnified Party; provided, that before the
Indemnifying Party assumes control of such defense it must first:
(A) enter into an agreement with the Indemnified Party (in form and
substance satisfactory to the Indemnified Party) pursuant to which
the Indemnifying Party agrees to be fully responsible (with no
reservation of any rights other than the right to be subrogated to
the rights of the Indemnified Party) for all Adverse Consequences
relating to such Proceeding and unconditionally guarantees the
payment and performance of any liability or obligation which may
arise with respect to such Proceeding or the facts giving rise to
such claim for indemnification; and
(B) furnish the Indemnified Party with evidence that the
Indemnifying Party, in the Indemnified Party's sole judgment, is and
will be able to satisfy any such liability.
(iii) Notwithstanding Section 8(e)(ii) above: (A) the Indemnified
Party will be entitled to participate in the defense of such claim and to
employ counsel of its choice for such purpose at its own expense
(provided that the Indemnifying Party will bear the reasonable fees and
expenses of such separate counsel incurred prior to the date upon which
the Indemnifying Party effectively assumes control of such defense), and
(B) the Indemnifying Party will not be entitled to assume control of the
defense of such claim, and will pay the reasonable fees and expenses of
legal counsel retained by the Indemnified Party if:
(A) the Indemnified Party reasonably believes that an adverse
determination of such Proceeding could be detrimental to or injure
the Indemnified Party's reputation or future business prospects;
(B) the Indemnified Party reasonably believes that there exists or
could arise a conflict of interest which, under applicable
principles of legal ethics, could prohibit a single legal
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<PAGE> 51
EXHIBIT 2.1
counsel from representing both the Indemnified Party and the
Indemnifying Party in such Proceeding; or
(C) a court of competent jurisdiction rules that the Indemnifying
Party has failed or is failing to prosecute or defend vigorously
such claim.
(iv) the Indemnifying Party shall not enter into any settlement of
such claim or Proceeding or cease to defend such claim or Proceeding,
without first obtaining the prior written consent of the Indemnified Party
(which the Indemnified Party will not unreasonably withhold) provided that
any such settlement shall provide for the full release of all claims
against each Indemnified Party.
(f) Recoupment. Each of the Parties acknowledges that the agreement
contained in this Section 8 is an integral part of the transactions
contemplated by this Agreement and that, without such agreement, they would not
have entered into this Agreement. Accordingly, if any Indemnifying Parties fail
to pay promptly the amounts due pursuant to either Section 8(b) or 8(c) such
Indemnifying Parties shall also be jointly and severally obligated to pay
interest at the Applicable Rate from the original due date of the payment to
the actual date of payment. In addition, if in order to obtain such amounts,
the Indemnified Party commences a suit to collect the amounts provided for
herein, the Indemnifying Parties shall also be jointly and severally liable to
pay to Indemnified Party its costs and expenses (including attorneys' fees)
reasonably incurred in connection with such.
(g) Payment. Upon the determination of the liability under Section 8, or
otherwise between the parties, by judicial proceeding from which no appeal is
possible or taken, the appropriate party shall pay to the other, as the case may
be, within ten (10) days after such determination, the amount of any claim for
indemnification made hereunder. In the event that the Indemnified Party is not
paid in full for any such claim pursuant to the foregoing provisions promptly
after the other party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding any other rights
that it may have against any other Person, to set off the unpaid amount of any
such claim against any amounts owed by it under any instrument or agreement
entered into pursuant to this Agreement or otherwise, including the Purchase
Price Escrow Account. Upon the payment in full of any claim, either by set off
or otherwise, the entity making payment shall be subrogated to the rights of the
Indemnified Party against any Person with respect to the subject matter of such
claim. Any indemnification payment made hereunder shall be deemed to be an
adjustment to the Purchase Price.
(h) General.
(i) Except to the extent the same would result in an increase of
insurance premiums on a prospective basis or a retroactive premium
adjustment or result in the inability to obtain future insurance coverage,
the dollar amount of indemnification due any party shall be reduced to the
extent that such claim has been reimbursed by the Indemnified Party's
actual receipt of insurance proceeds net of any Taxes payable on account
of the receipt of such proceeds ("Insurance Benefit") unless any of the
Indemnifying Parties have insurance coverage, in which event such coverage
shall be primary and the coverage of the Indemnified Party shall be
secondary. Notwithstanding anything to the contrary herein, neither the
Seller nor the
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<PAGE> 52
EXHIBIT 2.1
Shareholders shall be entitled to the benefit of this subparagraph (i) if
the provisions of Section 5.2(i) of this Agreement have been violated.
(ii) The amounts for which an Indemnifying Party shall be liable to
an Indemnified Party hereunder with respect to breach of representation or
warranty shall be net of any Tax deduction, credit, refund or other
benefit realized during the then current tax year by the Indemnified Party
or the discounted present value (computed at the Indemnified Party's
interest rate on long term debt then outstanding or, if none is
outstanding, at the then current Applicable Rate) to be realized by the
Indemnified party in a future tax year as a result of the facts and
circumstances giving rise to the claim for indemnification.("Tax
Benefit"). The foregoing shall not apply to any Adverse Consequences
arising from the breach by any Party of its obligations under Section
2(c), 5.1(h) or (i), 5.2(g)(iii) or (iv), 5.2(h), (k)(iv) or (l). For
purposes of computing the Tax Benefit that the Buyer may derive from any
Liability other than an Assumed Liability, the Parties hereby acknowledge
and agree that such Liability will for Tax purposes be deemed to increase
the Buyer's tax basis in the Acquired Assets and be allocated to goodwill
and amortized over a 15 year period on a straight line basis.
(iii) The indemnification provisions contained in this Section 8
shall be the exclusive remedy any party hereto may have for monetary
damages for any breach of any representations or warranties under this
Agreement, provided, however, that the foregoing limitation shall not in
any way derogate any party's remedies for fraud under common law or
federal securities laws; and provided, further, that nothing contained
herein shall limit the rights of any party hereto to seek or obtain any
non-monetary relief to which it may be entitled at law or in equity. The
covenants and agreements in this Section 8 shall survive until such time
as any claim for indemnification is fully settled in accordance with the
terms thereof.
(v) Notwithstanding anything in the contrary in this Agreement,
neither the Seller nor any Shareholder shall be required to indemnify any
Buyer Indemnified Party in respect to: (i) any Adverse Consequences
arising from the alleged breach of any representation or warranty set
forth in Section 3 of this Agreement which the Buyer Indemnified Party
may incur as a result of any state of fact, item or information
reasonably disclosed in the Disclosure Schedule or in any update thereto;
(ii) any Adverse Consequence which results from Seller's inability to
obtain any consent, approval or permission to the extent the same is
communicated to Buyer prior to Closing; (iii) any Liability which is
included in the Assumed Liabilities; (iv) any accounts or notes
receivable which have been repurchased in accordance with the provisions
of Section 5.2(h) hereof and/or (v) any product warranty, make good or
start up costs incurred by the Buyer for which it has been reimbursed
pursuant to the provisions of Section 5.2(g)(iii) hereof. The provisions
of this subparagraph (v) shall not apply to any Liability of the Seller
which is not an Assumed Liability and the disclosure of a Liability of
the Seller, which does not otherwise constitute an Assumed Liability, in
the Disclosure Schedule shall not cause such Liability of the Seller to
become an Assumed Liability.
9. Miscellaneous.
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<PAGE> 53
EXHIBIT 2.1
(a) Bulk Transfer Laws. The Buyer acknowledges that the Seller will not
comply with the provisions of any bulk transfer laws of any jurisdiction that
may be applicable in connection with the transactions contemplated by this
Agreement.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective, personal
representatives, executors, heirs, legatees, successors and permitted assigns.
No Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other Party;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates and/or to a subsequent
purchaser of the Business being acquired and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
the Buyer nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyer: Aqua-Chem, Inc. Copy to: James A. Feddersen, Esq.
7800 N. 113th St. Suite 2100,
P. O. Box 421 111 E. Wisconsin Ave.
Milwaukee, WI 53224 Milwaukee, WI 53202
Fax (414)577-3157 Fax (414)223-5000
If to the Seller: National Dynamics Corp. Copy to: Paul M. Schudel, Esq.
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<PAGE> 54
EXHIBIT 2.1
P. O. Box 80404 Suite 1500, 206 S. 13th St.
Lincoln, NE 685801 Lincoln, NE 68508
Fax (402)434-2064 Fax (402)474-5777
If to Shareholders: Roger L. Swanson Copy to: John S. Zeilinger, Esq.
2485 Woodscrest 1500 Woodmen Tower
Lincoln, NE 68502 Omaha, NE 68102-2069
Fax (402)344-0588
Verlyn L. Westra John S. Zeilinger, Esq.
7530 N. Hampton Rd. 1500 Woodmen Tower
Lincoln, NE 68506 Omaha, NE 68102-2069
Daniel T. Scully L. Bruce Wright, Esq.
9601 Firethorn Ln. 1900 US Bank Bldg.
Lincoln, NE 68520 Lincoln, NE 68508
Fax (402)474-5393
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Wisconsin without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Wisconsin or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Wisconsin.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. The Seller may consent to any such amendment at any time
prior to the Closing with the prior authorization of its board of directors. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
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<PAGE> 55
EXHIBIT 2.1
(l) Expenses. Except as otherwise provided herein, each of the Buyer, the
Seller and the Shareholders will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules,
including the Disclosure Schedule, identified in this Agreement are incorporated
herein by reference and made a part hereof.
(n) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein unless the Disclosure
Schedule identifies the exception with reasonable particularity and describes
the relevant facts in reasonable detail. Subject to the exclusive remedy
provisions set forth in Section 8(h)(iii): (A) the Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance and (B) if any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(o) Submission to Jurisdiction. Each of the Parties hereby submits to the
jurisdiction of and agrees that suit will only be brought in the state or
federal court sitting in Milwaukee, Wisconsin (the "Wisconsin Court") in any
action or proceeding arising out of or relating to this Agreement and/or the
transactions contemplated hereby. Each party also agrees not to bring any action
or proceeding arising out of or relating to this Agreement in any other court
except as may be necessary to enforce any judgment or order of the Wisconsin
Court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto.
(p) Specific Performance. Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Party shall be entitled, without the posting of a bond or other collateral, to
an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in the Wisconsin Court, in addition
to any other remedy to which it may be entitled, at law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
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EXHIBIT 2.1
AQUA-CHEM, INC.
By: /s/ J. A. Miller
----------------------------------------
Jeffrey A. Miller, President
NATIONAL DYNAMICS CORPORATION
By: /s/ Roger L. Swanson, President
----------------------------------------
Roger L. Swanson, President
/s/ Daniel T. Scully
- --------------------------------------------
Daniel T. Scully, Individually
/s/ Roger L. Swanson
- --------------------------------------------
Roger L. Swanson, Individually
/s/ Verlyn L. Westra
- --------------------------------------------
Verlyn L. Westra, Individually
<PAGE> 57
SUMMARY OF OMITTED EXHIBITS AND SCHEDULES TO EXHIBIT 2.1 TO THE FORM S-4
REGISTRATION STATEMENT OF AQUA-CHEM, INC.
PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K.
REGISTRANT HEREBY UNDERTAKES TO FURNISH TO THE COMMISSION COPIES OF ANY OF THE
OMITTED SCHEDULES AND EXHIBITS UPON REQUEST.
EXHIBITS
--------
EXHIBIT A: ASSUMED LIABILITIES
List of Seller's Liabilities assumed by Buyer.
EXHIBIT B: LIABILITY
Any Liability not assumed pursuant to the Asset
Purchase Agreement.
EXHIBIT C: EXCLUDED ASSETS IN ADDITION TO THOSE IDENTIFIED AS
"EXCLUDED ASSETS" IN SECTION 1 OF THE ASSET PURCHASE
AGREEMENT
List of additional Excluded Assets.
EXHIBIT F: CLOSING BALANCE SHEET EXAMPLES (2)
National Dynamics Corporation's Projected Closing
Balance Sheets, as prepared by each of the Buyer and
Seller.
EXHIBIT G: ASSIGNMENTS, BILLS OF SALE AND DEEDS
EXHIBIT I: PROJECTED ALLOCATION OF PURCHASE PRICE
EXHIBIT J: FINANCIAL STATEMENTS
Seller's audited Financial Statements for the periods
ending October 31, 1997, 1996 and 1995 and unaudited
financials for the periods ending March, April, &
May, 1998.
EXHIBIT K: SCHEDULE OF TITLE INSURANCE AMOUNTS
EXHIBIT L: OPINION OF SELLER'S LEGAL COUNSEL
EXHIBIT O: OPINION OF BUYER'S LEGAL COUNSEL
DISCLOSURE SCHEDULES
--------------------
SCHEDULE 1 ACQUIRED ASSETS
List of Acquired Assets.
SCHEDULE 3(a) ORGANIZATION OF THE SELLER
Seller is registered as a foreign corporation in
Ohio and holds sales tax licenses for various
states.
SCHEDULE 3(b) AUTHORIZATION OF TRANSACTION
No exceptions (Seller has authority to execute
Agreement.)
SCHEDULE 3(c) NONCONTRAVENTION
List of third party consents required.
SCHEDULE 3(d) BROKERS' FEES
Fees payable by Seller.
<PAGE> 58
SUMMARY OF OMITTED EXHIBITS AND SCHEDULES TO EXHIBIT 2.1 TO THE FORM S-4
REGISTRATION STATEMENT OF AQUA-CHEM, INC.
PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K.
REGISTRANT HEREBY UNDERTAKES TO FURNISH TO THE COMMISSION COPIES OF ANY OF THE
OMITTED SCHEDULES AND EXHIBITS UPON REQUEST.
DISCLOSURE SCHEDULES
--------------------
SCHEDULE 3(e) TITLE TO ASSETS
Lists (with attachments) of Security Interests
with regard to Seller's assets.
SCHEDULE 3(f) SUBSIDIARIES
None
SCHEDULE 3(g) FINANCIAL STATEMENTS
References Exhibit J to the Agreement and lists
other exceptions to the warranties and
representations of Seller.
SCHEDULE 3(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END
List of events which may have affected Seller's
business since 10/31/97.
SCHEDULE 3(i) UNDISCLOSED LIABILITIES
List of Liabilities not on Most Recent Balance
Sheet.
SCHEDULE 3(j) LEGAL COMPLIANCE
List of proceedings, actions, etc. against
Seller.
SCHEDULE 3(k) REAL PROPERTY
Attaches title commitments and references the
driveway Lease.
SCHEDULE 3(l) INTELLECTUAL PROPERTY
List of Intellectual Property owned or used by
Seller.
SCHEDULE 3(m) TANGIBLE ASSETS
Seller disclaims warranty or representations to
the extent Buyer does not maintain the tangible
assets.
SCHEDULE 3(n) INVENTORY
Seller disclaims salability of inventory items
carried on books at $0 value.
SCHEDULE 3(o) CONTRACTS
List of Seller's contracts.
SCHEDULE 3(p) NOTES AND ACCOUNTS RECEIVABLE
Seller makes no warranty regarding
collectability of accrued interest due on over
30-day accounts receivable.
SCHEDULE 3(q) ACCOUNTS AND POWERS OF ATTORNEY
List of Seller's bank accounts and powers of
attorney.
SCHEDULE 3(r) INSURANCE
List of Seller's insurance policies.
SCHEDULE 3(s) LITIGATION
List of Seller's pending litigation, claims,
etc.
<PAGE> 59
SUMMARY OF OMITTED EXHIBITS AND SCHEDULES TO EXHIBIT 2.1 TO THE FORM S-4
REGISTRATION STATEMENT OF AQUA-CHEM, INC.
PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K.
REGISTRANT HEREBY UNDERTAKES TO FURNISH TO THE COMMISSION COPIES OF ANY OF THE
OMITTED SCHEDULES AND EXHIBITS UPON REQUEST.
DISCLOSURE SCHEDULE
SCHEDULE 3(t) EMPLOYEES
Lists employees planning to terminate employment
and strikes, grievances, etc.
SCHEDULE 3(u) EMPLOYEE BENEFITS
List of Seller's possible unfunded liabilities.
SCHEDULE 3(v) GUARANTIES
References Schedule 3(c).
SCHEDULE 3(w) ENVIRONMENT, HEALTH AND SAFETY
Reports and disclosures provided by Seller to
Buyer.
SCHEDULE 3(x) TAXES
List of Seller's taxes due.
SCHEDULE 3(y) PRODUCT LIABILITY
List (with copies) of Seller's product
warranties, and list of projects with
"non-standard" warranty terms.
SCHEDULE 3(z) SHAREHOLDER AUTHORIZATION
No exceptions.
SCHEDULE 3(aa) NONCONTRAVENTION
No exceptions.
SCHEDULE 3(ab) SELLER SHARES
List of Seller's shareholders and number of
shares held by each.
SCHEDULE 3(ac) CERTAIN BUSINESS RELATIONSHIPS WITH THE SELLER
List of Seller's employees related to the
shareholders.
SCHEDULE 3(ad) DISCLOSURE
Refers to exceptions on Schedules 3(a) through
3(ac).
SCHEDULE 5.2(f) CONFIDENTIALITY AGREEMENT
Attaches copy of Agreement between Seller and
Buyer dated 3/26/98.
<PAGE> 60
EXHIBIT D
PURCHASE PRICE
ESCROW AGREEMENT
ESCROW AGREEMENT, made and entered into as of the 23rd day of June, 1998,
by and among AQUA-CHEM, INC., a Delaware corporation (the "Buyer"), NATIONAL
DYNAMICS CORPORATION, a Nebraska corporation (the "Seller"), DANIEL T. SCULLY,
ROGER L. SWANSON, and VERLYN L. WESTRA, (the "Shareholders") and BANK ONE TRUST
COMPANY, N.A. (the "Escrow Agent"). The Buyer, the Seller, the Shareholders and
the Escrow Agent are referred to collectively herein as the "Parties."
In consideration of the execution of this Escrow Agreement and the mutual
covenants herein contained, the Parties hereby agree as follows:
I. ACQUISITION AND COLLATERAL.
1.01 The Buyer, the Seller and the Shareholders have agreed that the Seller
is to be acquired by the Buyer pursuant to the terms of an Asset Purchase
Agreement dated as of May 28, 1998 (the "Agreement"). This Escrow Agreement is
being entered into pursuant to Section 2(c)(1) of the Agreement. Terms used in
this Escrow Agreement, which are not defined shall have the meaning set forth in
the Agreement. As used in this Escrow Agreement, the phrases "Duly Signed" shall
mean (i) with respect to the Buyer, signed by either Jeffrey A. Miller, as
President, or Scott Barton, as Chief Financial Officer, (or any duly elected
successor) and (ii) with respect to the Seller, signed by all of Daniel T.
Scully, Roger L. Swanson and Verlyn L. Westra or, in the event of any of their
deaths, signed by such deceased person's executor or personal representative.
1.02 Pursuant to Section 2(c)(1) of the Agreement, the Buyer will deliver
to the Escrow Agent simultaneous with the Closing (as defined in the Agreement),
Five Million Dollars ($5,000,000) in immediately available funds (the "Initial
Deposit"), the receipt of which is to be separately acknowledged by the Escrow
Agent.
1.03 Subject to the provisions of this Escrow Agreement, the Escrow Agent
will invest and reinvest part or all of the funds held in escrow hereunder from
time to time in such direct obligations of the United States Government, One
Group Money Market Fund, commercial paper rated A1-P1, or in savings accounts in
or certificates of deposit issued by a bank having a combined capital and
surplus of at least $50,000,000 as the Seller shall direct in writing. Any
interest earned or gain or loss realized as the result of such investments is
hereinafter referred to as the "Escrow Earnings".
1.04 As used herein, the term the "Collateral" means the Initial Deposit
plus the Escrow Earnings, in whatever form held or invested as provided herein.
1
<PAGE> 61
EXHIBIT D
II. DELIVERY OF THE COLLATERAL BY THE ESCROW AGENT.
2.01 The Escrow Agent shall hold the Collateral in escrow until authorized
hereunder to deliver the same, or any portion thereof as hereinafter set forth.
2.02 Within sixty (60) days after the Closing Date, the Buyer shall deliver
to the Escrow Agent, the Seller and the Shareholders a Duly Signed written
notice, setting forth the Buyer's determination of the Final Purchase Price (the
"Buyer's Notice"). In the event the Seller disagrees with the determination of
the Final Purchase Price, as set forth in the Buyer's Notice, the Seller shall,
within thirty (30) days after receipt of the Buyer's Notice, deliver to the
Escrow Agent and the Buyer a Duly Signed written notice of objection, specifying
any disputed items and the basis for disagreement (the "Seller's Notice").
2.03 In the event the Escrow Agent does not receive the Seller's Notice
within thirty (30) days after the Escrow Agent's receipt of the Buyer's Notice,
the Escrow Agent shall promptly disburse the Collateral to the Seller and/or the
Buyer as set forth in Section 2.05 of this Escrow Agreement on the basis of the
Final Purchase Price as set forth in the Buyer's Notice
2.04 In the event the Escrow Agent does receive the Seller's Notice within
thirty (30) days after the Escrow Agent's receipt of the Buyer's Notice, the
Escrow Agent shall not disburse the Collateral to the Seller and/or the Buyer
until such time as the Escrow Agent receives either (a) a Duly Signed written
notice from the Buyer and the Seller certifying the amount of the Final Purchase
Price or (b) a written notice signed by a Partner of Coopers & Lybrand stating
the amount of the Final Purchase Price in accordance with Section 2(c)(2) of the
Agreement. Upon receipt of either of the foregoing signed written notices as set
forth in this Section 2.04, the Escrow Agent shall promptly disburse the
Collateral to the Seller and/or the Buyer as set forth in Section 2.05 of this
Escrow Agreement on the basis of the Final Purchase Price as set forth in such
signed written notice.
2.05 In accordance with Section 2.03 or 2.04 of this Escrow Agreement, as
may be applicable under the circumstances, the Escrow Agent shall promptly
convert the Collateral to cash and transfer the same by wire transfer of
immediately available funds to the Seller and/or the Buyer as follows:
(a). If the Final Purchase Price is more than Forty Two Million Dollars
($42,000,000), the Escrow Agent shall:
(i) pay to the Seller an amount equal to (A) the Final Purchase
Price, minus (B) Forty Two Million Dollars ($42,000,000)
(hereinafter referred to as the "Seller Principal Payment");
(ii) pay to the Buyer an amount equal to (A) Five Million Dollars
($5,000,000), minus (B) the Seller Principal Payment (hereinafter
referred to as the "Buyer Principal Payment");
2
<PAGE> 62
EXHIBIT D
(iii) pay to the Seller an amount equal to (A) the Escrow
Earnings multiplied by (B) a fraction, the numerator of which is
(C) the Seller Principal Payment and the denominator of which is
(D) the sum of the Seller Principal Payment plus the Buyer
Principal Payment; and
(iv) pay to the Buyer an amount equal to (A) the Escrow Earnings
multiplied by (B) a fraction, the numerator of which is (C) the
Buyer Principal Payment and the denominator of which is (D) the
sum of the Seller Principal Payment plus the Buyer Principal
Payment.
(b). If the Final Purchase Price is less than Forty Two Million Dollars
($42,000,000), the Escrow Agent will return all funds in the Purchase
Price Escrow Account to the Buyer.
III. CONCERNING THE ESCROW AGENT.
3.01 The Escrow Agent shall be entitled to reasonable compensation for its
services hereunder and shall be reimbursed for all reasonable expenses,
disbursements and advances (including reasonable attorneys' fees and expenses)
incurred or made by it in performance of its duties hereunder. The Buyer, on the
one hand, and the Seller and the Shareholders, on the other hand, shall each
promptly pay one-half (1/2) of the amounts described in the preceding sentence
upon receipt of a reasonably detailed itemized statement from the Escrow Agent.
3.02 The Escrow Agent may resign and be discharged from its further duties
hereunder at any time by giving written notice of such resignation to the Buyer,
the Seller and the Shareholders specifying a date (not less than thirty days
after the giving of such notice) when such resignation shall take effect.
Promptly after the receipt of such notice, a successor escrow agent, which shall
be a bank or trust company having capital and surplus of at least $50,000,000,
shall be appointed by mutual agreement of the Buyer, the Seller and the
Shareholders. If the Buyer, the Seller and the Shareholders are unable to agree
upon a successor escrow agent within thirty days after such notice, the Escrow
Agent shall be entitled to appoint its successor. The Escrow Agent shall
continue to serve until its successor accepts the escrow and receives the
Collateral. The Buyer, on the one hand, and the Seller and the Shareholders, on
the other hand, may agree at any time to substitute a new escrow agent by giving
written notice thereof to the Escrow Agent then acting.
3.03 The Escrow Agent undertakes to perform such duties as are specifically
set forth herein. The Escrow Agent acting or refraining from acting in good
faith shall not be liable for any mistake of fact or error in judgment by it or
for any acts or omissions by it of any kind, unless caused by willful misconduct
or gross negligence, and shall be entitled to rely, and shall be protected in
doing so, upon (i) any written notice, instrument or signature believed by it to
be genuine and to have been presented by the proper party or parties duly
authorized to do so, and (ii) the advice of counsel (which may be that of the
Escrow Agent's choosing). The Escrow Agent shall have no responsibility
3
<PAGE> 63
EXHIBIT D
for the contents of any writing submitted to it hereunder and shall be entitled
in good faith to rely without liability upon the contents thereof.
3.04 The Buyer, on the one hand, and the Seller and the Shareholders, on
the other hand, agree to indemnify the Escrow Agent and hold it harmless against
any and all liabilities incurred by it hereunder as a consequence of their
respective action, and each further agrees jointly to indemnify the Escrow Agent
and hold it harmless against any and all liabilities incurred by it hereunder
which are not the consequence of their respective action, except, in either case
for liabilities incurred by the Escrow Agent resulting from its own willful
misconduct or gross negligence. The indemnity provisions set forth herein shall
survive any termination of this Agreement.
IV. MISCELLANEOUS.
4.01 ENTIRE AGREEMENT. This Escrow Agreement constitutes the entire
agreement between the Parties and supersedes any prior understandings or
agreements by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof
4.02 SUCCESSION AND ASSIGNMENT. This Escrow Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective,
personal representatives, executors, heirs, legatees, successors and assigns.
4.03 COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
4.04 HEADINGS. The section headings contained in this Escrow Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Escrow Agreement.
4.05 NO THIRD PARTY BENEFICIARIES. This Escrow Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and assigns.
4.06 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyer: Aqua-Chem, Inc. Copy to: James A. Feddersen, Esq.
7800 N. 113th St. Suite 2100,
P. 0. Box 421 111 E. Wisconsin Ave.
Milwaukee, WI 53224 Milwaukee, WI 53202
Fax (414)577-3157 Fax (414)223-5000
Phone (414)223-5030
4
<PAGE> 64
EXHIBIT D
<TABLE>
<S> <C> <C> <C>
If to the Seller: National Dynamics Corp. Copy to: Paul M. Schudel, Esq.
P. 0. Box 80404 Suite 1500, 206 S. 13th St.
Lincoln, NE 685801 Lincoln, NE 68508
Fax (402)434-2064 Fax (402)474-5777
Phone (402)474-0321
If to Shareholders: Roger L. Swanson Copyto: John S. Zeilinger, Esq.
2485 Woodscrest 1500 Woodmen Tower
Lincoln, NE 68502 Omaha, NE 68102-2069
Fax (402)344-0588
Phone (402)636-8258
Verlyn L. Westra John S. Zeilinger, Esq.
7530 N. Hampton Rd 1500 Woodmen Tower
Lincoln, NE 68506 Omaha, NE 68102-2069
Fax (402)344-0588
Phone (402)636-8258
Daniel T. Scully L. Bruce Wright, Esq.
9601 Firethorn Ln 1900 US Bank Bldg.
Lincoln, NE 68520 Lincoln, NE 68508
Fax (402)474-5393
Phone (402)474-6900
</TABLE>
If to the Escrow Agent:
Bank One Trust Company, N.A.
ATTN: Ms. Francine Olstinske
111 East Wisconsin Avenue
Milwaukee, WI 53202
Fax (414)298-4223
Phone (414)298-4216
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice, request
demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party notice in
the manner herein set forth.
4.07 GOVERNING LAW. This Escrow Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Wisconsin,
without regard to its conflict of law rules.
5
<PAGE> 65
EXHIBIT D
4.08 AMENDMENTS. No amendment of any provision of this Escrow Agreement
shall be valid unless the same shall be in writing and signed by the Buyer, the
Seller, the Shareholders and the Escrow Agent.
4.09 TAXES. The Seller shall be responsible for and pay all federal, state
and local taxes due with respect to Escrow Earnings distributed to the Seller
pursuant to Section 2.05(a)(iii) of this Escrow Agreement. The Buyer shall be
responsible for and pay all federal, state and local taxes due with respect to
Escrow Earnings distributed to the Buyer pursuant to Section 2.05(a)(iv) of this
Escrow Agreement
4.10 TERM. This Escrow Agreement shall remain in full force and effect
until the Escrow Agent has delivered all of the Collateral in it possession in
accordance with the terms of this Escrow Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date and year first above written.
AQUA-CHEM, INC.
By: /s/ JA Miller
-------------------------------
Jeffrey A. Miller, President
NATIONAL DYNAMICS CORPORATION
By: /s/ Roger L. Swanson
-------------------------------
Roger L. Swanson, President
BANK ONE TRUST COMPANY, N.A.
By: /s/ Francine Olstinske
-------------------------------
Client Services Officer
/s/ Daniel T. Scully
- -----------------------------
Daniel T. Scully, Individually
/s/ Roger L. Swanson
- -------------------------------
Roger L. Swanson, Individually
/s/ Verlyn L. Westra
- ---------------------------------
Verlyn L. Westra, Individually
6
<PAGE> 66
EXHIBIT E
WARRANTY, STARTUP, ACCOUNTS AND NOTES RECEIVABLE
ESCROW AGREEMENT
ESCROW AGREEMENT, made and entered into as of the 23rd day of June,
1998, by and among AQUA-CHEM, INC., a Delaware corporation (the "Buyer"),
NATIONAL DYNAMICS CORPORATION, a Nebraska corporation (the "Seller"), DANIEL T.
SCULLY, ROGER L. SWANSON, AND VERLYN L. WESTRA, (the "Shareholders") and
initially BANK ONE TRUST COMPANY, N.A. (the "Escrow Agent"). The Buyer, the
Seller, the Shareholders and the Escrow Agent are referred to collectively
herein as the "Parties."
In consideration of the execution of this Escrow Agreement and the
mutual covenants herein contained, the Parties hereby agree as follows:
I. ACQUISITION AND COLLATERAL.
1.01 The Buyer, the Seller and the Shareholders have agreed that the
Seller is to be acquired by the Buyer pursuant to the terms of the Asset
Purchase Agreement dated as of May 28, 1998 (the "Agreement"). This Escrow
Agreement is being entered into pursuant to Sections 2(c)(1) and 5.2(g)(ii) and
(iii) and 5.2(h) of the Agreement. Terms used in this Escrow Agreement, which
are not defined shall have the meaning set forth in the Agreement. As used in
this Escrow Agreement, the phrases "Duly Signed" shall mean (i) with respect to
the Buyer, signed by either Jeffrey A. Miller, as President, or Scott Barton, as
Chief Financial Officer, (or any duly elected successor ) and (ii) with respect
to the Seller, signed by all of Daniel T. Scully, Roger L. Swanson and Verlyn L.
Westra or, in the event of any of their deaths, signed by such deceased person's
executor or personal representative.
1.02 Pursuant to Section 2(c)(1) of the Agreement, the Buyer will
deliver to the Escrow Agent simultaneous with the Closing (as defined in the
Agreement), Four Million Dollars ($4,000,000) of the Purchase Price payable
under the Agreement in immediately available funds, the receipt of which is to
be separately acknowledged by the Escrow Agent (the "Initial Deposit").
1.03 If at any time or times the value of the Collateral then held by
the Escrow Agent should be less than Two Hundred Fifty Thousand Dollars
($250,000), the Seller and the Shareholders shall within five (5) days of
written notice thereof deliver to the Escrow Agent by wire transfer of
immediately available funds such amount as is necessary to restore the value of
the collateral then held by the Escrow Agent to Five Hundred Thousand Dollars
($500,000), the receipt of which is to be separately acknowledged by the Escrow
Agent (a "Subsequent Deposit").
1.04 Subject to the provisions of this Escrow Agreement, the Escrow
Agent will invest and reinvest part or all of the funds held in escrow hereunder
from time to time in such direct obligations of the United States Government,
One Group Money market Fund, commercial paper rated A1-P1, or in savings
accounts in or certificates of deposit issued by a bank having a combined
capital and
<PAGE> 67
EXHIBIT E
surplus of at least $50,000,000 as the Seller shall direct in writing. Any
interest earned or gain or loss realized as the result of such investments is
hereinafter referred to as the "Escrow Earnings".
1.05 As used herein, the term "collateral" means the Initial Deposit,
plus all Subsequent Deposits, if any, plus the Escrow Earnings, in whatever form
held or invested as provided herein.
II. DELIVERY OF THE COLLATERAL BY THE ESCROW AGENT.
2.01 the Escrow Agent shall hold the Collateral in escrow until
authorized hereunder to deliver the same, or any portion thereof as hereinafter
set forth.
2.02 From time to time after the Closing Date, the Buyer may deliver to
the Escrow Agent, the Seller and the Shareholders a Duly Signed written notice,
setting forth the Buyer's determination of any amount which it is owed pursuant
to Section 5.2(g)(ii) and/or Section 5.2(h) of the Agreement (the "Buyer's
Notice"). In the event the Seller disagrees with any items included in the
Buyer's Notice, the Seller shall, within thirty (30) days after receipt of the
Buyer's Notice, deliver to the Escrow Agent and the Buyer a Duly Signed written
notice of objection, specifying the dollar amount of any disputed items and the
dollar amount of any agreed upon items included in the Buyer's Notice (the
"Seller's Notice").
2.03 In the event the Escrow Agent does not timely receive the Seller's
Notice within thirty (30) days after the Escrow Agent's receipt of the Buyer's
Notice, the Escrow Agent shall promptly pay to the Buyer the amount specified in
the Buyer's Notice.
2.04 In the event the Escrow Agent timely received the Seller's Notice
within thirty (30) days after the Escrow Agent's receipt of the Buyer's Notice,
the Escrow Agent shall promptly pay to the Buyer the amount included in the
initial Buyer's Notice, if any, that is specified as agreed upon in the Seller's
Notice.
2.05 As to any items included in a Buyer's Notice, which have been
disputed in a Seller's Notice timely received by the Escrow Agent within thirty
(30) days after the Escrow Agent's receipt of such Buyer's Notice, the Escrow
Agent shall not make any payment to the Buyer unless and until such time as the
Escrow Agent receives either (a) a Duly Signed written notice from the Buyer and
the Seller specifying their agreement as to the of the amount of the payment to
be made to the Buyer or (b) a Duly Signed written notice from either the Buyer
or the Seller certifying that attached to such written notice is a true and
correct copy of a final non-appealable order or judgment from the Wisconsin
Court (as defined in Section 9(o) of the Agreement). Upon receipt of either of
the foregoing, the Escrow Agent shall promptly make such payment, if any, to the
Buyer as set forth therein.
2.06 Upon the Escrow Agent's receipt after the Closing Date of a
written notice Duly Signed by the Buyer and the Seller instructing that, in
accordance with Section 5.2(g)(iv) of the Agreement, a portion of the Collateral
is to be distributed to the Seller, the Escrow Agent shall promptly distribute
the amount specified in such notice to the Seller.
<PAGE> 68
EXHIBIT E
III. CONCERNING THE ESCROW AGENT.
3.01 The Escrow Agent shall be entitled to reasonable compensation for
its service hereunder and shall be reimbursed for all reasonable expenses,
disbursements and advances (including reasonable attorneys' fees and expenses)
incurred or made by it in performance of its duties hereunder. The Buyer, on the
one hand, and the Seller and the Shareholders, on the other hand, shall each
promptly pay one-half (1/2) of the amounts described in the preceding sentence
upon receipt of a reasonably detailed itemized statement from the Escrow Agent.
3.02 The Escrow Agent may resign and be discharged from its further
duties hereunder at any time by giving written notice of such resignation to the
Buyer, the Seller and the Shareholders specifying a date (not less than thirty
days after the giving of such notice) when such resignation shall take effect.
Promptly after the receipt of such notice, a successor escrow agent, which shall
be a bank or trust company having capital and surplus of at least $50,000,000,
shall be appointed by mutual agreement of the Buyer, the Seller and the
Shareholders. If the Buyer, the Seller and the Shareholders are unable to agree
upon a successor escrow agent within thirty days after such notice, the Escrow
Agent shall be entitled to appoint its successor. The Escrow Agent shall
continue to serve until its successor accepts the escrow and receives the
Collateral. The Buyer, on the one hand, and the Seller and the Shareholders, on
the other hand, may agree at any time to substitute a new escrow agent by giving
written notice thereof to the Escrow Agent then acting.
3.03 The Escrow Agent undertakes to perform such duties as are
specifically set forth herein. The Escrow Agent acting or refraining from acting
in good faith shall not be liable for any mistake of fact or error in judgment
by it or for any acts or omissions by it of any kind, unless caused by willful
misconduct or gross negligence, and shall be entitled to rely, and shall be
protected in doing so, upon (i) any written notice, instrument or signature
believed by it to be genuine and to have been presented by the proper party or
parties duly authorized to do so, and (ii) the advice of counsel (which may be
that of the Escrow Agent's choosing). The Escrow Agent shall have no
responsibility for the contents of any writing submitted to it hereunder and
shall be entitled in good faith to rely without liability upon the contents
thereof.
3.04 The Buyer, on the one hand, and the Seller and the Shareholders,
on the other hand, agree to indemnify the Escrow Agent and hold it harmless
against any and all liabilities incurred by it hereunder as a consequence of
their respective action, and each further agrees jointly to indemnify the Escrow
Agent and hold it harmless against any and all liabilities incurred by it
hereunder which are not the consequence of their respective action, except, in
either case for liabilities incurred by the Escrow Agent resulting from its own
willful misconduct or gross negligence. The indemnity provisions set forth
herein shall survive any termination of this Agreement.
IV. MISCELLANEOUS
4.01 ENTIRE AGREEMENT. This Escrow Agreement constitutes the entire
agreement between the Parties and supersedes any prior understandings or
agreements by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
<PAGE> 69
EXHIBIT E
4.02 SUCCESSION AND ASSIGNMENT. This Escrow Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective,
personal representatives, executors, heirs, legatees, successors and assigns.
4.03 COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
4.04 HEADINGS. The section headings contained in this Escrow Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Escrow Agreement.
4.05 NO THIRD PARTY BENEFICIARIES. This Escrow Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and assigns.
4.06 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<S> <C> <C> <C>
If to the Buyer: Aqua-Chem, Inc. Copy to: James A. Feddersen, Esq.
7800 N. 113th St. Suite 2100
P.O. Box 421 111 E. Wisconsin Ave.
Milwaukee, WI 53224 Milwaukee, WI 53202
Fax (414) 577-3157 Fax (414) 223-5000
Phone (414) 223-5030
If to the Seller: National Dynamics Corp. Copy to: Paul M. Schudel, Esq.
P.O. Box 80404 Suite 1500, 206 S. 13th St.
Lincoln, NE 685801 Lincoln, NE 68508
Fax (402) 434-2064 Fax (402) 474-5777
Phone (402) 474-0321
If to Shareholders: Roger L. Swanson Copy to: John S. Zeilinger, Esq.
2485 Woodcrest 1500 Woodmen Tower
Lincoln, NE 68502 Omaha, NE 68102-2069
Fax (402) 344-0588
Phone (402) 636-8258
Verlyn L. Westra John S. Zeilinger, Esq.
7530 N. Hampton Rd. 1500 Woodmen Tower
Lincoln, NE 68506 Omaha, NE 68102-2069
Fax (402) 344-0588
Phone (402) 636-8258
</TABLE>
<PAGE> 70
EXHIBIT E
Daniel T. Scully L. Bruce Wright, Esq.
9601 Firethorn Ln. 1900 USA Bank Bldg.
Lincoln, NE 68520 Lincoln, NE 68508
Fax (402) 474-5393
Phone (402) 474-6900
If to the Escrow Agent:
Bank One Trust Company, N.A.
ATTN: Ms. Francine Olstinske
111 East Wisconsin Avenue
Milwaukee, WI 53202
Fax (414) 298-4223
Phone (414) 298-4216
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
4.07 GOVERNING LAW. This Escrow Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Wisconsin,
without regard to its conflict of law rules.
4.08 AMENDMENTS. No amendment of any provision of this Escrow Agreement
shall be valid unless the same shall be in writing and signed by the Buyer, the
Seller, the Shareholders and the Escrow Agent.
4.09 TAXES. The Seller shall be responsible for and pay all federal,
state and local taxes due with respect to Escrow Earnings.
4.10 TERMS. This Escrow Agreement shall remain in full force and effect
until (i) the Escrow Agent has received either (a) a Duly Signed written notice
from the Buyer and the Seller specifying their agreement that this Escrow
Agreement be terminated and the distribution of the Collateral or (b) a Duly
Signed written notice from either the Buyer or the Seller certifying that the
attached to such written notice is a true and correct copy of a final
non-appealable order or judgment from the Wisconsin Court (as defined in Section
9(o) of the Agreement) ordering the termination of the Escrow Agreement and (ii)
the Escrow Agent has made such final disbursements of the Collateral as set
forth in such written notice.
<PAGE> 71
EXHIBIT E
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date and year first above written.
AQUA-CHEM, INC.
By: /s/ JA Miller
------------------------------
Jeffrey A. Miller, President
NATIONAL DYNAMICS CORPORATION
By: /s/ Roger L. Swanson
------------------------------
Roger L. Swanson, President
BANK ONE TRUST COMPANY
By: /s/ Francine Olstinske
------------------------------
Client Services Officer
/s/ Daniel T. Scully
- ---------------------------------
Daniel T. Scully, Individually
/s/ Roger L. Swanson
- ---------------------------------
Roger L. Swanson, Individually
/s/ Verlyn L. Westra
- ---------------------------------
Verlyn L. Westra, Individually
<PAGE> 1
EXHIBIT 10.10
AQUA-CHEM, INC.
MANAGEMENT INCENTIVE PLAN
SUBMITTED: /s/ JA Miller 11/11/96
--------------------- --------------
J.A. MILLER DATE
PRESIDENT & CEO
APPROVED: /s/ P. Babin 15/11/96
--------------------- --------------
P. BABIN DATE
DIRECTOR & CHAIRMAN
COMPENSATION COMMITTEE
1
<PAGE> 2
EXHIBIT 10.10
MANAGEMENT INCENTIVE PLAN
PURPOSE
The purpose of the Management Incentive Plan is to provide an incentive to
motivate and reward key management eligible employees for achievement of near
term results required to continue the Company's growth and profit performance.
The Management Incentive Plan (MIP) provides opportunity for employees to earn
annual incentive cash compensation through the achievement of Corporate,
Division, and/or Plant performance goal and the overall financial and business
Plan objectives.
PLAN DESIGN
Major Aqua-Chem, Inc. business decisions are based on a long-term perspective
that evaluates the abilities of projects to generate an appropriate cash return;
whereas, maximizing Aqua-Chem, Inc. current income stream and effectively
managing the asset producing base is the measurement focus used in the MIP. The
financial performance measure used in this plan is Return On Net Assets (RONA).
RONA was selected as the performance measure because it includes both
profitability (income before interest and taxes) and the efficiency with which
we utilize and manage our assets.
Management strongly believes that operating Company management should not be
discouraged from seeking out new investment opportunities of a long-term value
creating nature because they may negatively impact the performance awards under
the short-term incentive plan. Consequently, acquisitions, diversitures and/or
major new strategic initiatives, which are important to the Company's long-term
cash flow and earning growth, but may have negative impact on RONA, will be
considered for special treatment under RONA calculation guidelines developed to
mitigate potential barriers to doing what is right for the "long run."
RESPONSIBILITY
The Administrative Committee will be responsible for the administration of the
plan, subject to the review and final approval of the Compensation Committee of
the Board of Directors. Included in this responsibility will be the selection of
participants, setting of individual incentive opportunity, financial targets,
and the evaluation of the performance of the participants.
2
<PAGE> 3
MANAGEMENT INCENTIVE PLAN
PARTICIPATION
Participation will be limited to selected management level employees from each
of the business units and Corporate. Key executives who join the company during
the year may participate in the plan at the discretion of the company with
approval of the Compensation Committee of the Board of Directors. However, the
degree of participation would be pro-rated to reflect the number of full months
of employment with the company.
Generally employees who terminate during the plan year, will not participate in
the year-end incentive.
INDIVIDUAL INCENTIVE OPPORTUNITY
Individual incentive opportunity will be set by the Company and approved by the
Compensation Committee of the Board of Directors. Target incentive opportunity
will be expressed as a percent of a participant's current year's Salary Grade
Mid-point. These opportunities range from 10% to 50% of Mid-point at targeted
levels of performance. When establishing the incentive opportunity consideration
is given but not limited to a number of factors including position, salary
grade, overall responsibilities, market information and other incentive
opportunity.
INDIVIDUAL PERFORMANCE GOALS
At the start of each year, participants are informed of the potential award at
various RONA performance levels. Individuals understand that the calculated
award may be increased or decreased (by up to 20%) based on management
assessment of performance against agreed upon individual performance goals.
3
<PAGE> 4
EXHIBIT 10.10
MANAGEMENT INCENTIVE PLAN
AWARD CRITERIA
RETURN ON NET ASSETS (RONA)
RONA goals for each operating unit will be reviewed and set annually at a level
which, when added to the base salary, will produce a total cash compensation
amount in line with our pay for performance philosophy.
Participants will have the potential to earn a lesser or greater amount based on
Corporate, Division, or Plant performance relative to pre-established RONA
targets. Award opportunities as a percent of the RONA target award will be as
follows:
----------------------------------------------
Threshold Target Maximum
----------------------------------------------
50% 100% 150%
"THRESHOLD" represents the minimum performance results that must be
reached in order to trigger an incentive award.
"GOAL" or target represents desired performance results for RONA.
ORGANIZATIONAL PERFORMANCE WEIGHTING
To foster a broader Company wide perspective and to build teamwork across
Divisions, awards for participants may have a Corporate, Division, and/or Plant
component. Organizational performance will be generally weighed as follows:
- --------------------------------------------------------------------------
Employee Group Corporate Divisional Plant
- --------------------------------------------------------------------------
Corporate 100% 0% 0%
- --------------------------------------------------------------------------
Sr. Divisional 25% 75% 0%
Executive
- --------------------------------------------------------------------------
Division 10% 90% 0%
- --------------------------------------------------------------------------
Plant 10% 20% 70%
- --------------------------------------------------------------------------
4
<PAGE> 5
EXHIBIT 10.10
MANAGEMENT INCENTIVE PLAN
CALCULATING THE AWARD
The calculated award is the product of the individual's salary mid-point x
incentive opportunity x applicable weighting x the percentage earned from the
applicable RONA target. Where a participant has Corporate/Division/Plant
weighting, more than one calculation will be used
The calculated award is further increased or decreased based on appraisal of
individual performance against goals established at the outset of the year.
Example of award calculation and assumptions:
Title Grade ________
- --------------------------------------------------------------------------------
Salary Grade Mid-Point $_____________
- --------------------------------------------------------------------------------
Participation Rate
(Incentive Opportunity) ____________%
- --------------------------------------------------------------------------------
Applicable Weighting Corp. ____% Division ____% Plant ____%
- --------------------------------------------------------------------------------
RONA Performance
(RONA Target Achievement) Corp. ____% Division ____% Plant ____%
- --------------------------------------------------------------------------------
Individual Performance Appraisal _____%
- --------------------------------------------------------------------------------
Award Calculation $________ Midpoint
Corp: _____ ________% Participation Rate
(Incentive Opportunity)
Division: _____
_______% Applicable Weighting
Plant: _____
________% RONA Target Achieved
Total: _____ $_______ AWARD AMOUNT
________% Individual Performance
+/- 20%
$_______ TOTAL AWARD
5
<PAGE> 6
EXHIBIT 10.10
MANAGEMENT INCENTIVE PLAN
OTHER DETAILS
Earned Incentive payments will be made on or about the end of the first quarter,
following the calender year of performance measurement. The Company may delay or
modify the manner in which payments are made in the event immediate payment is
not practicable. All payments will be made in cash with appropriate deductions
for social security, federal, state, local income taxes, other applicable
payroll dedications and 401(K). In the event of a modification and/or
termination of the Plan during the year, the Company, in its sole discretion,
will determine and pay pro-rata incentive payments.
An employee's Incentive payment will be considered eligible compensation. This
compensation will be eligible for the 4% Retirement Plan contribution, provided
the employee otherwise qualifies for a Retirement Plan contribution.
While the Company expects this plan to be permanent, it retains the right to
amend, modify, or terminate the Plan, or any provision of the Plan, at an time
upon notification to affected employees. There are no guarantees that the Plan
will forever remain in effect. Participation in the Plan shall constitute no
vested right, and participation shall be determined each year.
The Administrative Committee (comprised of the Corporate President & CEO,
Chief Financial Officer, and the Vice President of Human Resources) has final
discretionary authority to interpret the Plan, to determine eligibility for
participation and entitlement to benefits and to resolve all issues with respect
to administration of the Plan subject to the review and final approval by the
Compensation Committee of the Board of Directors.
Employees who terminate due to retirement, death, or specific written agreement
will participate in that years award payment if any, on a pro-rated basis.
6
<PAGE> 7
MANAGEMENT INCENTIVE PLAN
DEFINITIONS
For the purposes of this Plan, the following definitions shall apply.
1 Return on Net Assets (RONA) = Income before Interest and Taxes
---------------------------------
Average Net Assets
Average net assets are defined as total assets minus current
liabilities (excluding inter-company accounts); for the calculation,
month end net assets results will be added together and divided by 12.
RONA is then calculated by dividing IBIT by the average net assets
value.
2 Eligible Compensation - Wages eligible for the 4% Retirement Plan
contribution. Eligible wages include wages, salary, bonuses,
commissions, and overtime pay. Eligible wages are not reduced by
employee contributions made to the 401(K) Plan and/or applied to the
cost of health insurance under the employee salary reduction plan
pursuant to Section 125 of the Internal Revenue Code.
3 The RONA calculation excludes the effect of non-budgeted discontinued
operations, extraordinary, unusual or infrequent items, as deemed
appropriate by the Company.
AQUA-CHEM, INC.
MANAGEMENT INCENTIVE PLAN
1996 AND 1997
Division - Corporate
- ----------------------------------------
Threshold 11
Target 17.7
% TARGET AWARD ACHIEVED 24.4
Division - Cleaver Brooks
- ----------------------------------------
Threshold 12.3
Target 18.6
% TARGET AWARD ACHIEVED 25.0
Division - Water - Technologies
- ----------------------------------------
Threshold 7.4
Target 15
% TARGET AWARD ACHIEVED 22.6
Division - Industrial Combustion
- ----------------------------------------
Threshold 12.2
Target 18.6
% TARGET AWARD ACHIEVED 25.0
7
<PAGE> 1
EXHIBIT 10.19
[AQUA-CHEM, INC. LETTERHEAD]
JEFFREY A. MILLER
Chairman and Chief Executive Officer
December 17, 1997
Mr. William P. Killian
207 W. Miller Drive
Mequon, Wisconsin 53092
Dear Bill:
This letter will set forth our agreement in connection with your
serving as a member of the Board of Directors (and any Committees thereof) of
Aqua-Chem, Inc. ("AQM"). The arrangements set forth herein shall be effective as
of August 1, 1997 and shall continue in effect for so long as you continue to be
a director. In that regard, nothing contained herein shall obligate you to
continue to serve as a director of AQM for any specific period or term or confer
upon you any right to continue to serve as a director of AQM for any specific
period or term. Accordingly, AQM by majority vote of its Stockholders or Board
and you each have the right to terminate your being an AQM director at any time.
Cash Fee.
For so long as you are a member of the Board of Directors, AQM will pay
you Two Thousand Five Hundred Dollars ($2,500) on the first day of November,
February, April and July of each year. Simultaneous with your acceptance of the
terms set forth herein, AQM will pay you Two Thousand Five Hundred Dollars
($2,500), representing payment due on November 1, 1997.
Indemnification Agreement.
AQM hereby confirms that the Indemnification Agreement (a copy of which
is attached hereto) between you and the predecessor to AQM, which was merged
into AQM on July 31, 1997, shall continue in full force and effect and, in
accordance with its terms, shall continue to apply to liabilities or obligations
incurred as a director of AQM as well as its predecessor.
Grant of Options.
Effective as of August 1, 1997 and effective as of each August 1
thereafter for so long as you are a member of the Board of Directors, AQM hereby
grants you an option (subject to the vesting and anti-dilution provisions
hereinafter set forth) to purchase six hundred (600) shares of $.01 par value
common stock of AQM (hereinafter respectively referred to as the "Options" and
the "Stock") at a price of Three and 75/100 Dollars ($3.75) per share, which
shall be payable in full upon exercise of the Option. Except as hereinafter set
forth in the next paragraph, all Options granted hereunder shall expire and
terminate on August 1, 2007. Options granted hereunder are so called
Non-Qualified or Non-Statutory Options and do not constitute Incentive Stock
Options
<PAGE> 2
EXHIBIT 10.19
within the meaning of Section 423 of the Internal Revenue Code. You shall be
responsible for any and all taxes due in connection with the grant or exercise
of the Options and/or the subsequent sale or other disposition of Stock acquired
pursuant to the exercise of the Options. Options shall be exercised by written
notice addressed to AQM accompanied by a check for the full purchase price. As a
condition precedent to the exercise of any Option, AQM reserves the right to
require you to represent to it that such exercise is for investment only and not
with a view to distribution and such other matters as may be necessary to comply
with applicable laws or regulations. If at any time the Board of Directors of
AQM in its sole discretion determines that the listing, registration, or
qualification of shares of Stock issuable hereunder on any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with the issue, transfer or purchase of Stock, the Options granted
hereunder may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the AQM Board. The granting of
the Options shall not confer any rights as a stockholder unless and until an
Option is validly exercised and a certificate issued. Nothing contained herein
shall confer any security interest or other interest in any assets of AQM and
you shall be a general unsecured creditor of AQM with respect to any amounts
which may become due you pursuant to the terms hereof.
Vesting
Options which are granted effective as of August 1 of any calendar year
shall vest and become exercisable in full on July 31 of the subsequent calendar
year. Accordingly, the Option granted effective as of August 1, 1997 shall
become vested and exercisable on July 31, 1998, the Option granted effective as
of August 1, 1998 shall become vested and exercisable on July 31, 1999 and so
forth. Notwithstanding the foregoing, in the event that prior to July 31 of any
calendar year, (a) AQM becomes a party to an agreement that contemplates the
sale of all of the issued and outstanding stock of AQM ("Stock Sale"), (b) AQM
becomes a party to a merger or consolidation agreement that contemplates that
AQM will not be the surviving corporation of the merger or consolidation
("Reorganization"), or (c) you cease for any reason to be a member of the Board
of Directors ("Termination") then, in any of such events (hereinafter referred
to as a "Triggering Event"): (a) if the Stock Sale, Reorganization or
Termination actually occurs prior to February 1 of such calendar year, the
Option granted effective August 1 of the preceding calendar year shall be null
and void and (b) if the Stock Sale, Reorganization or Termination actually
occurs on or after February 1 of such calendar year, the Option granted
effective August 1 of the preceding calendar year shall become immediately
vested and exercisable in full upon the occurrence of the Triggering Event.
Notwithstanding anything to the contrary herein (a) upon the consummation of a
Stock Sale or Reorganization all Options previously granted which have not been
exercised shall expire and terminate and (b) all Options previously granted
which have not been exercised shall expire and terminate on the ninetieth (90th)
day following a Termination.
Anti-Dilution and Administration.
Notwithstanding anything to the contrary herein, the AQM Board of
Directors (or such Committee thereof as the Board may designate) shall have the
right to and shall: (a) adjust the number of shares, the price of shares and/or
the class of shares to which the Options apply, but only to prevent the dilution
or enlargement of rights, including, without limitation, adjustments in the
event of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations, spin-offs,
reorganizations, liquidations and the like; (b) interpret, administer and, to
the extent necessary to comply with the provisions of Section 16 of
2
<PAGE> 3
EXHIBIT 10.19
the Securities Act of 1934, the requirements of Rule 16b-3 and other
applicable laws and regulations, modify the provisions set forth herein. Any
such action taken or determination made in good faith by the AQM Board of
Directors or such Committee as the Board may designate shall be final and
binding.
Nontransferability of Options.
No Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent and distribution, and no Option shall be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Option not specifically
permitted herein shall be null and void.
Put - Call Provisions
Upon your death or disability (as defined in Section 22 (e) (3) of the
Internal Revenue Code) and continuing thereafter at any time or times until the
consummation of an initial public offering of the Stock, (a) you, or in the
event of your death, your personal representative and/or heirs (hereinafter
referred to as the "Selling Stockholder") shall have the right ("Put"),
exercisable by written notice to AQM, to require AQM to purchase all or any
portion of the Stock acquired pursuant to the exercise of the Options and (b)
AQM shall have the right ("Call"), exercisable by written notice, to require
you, or in the event of your death, your personal representative and/or heirs
(hereinafter again referred to as the "Selling Stockholder") to sell all or any
portion of the Stock acquired pursuant to the exercise of the Options. The per
share price for the Stock purchased and sold pursuant to the exercise of a Put
or Call shall be "Market Price" as hereinafter defined. The closing of the
purchase and sale of Stock pursuant to the exercise of a Put or Call shall occur
at AQM's principal office at the date and time specified by AQM by written
notice to the Selling Stockholder, which shall be (a) not less than ten (10)
days after the date of receipt of the written notice specifying date and time of
closing and (b) not more than ninety (90) days after receipt of the initial
notice of exercise of the Put or Call. At the closing, the Selling Stockholder
shall deliver certificates duly endorsed for transfer evidencing ownership of
the Stock being purchased and sold and such other agreements as AQM may
reasonably require to confirm that it is acquiring the Stock free and clear of
any claims of any nature whatsoever, and against delivery of the same, AQM shall
pay the Selling Stockholder (by certified or bank cashier's check or wire
transfer of immediately available funds to such account as the Selling
Stockholder shall direct in writing) an amount equal to (a) the Market Price,
multiplied by (b) the number of shares of Stock being purchased and sold. As
used herein, "Market Price" shall mean the fair market value of one share of
Stock as of the date of receipt of written notice of exercise of a Put or Call
as determined by an independent appraiser (the "Independent Appraiser")
appointed by the Board of Directors of AQM. The Independent Appraiser shall be
appointed within ten (10) days of receipt of written notice of exercise of a Put
or Call and shall be instructed to complete the valuation within thirty (30)
days after appointment. The Selling Stockholder and AQM shall execute such
agreements as the Independent Appraiser shall require. The fees and expenses of
the Independent Appraiser shall be paid by AQM and the determination of the
Independent Appraiser shall be final and binding upon AQM and the Selling
Stockholder.
Right of First Refusal.
AQM shall have a right of first refusal with respect to any sale,
transfer, gift, assignment, pledge, encumbrance or other disposition of Stock
acquired pursuant to the exercise of an Option. In the event you receive a bona
fide offer to purchase or desire to sell, transfer, assign, pledge, encumber or
otherwise dispose of any Stock acquired pursuant to the exercise of an Option,
you shall deliver written notice thereof to AQM stating the terms of such
proposed sale, transfer, gift, assignment, encumbrance or disposition, which
notice shall also
3
<PAGE> 4
EXHIBIT 10.19
specify the number of shares of Stock involved, the price per share, if any, and
the name and address of the proposed transferee. AQM shall have the right
(exercisable by written notice to you during the thirty (30) day period
following the date of AQM's receipt the initial written notice from you) to
elect to purchase all or less than all of the shares of Stock specified in your
written notice at a per share price equal to (a) in the case of a proposed
pledge, encumbrance, gift or similar disposition, the Market Price (as defined
in the preceding paragraph and determined as of the date of AQM's receipt of the
written notice from you), or (b) in the case of a proposed sale, the lesser of
the Market Price or the price contained in the bona fide offer and specified in
your written notice. The time and place of closing and the deliveries at closing
shall be as specified in the preceding paragraph. In the event AQM does not
exercise the right of first refusal as to all of the shares of Stock specified
in your written notice, you may during the ninety (90) day period after the
expiration of AQM's right of first refusal, dispose of any shares of Stock
specified in your initial written notice which were not purchased by AQM but
only upon the terms and to the transferee specified in your initial written
notice to AQM. After the expiration of such ninety (90) day period, no shares of
Stock acquired upon exercise of an Option may thereafter be transferred or
encumbered without again complying with the provisions set forth herein. Any
attempted transfer not in compliance with the preceding provisions shall be null
and void. The right of first refusal set forth herein shall terminate upon the
consummation of an initial public offering of the Stock.
Legend.
All certificates evidencing shares of Stock acquired pursuant to the
exercise of an Option shall bear a legend as follows:
The shares of Aqua-Chem, Inc. evidenced by this certificate have not
been registered under any securities laws and may only be sold,
transferred or otherwise disposed of in compliance with applicable
securities laws. In particular, the shares evidenced by this
certificate have not been registered under the Securities Acts of 1933,
as amended (the "Securities Act") and may not be sold, transferred or
otherwise dispose of unless (1) an effective registration statement
under the Securities Act shall then be in effect with respect to such
shares, or (2) the Company shall have received an opinion of counsel
reasonably acceptable to the Company that any proposed sale, transfer
or other disposition of such shares is exempt from registration under
the Securities Act. The shares evidenced by this certificate are
further subject to a right of first refusal and call as set forth in a
letter agreement dated December , 1997, a copy of which is available
for inspection at the offices of the Company.
Miscellaneous Provisions.
Any notices required or permitted hereunder shall be sufficiently given
if in writing and personally delivered, sent by registered mail or facsimile
addressed: (a) if to you or any permitted transferee, to your address or, if to
a permitted transferee, to such permitted transferee's address, as set forth in
the books and records of AQM; or (b) if to AQM, at the principal office of AQM
clearly marked "Attention: Board of Directors". If any provision of this
agreement shall be determined to be invalid or unenforceable, such determination
shall not affect the validity or enforceability of any other provision of this
agreement and the same shall be enforced as if such invalid or unenforceable
provision had not been included. This agreement contains the entire agreement of
the parties and, except as expressly provided to the contrary herein, may only
be modified by a written instrument signed by AQM and you. This agreement shall
be governed by the laws of the State of Wisconsin and any dispute hereunder
shall be resolved in accordance with the rules of the American Arbitration
Association by binding arbitration in Milwaukee, Wisconsin, by a panel of three
arbitrators, with you and AQM each appointing one arbitrator and the two
arbitrators so appointed then appointing a third arbitrator.
4
<PAGE> 5
EXHIBIT 10.19
If you are in agreement with the preceding, please so indicate by
signing and returning the enclosed copy of this letter.
Very truly yours,
/s/ JA Miller
--------------------------
Jeffrey A. Miller
Agreed to and accepted this ___ day of Decembr, 1997.
/s/ William Killian
--------------------------
William Killian
5
<PAGE> 6
EXHIBIT 10.19
AGREEMENT
AGREEMENT made and entered into this 21 day of June, 1996 by and between
Aqua-Chem, Inc., a Delaware corporation with principal offices in Milwaukee,
Wisconsin (hereinafter sometimes referred to as AQM) and William P. Killian
(hereinafter sometimes referred to as "Mr. Killian").
WITNESSETH:
WHEREAS, Mr. Killian has in the past and currently serves as a director
and/or officer of AQM and AQM desires Mr. Killian to continue to serve as a
director;
WHEREAS, as an inducement to Mr. Killian to continue to serve as a
director, AQM has agreed to indemnify Mr. Killian and hold him harmless as
hereinafter set forth in this Agreement; and
WHEREAS, Mr. Killian, in reliance upon AQM's undertakings as hereinafter
set forth in this Agreement, is willing to continue to serve as a director
and/or officer.
NOW, THEREFORE, in consideration of the premises AQM and Mr. Killian hereby
agrees as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "Expenses" include fees, costs, charges, disbursements, attorney
fees and any other Expenses incurred in connection with a Proceeding
(as hereinafter defined).
(b) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax
assessed with respect to any employee benefit plan, and reasonable
Expenses.
(c) "Party" includes an individual who was or is, or who is threatened
to be made, a named defendant or respondent in a Proceeding.
(d) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or
other Proceeding, whether formal or informal, which involves foreign,
federal, state or local law and which is brought by or in the right of
AQM or by any other person.
2. MANDATORY INDEMNIFICATION.
(a) AQM shall indemnify Mr. Killian and in the event of his death, his
estate, personal representative and heirs (hereinafter collectively
referred to as the "Indemnified Party"), to the extent that the
Indemnified Party has been successful on
<PAGE> 7
EXHIBIT 10.19
the merits or otherwise in the defense of a Proceeding, for all
reasonable Expenses incurred in the Proceeding if the Indemnified
Party was a party because Mr. Killian is or was a director and/or
officer of AQM.
(b) AQM shall also indemnify the Indemnified Party against Liability
incurred by the Indemnified Party in a Proceeding the Indemnified
Party was a party to because Mr. Killian was or is a director and/or
officer of AQM, unless Liability was incurred because Mr. Killian
breached or failed to perform a duty that he owes to AQM and the
breach or failure to perform constitutes any of the following:
1. A willful failure to deal fairly with AQM, Inc. or its
shareholders in connection with a matter in which Mr. Killian
has a material conflict of interest.
2. A violation of the criminal law, unless Mr. Killian had
reasonable cause to believe that his conduct was lawful or no
reasonable cause to believe that his conduct was unlawful.
3. A transaction from which Mr. Killian derived an improper
personal profit.
4. Willful misconduct.
(c) Determination of whether indemnification is required under this
Section 2 shall be made under Section 5 of this Agreement.
(d) The termination of a Proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does
not, by itself, create a presumption that indemnification of the
Indemnified Party is not required under this section.
3. ALLOWANCE OF EXPENSES AS INCURRED. Upon written request by an
Indemnified Party who is a party to a Proceeding, AQM shall pay or reimburse the
Indemnified Party's reasonable Expenses as incurred if the Indemnified Party
provides AQM with all of the following:
(a) Written affirmation of the Indemnified Party's good faith belief
that Mr. Killian has not breached or failed to perform his duties to
AQM.
(b) A written undertaking, executed personally or on behalf of the
Indemnified Party, to repay the allowance and to pay interest (at an
interest rate equal to the rate then currently paid by AQM on borrowed
funds) on the allowance to the extent that it is ultimately determined
under Section 5 of this Agreement that indemnification under Section 2
of this Agreement is not required and that indemnification is not
2
<PAGE> 8
EXHIBIT 10.19
ordered by a court under Section 4 of this Agreement. The undertaking
under this Section shall be an unlimited and unsecured general
obligation of the Indemnified Party.
4. COURT-ORDERED INDEMNIFICATION.
(a) An Indemnified Party who is a party to a Proceeding may apply for
indemnification to, or for a review of an adverse determination under
Section 5 of this Agreement by, the court conducting the Proceeding or
to the Circuit Court for Milwaukee County, Wisconsin and shall be
entitled to indemnification as hereinafter provided in Section 4 (b).
(b) The Indemnified Party shall be entitled to indemnification if the
court determines either of the following:
(i) That the Indemnified Party is entitled to indemnification
under Section 2 of this Agreement. If the court also determines
that AQM unreasonably refused the request for indemnification,
AQM shall pay the Indemnified Party's reasonable Expenses
incurred to obtain the court-ordered indemnification.
(ii) That the Indemnified Party is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances,
regardless of whether indemnification is required under Section 2
of this Agreement.
5. DETERMINATION OF RIGHT TO INDEMNIFICATION. The Indemnified Party
shall select one of the following means of determining his or her right to
indemnification:
(a) By a majority vote of a quorum of the Board of Directors of AQM
consisting of directors who are not at the time parties to the same or
related Proceedings. If a quorum of disinterested directors cannot be
obtained, by majority vote of a committee duly appointed by the Board
of Directors of AQM and consisting solely of two or more directors who
are not at the time parties to the same or related Proceedings.
Directors who are parties to the same or related Proceedings may
participate in the designation of members of the committee.
(b) By independent legal counsel selected by a majority vote of a
quorum of the Board of Directors or its committee in the manner
prescribed in (a) above or, if unable to obtain such a quorum or
committee, by a majority vote of the full board of directors,
including directors who are parties to the same or related
Proceedings.
(c) By a panel of three arbitrators consisting of one arbitrator
selected by those directors entitled under (b) above to select
independent legal counsel, one arbitrator
3
<PAGE> 9
EXHIBIT 10.19
selected by the Indemnified Party and one arbitrator selected by
the two arbitrators previously selected.
6. ADDITIONAL RIGHTS. In addition to the specific rights to
indemnification set forth herein, the Indemnified Party shall be
entitled to such additional rights to indemnification as may from time
to time be provided or permitted under AQM's Certificate of
Incorporation or by-laws or the general business corporation laws of
Delaware or Wisconsin; provided, however, that no provision under any
of the foregoing shall serve to diminish any rights of indemnification
otherwise specifically granted under this Agreement.
7. MISCELLANEOUS MATTERS. This Agreement shall be governed by the
laws of the State of Wisconsin, may only be amended by written
instrument signed by Mr. Killian and AQM and shall inure the benefit
of and be binding upon the parties and their heirs, personal
representatives, successors and assigns; provided, however, that no
assignment by operation of law or otherwise shall relieve a party of
its obligation hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AQUA-CHEM, INC.
/s/ William P. Killian By: /s/ Gary Blinka
- ---------------------- --------------------------
William P. Killian
By: /s/ James A. Feddersen
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EXHIBIT 10.21
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AGREEMENT AND PLAN OF REORGANIZATION
by and among
LYONNAISE AMERICAN HOLDING, INC.
GESTRA CORPORATION, N.V.
and
RUSH CREEK LLC
AQUA-CHEM, INC.
A-C ACQUISITION CORP.
JEFFREY A. MILLER
DATE: July 31, 1997
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EXHIBIT 10.21
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TABLE OF CONTENTS
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Section 1. Merger of Aqua-Chem with and into Newco.........................................................2
1.1 The Merger......................................................................................2
1.2 Conversion of the Shares. .....................................................................2
1.3 Closing.........................................................................................2
Section 2. Representations and Warranties of the Sellers...................................................3
2.1 Organization and Standing of Aqua-Chem..........................................................3
2.2 Subsidiaries....................................................................................4
2.3 Capitalization and Share Ownership..............................................................4
2.4 Corporate Approval and Performance..............................................................5
2.5 Financial Statements............................................................................5
2.6 Undisclosed Liabilities.........................................................................6
2.7 Title to Properties.............................................................................6
2.8 Tax Matters.....................................................................................7
2.9 Contracts.......................................................................................8
2.10 Consents and Approvals..........................................................................8
2.11 Investment Representation.......................................................................8
Section 3. Representations and Warranties of the Purchaser.................................................8
3.1 Approval and Performance........................................................................8
3.2 Consents and Approvals..........................................................................9
3.3 Solvency........................................................................................9
Section 4. Further Agreements of the Parties..............................................................10
4.1 Access and Information.........................................................................10
4.2 Conduct of Business Pending Closing............................................................10
4.3 Payment of Transaction-Related Taxes...........................................................12
4.4 Taxes..........................................................................................12
4.5 Non-Competition................................................................................15
4.5.1 LAH Non-compete.......................................................................15
4.5.2 Gestra Non-Compete....................................................................16
4.5.3 Miscellaneous Matters.................................................................16
4.6 Further Obligations of the Parties.............................................................17
4.7 The Sellers' Due Diligence.....................................................................17
4.8 Return of Information..........................................................................17
4.9 Loan Agreement and Performance Bonds...........................................................18
Section 5. Conditions Precedent to the Obligation of the Parties..........................................18
5.1 Conditions to Obligations of the Sellers, Aqua-Chem, Newco and the Purchaser...................18
(a) Injunction............................................................................19
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(b) HSR...................................................................................19
(c) Financing.............................................................................19
5.2 Conditions to the Obligations of the Sellers...................................................19
(a) Representations and Warranties True...................................................19
(b) Performance...........................................................................19
(c) Certificates of the Purchaser's and Newco's Officers..................................19
(d) Opinion of the Purchaser's Counsel....................................................20
5.3 Conditions to the Obligations of the Purchaser and Newco.......................................20
(a) Representations and Warranties True...................................................20
(b) Disclosure Schedule...................................................................20
(c) Performance...........................................................................20
(d) Opinion of the Sellers' Counsel.......................................................21
(e) Gestra Assurances.....................................................................21
(f) Certificates of the Sellers' Officers.................................................21
Section 6. General Indemnification; Survival of Representations and Warranties............................21
6.1 The Sellers' General Indemnity.................................................................21
(a) Knowledge of the Management Group.....................................................22
Insurance Recoveries..................................................................22
(c) Minimum Claim.........................................................................23
(d) Maximum Liability.....................................................................23
(e) Exceptions to Knowledge, Minimum Claim and Maximum Liability
Provisions............................................................................23
6.2 The Purchaser's and Newco's General Indemnity..................................................24
(a) Knowledge of the Sellers..............................................................24
(b) Insurance Recoveries..................................................................24
(c) Minimum Claim.........................................................................25
(d) Maximum Liability.....................................................................25
(e) Exceptions to Knowledge, Minimum Claim and Maximum Liability
Provisions............................................................................25
6.3 Survival of Representations and Warranties.....................................................25
6.4 General Indemnity Procedures...................................................................26
6.5 Termination of General Indemnity...............................................................27
Section 7. [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT
TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR
SECTION 240.24b2]
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Section 8. [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24B2]
Section 9. Priority and Procedures for Satisfaction of General Indemnity, [THIS PROVISION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24B2] Obligations........................29
9.1 Upon Redemption of Series A and Series B Preferred Stock.......................................29
9.2 Subsequent to Redemption of Series A and Series B Preferred Stock..............................30
Section 10. Termination....................................................................................32
Section 11. Miscellaneous..................................................................................33
11.1 Expenses.......................................................................................33
11.2 Public Disclosure..............................................................................33
11.3 Governing Law..................................................................................34
11.4 Notices........................................................................................34
11.5 Section Headings...............................................................................35
11.6 Counterparts...................................................................................36
11.7 Entire Agreement; Modification.................................................................36
11.8 Exclusivity of Representations and Warranties and Indemnification Provision;
Relationship Between the Parties...............................................................36
11.9 Post-Closing Access............................................................................37
11.10 Assignment.....................................................................................37
11.11 Waiver of Punitive and Other Damages...........................................................37
11.12 Audit Rights...................................................................................28
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EXHIBIT 10.21
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION made and entered into as of the
31st day of July, 1997, by and among LYONNAISE AMERICAN HOLDING, INC., a
Delaware corporation (hereinafter referred to as, "LAH"), and GESTRA CORPORATION
N.V., a company organized in the Netherlands Antilles (hereinafter referred to
as, "Gestra"), RUSH CREEK LLC, a Wisconsin limited liability company
(hereinafter referred to as, the "Purchaser"), AQUA-CHEM, INC., a Delaware
corporation (hereinafter referred to as, "Aqua-Chem"), A-C ACQUISITION CORP., a
Delaware corporation (hereinafter referred to as "Newco"), and JEFFREY A. MILLER
(hereinafter referred to as "Mr. Miller").
WITNESSETH:
WHEREAS, LAH and Gestra (hereinafter sometimes collectively referred to
as, the "Sellers") own all the issued and outstanding shares of capital stock of
Aqua-Chem,
WHEREAS, Mr. Miller, J. Scott Barton, Rand E. McNally, Bruce Dickson
and Charles Norris are the senior officers of Aqua-Chem (hereinafter referred to
as the "Management Group") and are members of the Purchaser,
WHEREAS, Newco is a wholly-owned subsidiary of the Purchaser which has
been organized for the purposes of consummating the transactions contemplated by
this Agreement, and
WHEREAS, the Purchaser, the Sellers, Newco and Aqua-Chem desire that
Aqua-Chem be merged with and into Newco in accordance with the laws of Delaware
and on the terms and conditions hereinafter set forth in this Agreement
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EXHIBIT 10.21
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto do hereby agree
as follows:
SECTION 1. MERGER OF AQUA-CHEM WITH AND INTO NEWCO.
1.1 THE MERGER. At the Closing, as hereinafter defined, and subject to
the terms and conditions set forth in this Agreement and as more fully set forth
in the Certificate of Merger (the "Certificate of Merger") and Agreement and
Plan of Merger, both attached hereto as Exhibit A Aqua-Chem shall, pursuant to
the laws of Delaware, be merged with and into Newco, which shall be the
surviving corporation (the "Merger").
1.2 CONVERSION OF THE SHARES. Upon the Merger becoming effective, each
of the One Thousand Three Hundred shares of Aqua-Chem Common Stock, par value
One Dollar ($1.00) per share (the "Shares"), which constitute all of the issued
and outstanding stock of Aqua-Chem, shall be converted into (a) the right to
receive Thirty Eight Thousand Four Sixty One and 54/100 Dollars ($38,461.54) by
certified or bank cashier's check in (or wire transfer of) immediately available
federal funds, plus (b) one-tenth (1/10) of one(s) share of shares of Newco
Series A Preferred Stock, plus (c) one-tenth (1/10) of one (1) share of Newco
Series B Preferred Stock, both as described in Exhibit B attached hereto
(hereinafter referred to as the "Series A Preferred Stock" and the "Series B
Preferred Stock").
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement shall take place at the offices of Whyte Hirschboeck Dudek S.C., 2100
Bank One Plaza, Milwaukee, Wisconsin 53202, at 10:00 A.M. Central Daylight Time
on the fifth business day after all conditions precedent to the Closing have
been satisfied or waived, but no later than July 31, 1997. The actual date and
time of closing are herein referred to as the "Closing".
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EXHIBIT 10.21
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. For purposes
of this Agreement, indemnities, covenants, representations and warranties
expressly given or expressly made separately by LAH, with respect to matters
pertaining solely to LAH and/or the LAH Related Parties (as hereinafter
defined), or Gestra, with respect to matters pertaining solely to Gestra and/or
the Gestra Related Parties, as the case may be, shall be deemed given or made
only by, and shall be actionable only against, the entity making the warranty or
representation. As to indemnities, covenants, representations and warranties
given or made severally but not jointly by the Sellers, LAH and Gestra shall be
responsible for 80% and 20%, respectively, of any amounts that may become due
and payable under this Agreement as a result of such indemnities, covenants,
warranties and representations, regardless of the reason such amounts have
become due. Except as set forth on the Disclosure Schedule to be delivered by
the Sellers to the Purchaser and Newco prior to the Closing, the Sellers hereby
severally and not jointly represent, warrant and covenant to the Purchaser,
Newco and Aqua-Chem as follows:
2.1 ORGANIZATION AND STANDING OF AQUA-CHEM. Aqua-Chem is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to own its
properties and assets and to carry on its business as now owned and conducted.
True and correct copies of Aqua-Chem's Certificate of Incorporation and all
amendments thereto and of Aqua-Chem's By-laws as amended to date will be
included in Section 2.1 of the Disclosure Schedule.
2.2 SUBSIDIARIES. Section 2.2 of the Disclosure Schedule contains a
list of all entities in which Aqua-Chem has an equity interest (the
"Subsidiaries"). Each Subsidiary is a corporation duly incorporated or
organized, validly existing and in good standing under the laws of its
respective
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EXHIBIT 10.21
jurisdiction of incorporation or organization and has the corporate or
partnership power and authority to own its properties and assets and to carry on
its business as now owned and conducted.
2.3 CAPITALIZATION AND SHARE OWNERSHIP.
(a) The aggregate number of shares of capital stock which
Aqua-Chem has the authority to issue is Five Thousand (5,000) shares of
Common Stock par value One Dollar ($1.00) per share, of which One
Thousand Three Hundred (1,300) shares have been validly issued, are
presently outstanding, are fully paid and nonassessable and are owned
beneficially and of record by Sellers. Aqua-Chem has no shares of its
capital stock held as treasury stock. LAH warrants and represents that
it owns beneficially and of record One Thousand Forty (1,040) of the
Shares and that at and immediately before the Closing it will have good
and valid title to the Shares owned by it, free and clear of all
pledges, mortgages, security interests, liens, encumbrances, equities
or claims ("Liens"). Gestra warrants and represents that it owns
beneficially and of record Two Hundred Sixty (260) of the Shares and
that at and immediately before the Closing it will have good and valid
title to the Shares owned by it, free and clear of all Liens.
(b) There are no existing options, calls, commitments or
agreements of any character relating to the capital stock of Aqua-Chem
or any of its Subsidiaries or any securities or obligations convertible
into or exchangeable for, or giving any person any right to subscribe
for or acquire from Aqua-Chem or any of its Subsidiaries, any shares of
capital stock of Aqua-Chem or any of its Subsidiaries. Except as will
be set forth in Section 2.3 of the Disclosure Schedule, all of the
outstanding securities of each Subsidiary are owned beneficially and of
record by Aqua-Chem or another Subsidiary, free and clear of all Liens.
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EXHIBIT 10.21
2.4 CORPORATE APPROVAL AND PERFORMANCE. Each of the Sellers separately
warrants and represents that it is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Sellers separately warrants and represents that the execution, delivery and
performance of this Agreement and the merger of Aqua-Chem with and into Newco
pursuant to this Agreement have been duly approved by all requisite corporate
action of such Seller. The execution, delivery and performance of this Agreement
and the merger of Aqua-Chem with and into Newco pursuant to this Agreement have
been duly approved by all requisite corporate action of Aqua-Chem, and this
Agreement constitutes the valid and legally binding agreement of Aqua-Chem
enforceable in accordance with its terms.. Each of the Sellers separately
warrants and represents that the performance of this Agreement by such Seller
will not result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any law, indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which such Seller is a party or by
which such Seller is bound or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Seller or the property
of such Seller. Each of the Sellers separately warrants and represents that this
Agreement constitutes the valid and legally binding agreement of such Seller
enforceable in accordance with its terms.
2.5 FINANCIAL STATEMENTS. Section 2.5 of the Disclosure Schedule
contains true and correct copies of Aqua-Chem's consolidated balance sheets as
of December 31, 1994, 1995 and 1996 and the related consolidated statements of
operations for the years then ended certified by KPMG Peat Marwick. Such balance
sheets and statements of operations have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered by such statements and present fairly the
financial position of Aqua-Chem and Subsidiaries
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EXHIBIT 10.21
at such dates and the results of their operations for the years then ended in
conformity with such principles.
2.6 UNDISCLOSED LIABILITIES. Except as set forth or reserved against on
Aqua-Chem's December 31, 1996 balance sheet included in Section 2.5 of the
Disclosure Schedule (hereinafter sometimes referred to as the "1996 Balance
Sheet") or incurred in the ordinary course of business since December 31, 1996,
Aqua-Chem has no liabilities, whether accrued, absolute, contingent or
otherwise, which are required to be so set forth or reserved against in
accordance with generally accepted accounting principles.
2.7 TITLE TO PROPERTIES. Aqua-Chem and its Subsidiaries have good and
marketable title to all of their respective assets, real and personal, purported
to be owned by such entities and used in their businesses or reflected in the
1996 Balance Sheet (except such assets as are licensed, leased or have since
been sold or otherwise disposed of in the ordinary course of business subsequent
to December 31, 1996), in each case subject to no Liens whatsoever, except for
(i) Liens shown on the 1996 Balance Sheet, (ii) Liens for taxes and assessments
not yet due and payable and (iii) minor imperfections of title and encumbrances,
if any, which do not materially detract from the value of the properties in view
of their present use or materially impair the operations of Aqua-Chem and/or its
Subsidiaries. To the Sellers' knowledge, all leases under which Aqua-Chem or any
of its Subsidiaries is a lessee of real or personal property are valid,
effective and enforceable in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws from time to time in effect which affect creditors'
rights generally and by legal and equitable limitations upon the availability of
specific performance as a
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remedy. To the Sellers' knowledge, no material default exists under any
lease to which Aqua-Chem or any of its Subsidiaries are a party.
2.8 TAX MATTERS.
(a) All Federal, state and local income tax returns, and all
other tax returns, required by law to be filed as of the Closing Date
by, or on behalf of, or in which is required to be reported the income,
gains, losses, deductions or credits of, Aqua-Chem and/or any of its
Subsidiaries and/or the affiliated, combined, consolidated or unitary
group of corporations of which Aqua-Chem is the common parent or a
member have been duly filed (or extended as permitted under applicable
tax laws), and all federal, state, local and foreign taxes, interest
and penalties ("Taxes") reflected on such tax returns, or which are
claimed by any taxing authority to be due and payable, have been paid
as of the Closing Date, other than taxes, assessments, fees and charges
which have been reserved for on the 1996 Balance Sheet or which are
being contested by Aqua-Chem in good faith using appropriate
procedures.
(b) There are no pending audits, actions, proceedings,
investigations, disputes or claims with respect to any Taxes payable by
or asserted against Aqua-Chem or any Subsidiary or any affiliated group
of which any of them are a member and, as such, responsible for any
Taxes. Neither Aqua-Chem nor any of the Subsidiaries has received
written notice from any taxing authority of its intent to examine or
audit any tax returns of Aqua-Chem or any Subsidiary.
(c) The reserve for taxes set forth on the 1996 Balance Sheet
is sufficient to cover any and all Taxes that may be assessed against
Aqua-Chem and/or any of its Subsidiaries in the future relating to any
tax period ending on or before December 31, 1996.
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EXHIBIT 10.21
2.9 CONTRACTS. Except for the contracts to be described in Section 2.9
of the Disclosure Schedule, neither Aqua-Chem nor any of its Subsidiaries are a
party to any contract or agreement, whether oral or written, with either of the
Sellers or any of their respective affiliates.
2.10 CONSENTS AND APPROVALS. The only authorizations, consents,
approvals or notices required of the Sellers to be obtained or given or waiting
periods required to expire in connection with or as the result of the Merger
pursuant to this Agreement will be as set forth in Section 2.10 of the
Disclosure Schedule.
2.11 INVESTMENT REPRESENTATION. Each of the Sellers agrees that it is
acquiring the Series A and Series B Preferred Stock for its own account for
investment and not with a view to the offer, sale, transfer or distribution
thereof, that it understands the nature and effect of such representation and
agreement and that it will not sell, offer to sell or transfer any of the Series
A and Series B Preferred Stock so acquired by it except in full compliance with
the Securities Act of 1933 and any and all applicable laws, rules or regulations
of any State or other governmental authority.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND NEWCO.
The Purchaser and Newco represent and warrant to the Sellers as follows:
3.1 APPROVAL AND PERFORMANCE. The Purchaser is duly organized, validly
existing and in current status under the laws of the State of Wisconsin and has
the power and authority to enter into this Agreement and perform its obligations
hereunder. Newco is duly incorporated, validly existing and in current status
under the laws of the State of Delaware and has the power and authority to enter
into this Agreement and perform its obligations hereunder. The execution,
delivery and performance of this Agreement have been duly approved by all
requisite action of the Purchaser and Newco and the Purchaser and Newco have
full right, power and authority to enter into
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EXHIBIT 10.21
this Agreement and to otherwise perform all of its obligations under this
Agreement. The performance of this Agreement, by the Purchaser and Newco will
not result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any law, indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which the Purchaser or Newco is a
party or by which the Purchaser or Newco are bound, or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Purchaser or Newco or the property of the Purchaser or Newco. This Agreement
constitutes the valid and legally binding agreement of the Purchaser and Newco
enforceable in accordance with its terms.
3.2 CONSENTS AND APPROVALS. Except as set forth in Section 5.1(b) of
this Agreement, there are no authorizations, consents, approvals or notices
required of the Purchaser to be obtained or given or waiting periods required to
expire in connection with or as the result of the purchase of the Shares
pursuant to this Agreement.
3.3 SOLVENCY. Immediately after giving effect to the transactions
contemplated by this Agreement, each of the Purchaser, Newco and the
Subsidiaries shall (a) be able to pay their respective debts as they become due;
(b) own property which has a fair saleable value greater than the amounts
required to pay their respective debts (including a reasonable estimate of the
amount of all contingent liabilities); and (c) have adequate capital to carry on
their respective businesses. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement with the intent to hinder, delay or defraud either present or
future creditors of the Purchaser, Aqua-Chem, Newco or the Subsidiaries.
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EXHIBIT 10.21
SECTION 4. FURTHER AGREEMENTS OF THE PARTIES.
4.1 ACCESS AND INFORMATION. Mr. Miller and the Sellers shall use their
reasonable efforts to cause Aqua-Chem to furnish to the Purchaser and Newco and
their representatives, including their accountants, lenders and investors, full
access at all reasonable times throughout the period prior to the Closing to the
properties, books, contracts, commitments and records of Aqua-Chem and its
Subsidiaries and to furnish the Purchaser and Newco with all such information
concerning the business of Aqua-Chem and its Subsidiaries as the Purchaser and
Newco may reasonably require. Any such access provided to the Purchaser shall
not unreasonably interfere with the conduct of the business of Aqua-Chem or the
Sellers' interests therein. All such information obtained by the Purchaser,
Newco or their accountants, lenders and investors shall be held in confidence
and used only for the purposes of consummating the transactions contemplated by
this Agreement.
4.2 CONDUCT OF BUSINESS PENDING CLOSING. Except as permitted by the
Agreement or otherwise consented to in writing by the Purchaser and Newco, Mr.
Miller and the Sellers agree that pending the Closing:
(a) The Sellers and Mr. Miller will use their reasonable
efforts to cause Aqua-Chem and each of its Subsidiaries to conduct
their operations in the ordinary course of business and will not cause
or permit Aqua-Chem or any of its Subsidiaries to: (i) incur any
indebtedness for borrowed money, assume, guarantee, endorse or
otherwise become responsible for the obligations of any other
individual, firm or corporation, or make any loans or advances to any
individual, firm or corporation, in each case other than in the
ordinary course of business; (ii) mortgage, pledge or otherwise
voluntarily encumber any of
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its properties or assets; (iii) sell or transfer any of its properties
or assets or cancel, release or assign any indebtedness owed to them or
any claims held by them, other than in the ordinary course of their
respective businesses; or (iv) make any investment of a capital nature
either by purchase of stock or securities, contributions to capital,
property transfer or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation, other than in the
ordinary course of their respective businesses.
(b) No change will be made in the certificates of
incorporation or the by-laws of Aqua-Chem or its Subsidiaries.
(c) No change will be made in the authorized or issued capital
stock of Aqua-Chem or its Subsidiaries, nor will any options, calls or
commitments for or obligations convertible into or exchangeable for or
giving any person any right to subscribe for or acquire any shares of
such stock be issued or granted or agreed to be issued or granted.
(d) No dividend or other distribution or payment will be
declared or made in respect of the Shares.
(e) No increase will be made in the compensation or benefits
payable or to become payable by Aqua-Chem or any Subsidiary to any
shareholder, director or officer.
(f) No contract, lease or commitment will be entered into,
terminated or modified by or on behalf of Aqua-Chem or its
Subsidiaries, other than contracts entered into, terminated or modified
in the normal course of their respective business.
(g) The Sellers and Mr. Miller will use their reasonable
efforts to cause Aqua-Chem and its Subsidiaries (without making any
commitments on behalf of the Purchaser unless otherwise agreed to in
advance by the Purchaser and Newco) to preserve their
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EXHIBIT 10.21
business organization intact, to keep available to Aqua-Chem and its
Subsidiaries the services of their present officers and employees and
to preserve for Aqua-Chem and its Subsidiaries the good will of their
suppliers, customers and others having business relations with them.
(h) The Sellers and Mr. Miller will use their reasonable
efforts not to cause or permit any insurance policy presently covering
Aqua-Chem obtained through LAH to be canceled or terminated or any of
the coverage thereunder to lapse.
4.3 PAYMENT OF TRANSACTION-RELATED TAXES. All transfer, sales, use,
income and similar taxes arising on account of the Merger shall be paid by the
parties as set forth in the Tax Reporting and Indemnification Agreement of even
date herewith, the terms of which by this reference are incorporated herein.
4.4 TAXES.
(a) LAH shall include Aqua-Chem and its Subsidiaries in its
U.S. consolidated federal income tax return for its tax period that
includes the Closing Date and shall also be responsible for the timely
filing of such tax return. The portion of Aqua-Chem's 1997 income,
gains, losses, deductions and credits that are included on such
consolidated return shall be determined under Treas. Reg. Section
1.1502-76(b) by closing the books of Aqua-Chem as of, and determining
the actual amount of Aqua-Chem's income, gains, losses, deductions and
credits through, the Closing Date. After the Closing Date, Aqua-Chem
shall prepare and furnish to LAH on a timely basis, in a manner
consistent with past practice (and without charge to LAH), such tax
information as is reasonably required by LAH (including, without
limitation, U.S. federal income tax information similar to that
previously furnished
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EXHIBIT 10.21
by Aqua-Chem to LAH for tax years ending on or before December 31,
1995) to prepare consolidated, combined or unitary federal, state or
local income tax returns and estimated tax returns that include
Aqua-Chem or any of its Subsidiaries for the tax period ending on the
Closing Date and for the tax period ending on December 31, 1996. The
Sellers shall control the defense of any dispute relating to Taxes of
Aqua-Chem or its Subsidiaries that (a) relate to LAH's consolidated
U.S. federal income tax return or (b) otherwise relate to any tax
period ending on or before the date of Closing.
(b) Except as set forth in Section 4.4(a) above, the Purchaser
and Aqua-Chem shall be responsible for the filing of all tax returns of
Aqua-Chem and its Subsidiaries that are due after the date of Closing
and shall control the defense of any dispute relating to Taxes required
to be reflected on such tax returns.
(c) After the Closing Date, the Purchaser shall cause
Aqua-Chem and its successors to cooperate with the Sellers, including,
without limitation, providing reasonable access to Aqua-Chem's books,
records and other information to the Sellers, their representatives or
agents, for use in preparation of the Sellers' tax returns and in
connection with any examination of the Sellers' tax returns for any
open year prior to the date of Closing until any such year has been
closed. Such cooperation shall also include the retention of tax
records and information and the naming of employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. In this regard,
Aqua-Chem and the Purchaser agree to retain all books and records with
respect to tax matters pertinent to Aqua-Chem and its Subsidiaries
relating to any tax period that includes or ends on or prior to the
date of Closing until such time as the applicable
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EXHIBIT 10.21
statutes of limitations have expired and abide by all record retention
agreements entered into with any taxing authority of which Aqua-Chem
has received written notice.
(d) The share of taxes of LAH, Aqua-Chem and its Subsidiaries
and any other members of the LAH affiliated group which join in the
filing of a U.S. consolidated federal income tax return for the tax
year ending December 31, 1996 and Aqua-Chem's tax period ending on the
Closing Date and included within LAH's tax year ending December 31,
1997 shall be determined under the Tax Allocation Agreement dated June
25, 1984, including the "Lyonnaise-American Holding Co. and
Subsidiaries Changes to Tax Allocation Agreement to reflect Alternative
Minimum Tax and Environmental Tax" (hereinafter referred to as the "Tax
Allocation Agreement"). The determination of each party's share of
taxes (including alternative minimum tax), credits, reimbursements etc.
under the Tax Allocation Agreement shall be consistent with the manner
in which the parties' shares of taxes were determined for periods
ending on or prior to December 31, 1995, and Aqua-Chem, each of the
Subsidiaries and LAH shall make payments of their respective shares of
taxes at the time and in the manner set forth in the Tax Allocation
Agreement. After the Closing Date, neither LAH nor Aqua-Chem and its
Subsidiaries shall have any further rights or obligations under the Tax
Allocation Agreement; provided, however, that LAH and Aqua-Chem and its
Subsidiaries shall remain obligated under the Tax Allocation Agreement
to make payments for their respective shares of taxes, credits,
reimbursements, etc. for the tax period that includes the Closing Date
and for the tax period ending December 31, 1996 as described in this
paragraph.
14
<PAGE> 19
EXHIBIT 10.21
(e) If Aqua-Chem or any of its Subsidiaries realize any tax
savings for any tax periods ending after the Closing Date whether by
way of deduction, credit, reduction in income or gain, offset,
allocation or otherwise (hereinafter referred to as "Tax Savings") as
result of any adjustment to the taxable income, loss or credits of
Aqua-Chem or any of its Subsidiaries for any tax periods ending on or
prior to the Closing Date ("Pre-Closing Tax Adjustments"), and such Tax
Savings are not otherwise taken into account as a reduction in any
indemnity payable to Aqua-Chem or its Subsidiaries hereunder, Aqua-Chem
shall promptly pay to the Sellers the amount of such Tax Savings during
the year in which the Tax Savings are actually realized.
(f) LAH agrees that it shall not make an election under Treas.
Reg. Section 1.1502-20(g) to reattribute net operating losses of
Aqua-Chem to LAH and shall reimburse Aqua-Chem for any of its net
operating losses used by LAH for its tax year ending December 31, 1997
in accordance with the Tax Allocation Agreement.
4.5 NON-COMPETITION.
4.5.1 LAH NON-COMPETE. For a period of five years from and after the
Closing Date, neither LAH nor any of its affiliates, including, without
limitation, any parent or subsidiary companies or other companies under common
control with LAH (hereinafter referred to as "LAH Related Parties"), will
participate or engage, directly or indirectly, anywhere throughout the world in
any business in which it is not already engaged as currently conducted (as will
be described in Section 4.5 of the Disclosure Schedule) in competition with the
Cleaver-Brooks and/or Industrial Combustion businesses of Aqua-Chem as currently
conducted. For a period of three years from and after the Closing Date, neither
LAH nor any of its LAH Related Parties will participate or engage,
15
<PAGE> 20
EXHIBIT 10.21
directly or indirectly, anywhere throughout the world in any business in which
it is not already engaged as currently conducted (as will be described in
Section 4.5 of the Disclosure Schedule) in competition with the Water
Technologies business of Aqua-Chem as currently conducted; provided, however,
that the foregoing restriction shall not prohibit LAH or any LAH Related
Parties, from acquiring a business with existing interests in this sector.
4.5.2 GESTRA NON-COMPETE. For a period of five years from and after the
Closing Date, neither Gestra nor any of its affiliates, including, without
limitation, any parent or subsidiary companies or other companies under common
control with Gestra (hereinafter referred to as "Gestra Related Parties"), will
participate or engage, directly or indirectly, anywhere throughout the world
other than in the United States in any business in which it is not already
engaged as currently conducted (as will be described in Section 4.5 of the
Disclosure Schedule) in competition with the Water Technologies, Cleaver-Brooks,
and/or Industrial Combustion businesses of Aqua-Chem as currently conducted.
4.5.3 MISCELLANEOUS MATTERS. The Sellers acknowledge and agree that (a)
Aqua-Chem's businesses are international in scope, (b) the foregoing
restrictions are reasonable and necessary to protect the goodwill of Aqua-Chem,
(c) in addition to any other remedies available to it, Aqua-Chem shall be
entitled to injunctive relief without the posting of a bond or other collateral,
(d) neither LAH nor Gestra shall oppose the granting of such an injunction and
(e) in the event that any of the foregoing restrictions should be determined by
a final non-appealable order of a court of competent jurisdiction to be overly
broad and, therefore, unenforceable, such restrictions without further action of
the parties shall be deemed to be amended to the extent necessary to render such
restrictions enforceable and, as so amended, shall be enforced. The parties
expressly recognize that lost profits
16
<PAGE> 21
EXHIBIT 10.21
from business opportunities missed as a result of a Seller's violation of the
covenants in Section 4.5.1 or 4.5.2 shall constitute direct damages and, under
such circumstances, are not prohibited as damages by reason of Section 11.11 of
this Agreement.
4.6 FURTHER OBLIGATIONS OF THE PARTIES. The parties shall apply for and
diligently prosecute all applications for, and shall use their best efforts
promptly to obtain, all consents, authorizations and approvals from such
governmental authorities as shall be necessary to permit the consummation of the
transactions contemplated by this Agreement and shall use their best efforts to
bring about the satisfaction as soon as practicable of all the conditions to
Closing contained in Section 5 of this Agreement, including obtaining the
required financing, and to effect the consummation of the transactions
contemplated by this Agreement.
4.7 THE SELLERS' DUE DILIGENCE. Mr. Miller shall cooperate with the
Sellers to enable the Sellers to perform their due diligence during the period
prior to the date of Closing.
4.8 RETURN OF INFORMATION. In the event the Closing under this
Agreement does not occur for any reason, the Purchaser and Newco shall
immediately return to Aqua-Chem any and all information regarding Aqua-Chem, its
business and prospects and any information about the Sellers obtained by the
Purchaser, Newco and their representatives in the course of investigating the
Merger, negotiating this Agreement or delivered to them pursuant to this
Agreement. In view of the proprietary nature of the information referred to in
this Section 4.8, the parties acknowledge and agree that there is no adequate
remedy at law in the event of breach of this Agreement by the Purchaser or
Newco, and that, therefore, in the event of any breach, the Sellers shall, in
addition to any other remedies available to them, be entitled to obtain an
immediate injunction, without the
17
<PAGE> 22
EXHIBIT 10.21
posting of a bond or other collateral, ordering the Purchaser and Newco to
return any and all such information.
4.9 LOAN AGREEMENT AND PERFORMANCE BONDS. On the date of Closing, the
Purchaser and Newco shall cause Aqua-Chem to pay off all amounts owed to its
existing lenders pursuant to the Loan Agreement between Aqua-Chem and such
lenders to close this transaction. The Purchaser, Newco and Aqua-Chem shall use
their best efforts to cause LAH and the LAH Related Parties to be released (and
it shall be a condition to the obligations of the Sellers to close this
transaction that LAH and all related parties be released) from any guarantees or
backing in any way of obligations of Aqua-Chem or any of its subsidiaries,
including performance bonds outstanding on the date of Closing and, in the event
they are unable to obtain a release and Sellers waive their condition to
Closing, the Purchaser, Newco and Aqua-Chem, from and after the date of Closing,
shall indemnify and hold harmless LAH and the LAH Related Parties from any and
all liabilities, damages and expenses (including reasonable attorneys' fees)
incurred by any of them in connection with such performance bonds or other
obligations. The Purchaser, Newco and Aqua-Chem, prior to the date of the
Closing, shall take any and all actions necessary to cause the LAH guarantee of
performance bonds to be terminated as to any performance bonds to be issued on
or after the date of Closing.
SECTION 5. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PARTIES.
5.1 CONDITIONS TO OBLIGATIONS OF THE SELLERS, AQUA-CHEM, NEWCO AND THE
PURCHASER.
The obligations set forth herein of the Sellers, Aqua-Chem, Newco and the
Purchaser to consummate the transactions contemplated by this Agreement at the
Closing are subject to the fulfillment (or waiver), at or prior to the Closing,
of the following conditions:
18
<PAGE> 23
EXHIBIT 10.21
(a) Injunction. There shall not be in effect any injunction or
other order issued by a court of competent jurisdiction restraining or
prohibiting the consummation of the transactions contemplated by this
Agreement.
(b) HSR. All applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
applicable to the transactions contemplated by this Agreement shall
have terminated or expired.
(c) Financing. The Purchaser, Newco and Aqua-Chem shall have
obtained equity and debt financing in any amount sufficient to enable
them to consummate the transactions contemplated by this Agreement and
to provide Newco with working capital.
5.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLERS. The obligations
set forth herein of the Sellers to consummate the transactions contemplated
by this Agreement at the Closing are subject to the fulfillment (or waiver) at
or prior to the Closing of the following conditions:
(a) Representations and Warranties True. The Purchaser's and
Newco's representations and warranties contained in this Agreement
shall be true and correct at the Closing as though made at such time.
(b) Performance. The Purchaser and Newco shall have performed
and complied with all agreements and satisfied all conditions required
by this Agreement to be performed or satisfied by them prior to or at
the Closing.
(c) Certificates of the Purchaser's and Newco's Officers. The
Sellers shall have received a certificate, dated the Closing, of an
officer of each of the Purchaser and Newco as to Paragraphs 5.2(a) and
5.2(b) and such other certificates or documents as the Sellers shall
reasonably deem necessary.
19
<PAGE> 24
EXHIBIT 10.21
(d) Opinion of the Purchaser's Counsel. The Sellers shall have
received an opinion, dated as of the Closing, of the Purchaser's legal
counsel satisfactory in form and substance to the Sellers.
5.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND NEWCO. The
obligations as set forth herein of the Purchaser and Newco to consummate the
transactions contemplated in this Agreement at the Closing are subject to the
fulfillment (or waiver) at or prior to the Closing of the following conditions:
(a) Representations and Warranties True. The Sellers'
representations and warranties contained in this Agreement (as amended
by the Disclosure Schedule delivered to the Purchaser and Newco prior
to the Closing) shall be true and correct at the Closing as though made
at such time.
(b) Disclosure Schedule. The Disclosure Schedule shall be
satisfactory in form and substance to Newco and the Purchaser; provided
that no items in the Disclosure Schedule reflecting any event,
condition or development after the date hereof, or reflecting any
discovery of an event or condition unknown as of the date hereof, may
constitute the basis on which the Purchaser and Newco do not consummate
the transactions contemplated in this Agreement at the Closing, unless
such items in the aggregate would reasonably be expected to have a
material adverse effect on Aqua-Chem's business or financial condition.
(c) Performance. The Sellers and Aqua-Chem shall have
performed and complied with all agreements and satisfied all conditions
required by this Agreement to be performed or satisfied by them prior
to or at the Closing.
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<PAGE> 25
EXHIBIT 10.21
(d) Opinion of the Sellers' Counsel. The Purchaser and Newco
shall have received an opinion, dated as of the Closing, of the
Sellers' legal counsel, satisfactory in form and substance to the
Purchaser and Newco.
(e) Gestra Assurances. Gestra shall have presented the
Purchaser and Newco with written assurances, reasonably satisfactory in
form and substance to the Purchaser, of Gestra's ability to fulfill its
General Indemnity obligations.
(f) Certificates of the Sellers' Officers. The Purchaser and
Newco shall have received a certificate, dated as of the Closing, of an
officer or authorized person of each of the Sellers as to Paragraphs
5.3(a) and 5.3(c).
SECTION 6. GENERAL INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND
WARRANTIES.
6.1 THE SELLERS' GENERAL INDEMNITY. From and after the Closing, the
Sellers severally and not jointly shall indemnify and hold harmless the
Purchaser, Newco and Aqua-Chem and their respective officers, directors,
employees, stockholders, successors and affiliates ("Purchaser Group") from and
against any loss, liability or damages (including reasonable attorneys' fees)
and other costs (excluding salaries and fringe benefits of employees of the
Purchaser Group) and expenses incurred or sustained by the Purchaser Group as a
result of the nonfulfillment of any agreement of the Sellers or the breach or
inaccuracy of any representation or warranty made by the Sellers under this
Agreement, plus interest at the rate hereinafter specified on the foregoing
amounts from the date the same were initially incurred to the "Date of Recovery"
(which shall mean the actual date of the redemption of the Series A and Series B
Preferred Stock, if recovery is by means of offset against either the Series A
or Preferred B Stock, or the date of receipt of actual payment by the Purchaser
Group, if recovery is by means of direct payment by the Sellers). All of the
foregoing amounts are
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<PAGE> 26
EXHIBIT 10.21
hereinafter collectively referred to as "General Indemnity Damages" and the
indemnity set forth above is hereinafter referred to as the "General Indemnity."
The General Indemnity is subject to the following terms and conditions: (1)
there shall not be any duplicative payments or indemnities by the Sellers; (2)
no breach of any representation or warranty shall arise from, relate to, or be
caused by matters which are the subject of the indemnities set forth in Section
7 or 8 of this Agreement; (3) the Sellers' obligations with respect to General
Indemnity Damages shall be satisfied solely and exclusively in the manner
specified in Section 9 of this Agreement; and (4) the interest rate used in
computing General Indemnity Damages shall be (i) four percent (4%) for such
General Indemnity Damages as are recovered by offset or recovery of amounts due
or paid with respect to the Series B Preferred Stock and (ii) six percent (6%)
for such General Indemnity Damages as are recovered by offset or recovery of
amounts due or paid with respect to the Series A Preferred Stock (with no
interest otherwise being applicable).
The right of the Purchaser Group to indemnification under this
Section shall be limited as follows:
(a) Knowledge of the Management Group. Except as set forth in
Section 6.1(e) below, the Sellers shall have no obligation to indemnify
the Purchaser Group for any General Indemnity Damages incurred as the
result of the breach or inaccuracy of a representation or warranty to
the extent that the matter constituting the breach or inaccuracy of
such representation or warranty asserted by the Purchaser Group was
known by the Management Group at the Closing Date.
(b) Insurance Recoveries. The amount of any General Indemnity
Damages the Purchaser Group may otherwise be entitled to recover under
this Section shall be reduced by
22
<PAGE> 27
EXHIBIT 10.21
the net amount the Purchaser Group recovers (after deducting all
attorneys' fees, expenses and other costs of recovery) from any insurer
or other party liable for such General Indemnity Damages, and the
Purchaser Group shall use reasonable efforts to effect any such
recovery.
(c) Minimum Claim. Except as set forth in Section 6.1(e)
below: (i) no representation or warranty of the Seller's shall be
deemed to be breached unless the General Indemnity Damages (excluding
interest as set forth in the first paragraph of this Section 6.1 above)
incurred by the Purchaser Group from the set of facts constituting the
breach equal or exceed $50,000; provided that once such threshold has
been equaled or exceeded all General Indemnity Damages (excluding
interest) shall be included for purposes of the limitation set forth in
the next sentence; and (ii) the Sellers shall not have any liability to
indemnify the Purchaser Group under this Section unless the aggregate
amount of General Indemnity Damages (excluding interest) suffered by
the Purchaser Group exceeds $300,000, in which event the Sellers shall
only be obligated to indemnify the Purchaser Group for its aggregate
General Indemnity Damages (excluding interest) in excess of $300,000.
(d) Maximum Liability. Except as set forth in Section 6.1(e)
below, the aggregate amount of General Indemnity Damages (including
interest as set forth in the first paragraph of this Section 6.1 above)
payable to the Purchaser Group and the maximum liability of the Sellers
under this Section resulting from the breach or inaccuracy of all
representations and warranties shall be $5,000,000.
(e) Exceptions to Knowledge, Minimum Claim and Maximum
Liability Provisions. The limitations of Sections 6.1(a), (c) and (d)
shall not apply to General
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<PAGE> 28
EXHIBIT 10.21
Indemnity Damages arising from a breach or inaccuracy of the
representations and warranties set forth in Section 2.3(a) of this
Agreement.
6.2 THE PURCHASER'S AND NEWCO'S GENERAL INDEMNITY. From and after the
Closing, the Purchaser and Newco shall indemnify and hold harmless the Sellers
and their respective officers, directors, employees, stockholders, successors
and affiliates ("Seller Group") from and against any loss, liability or damage
(including reasonable attorneys' fees) and other costs (excluding salaries and
fringe benefits of employees of the Seller Group) and expenses (hereinafter
collectively referred to as "Damages"), incurred or sustained by the Seller
Group as a result of the nonfulfillment of any agreement of the Purchaser or
Newco or the breach or inaccuracy of any representation or warranty made by the
Purchaser or Newco under this Agreement; provided, that there shall not be any
duplicative payments or indemnities by the Purchaser or Newco.
The right of the Seller Group to indemnification under this Section
shall be limited as follows:
(a) Knowledge of the Sellers. Neither the Purchaser nor Newco
shall have any obligation to indemnify the Seller Group for any Damages
incurred as the result of the breach or inaccuracy of a representation
or warranty to the extent that the breach or inaccuracy of such
representation or warranty asserted by the Seller Group was known by
the Seller Group at the Closing Date.
(b) Insurance Recoveries. The amount of any Damages the Seller
Group may otherwise be entitled to recover under this Section shall be
reduced by the net amount the Seller Group recovers (after deducting
all attorneys' fees, expenses and other costs of
24
<PAGE> 29
EXHIBIT 10.21
recovery) from any insurer or other party liable for such Damages, and
the Seller Group shall use reasonable efforts to effect any such
recovery.
(c) Minimum Claim. No representation or warranty of the
Purchaser or Newco shall be deemed to be breached unless the Damages
incurred by the Seller Group from the set of facts constituting the
breach equal or exceed $50,000; provided, that once such threshold has
been equaled or exceeded all Damages shall be included for purposes of
the limitation set forth in the next sentence. Neither the Purchaser
nor Newco shall have any liability to indemnify the Seller Group under
this Section unless the aggregate amount of Damages suffered by the
Seller Group exceeds $300,000, in which event the Purchaser and Newco
shall only be obligated to indemnify the Seller Group for its aggregate
Damages in excess of $300,000.
(d) Maximum Liability. The aggregate amount of Damages payable
to the Seller Group and the combined maximum liability of the Purchaser
and Newco under this Section resulting from the breach or inaccuracy of
all representations and warranties shall be $5,000,000.
(e) Exceptions to Knowledge, Minimum Claim and Maximum
Liability Provisions. The limitations of Sections 6.2(a), (c) and (d)
shall not apply to Damages arising from a breach or inaccuracy of the
representations and warranties set forth in Section 3.1 of this
Agreement.
6.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as
hereinafter set forth in this Section 6.3, any claim for indemnification under
Section 6.1 or Section 6.2 with respect to the representations and warranties
of the Sellers or the Purchaser or Newco set forth in this Agreement
25
<PAGE> 30
EXHIBIT 10.21
must be brought prior to the second anniversary of the Closing. The
representations and warranties of the Sellers set forth in Section 2.8 of this
Agreement shall survive the Closing until the expiration of the applicable
statute of limitations (including any extensions thereof) for any tax period of
Aqua-Chem or its Subsidiaries which ends on or before the date of Closing. The
representations and warranties set forth in Section 2.3(a) of this Agreement
shall survive the Closing until the expiration of the statute of limitations
governing contracts.
6.4 GENERAL INDEMNITY PROCEDURES. A party entitled to indemnification
under Section 6.1 or 6.2 of this Agreement shall herein be referred to as an
"Indemnitee." A party obligated to indemnify an Indemnitee hereunder shall
herein be referred to as an "Indemnitor." Promptly after an Indemnitee either
(a) receiving notice of any claim or the commencement of any action by any third
party which such Indemnitee reasonably believes may give rise to a claim for
indemnification from an Indemnitor hereunder or (b) sustaining any Damages not
involving a third-party claim or action which such Indemnitee reasonably
believes may give rise to a claim for indemnification from an Indemnitor
hereunder, such Indemnitee shall notify such Indemnitor in writing in reasonable
detail of such claim, action or Damages, as the case may be. Upon receipt of
such notice, the Indemnitor, at its expense, shall be entitled to participate in
such claim or action, assume the defense thereof with counsel reasonably
satisfactory to the Indemnitee and, if the Indemnitor assumes the defense of
such claim, settle or compromise such claim or action; provided, that (a) any
such settlement or compromise includes an absolute and unconditional release of
the Indemnitee, (b) does not involve remedies (other than monetary damages)
materially affecting the Indemnitee or its property or business and (c) such
settlement or compromise does not have material, future, negative implications
for the Indemnitee's business. After notice to the Indemnitee of the
Indemnitor's
26
<PAGE> 31
EXHIBIT 10.21
election to assume the defense of such claim or action, the Indemnitor may not,
thereafter, challenge its duty to indemnify the Indemnitee and shall not be
liable to the Indemnitee for any legal or other expenses subsequently incurred
by the Indemnitee in connection with the defense thereof other than reasonable
costs of investigation; provided, that the Indemnitee, at its own expense, shall
have the right to employ counsel to represent it if either (x) such claim or
action involves remedies other than monetary damages and such remedies, in the
Indemnitee's reasonable judgment, could have a material adverse effect on such
Indemnitee or (y) the Indemnitee may have available to it one or more defenses
or counterclaims which are not available to or are inconsistent with any
position of the Indemnitor. If the Indemnitor does not elect to assume the
defense of such claim or action, the Indemnitee shall act reasonably and in
accordance with its good faith business judgment with respect thereto and shall
not settle or compromise any such claim or action without the prior written
consent of the Indemnitor, which consent shall not unreasonably be withheld. The
parties hereto agree to render to each other such assistance as may reasonably
be requested in order to insure the proper and adequate defense of any such
claim or action.
6.5 TERMINATION OF GENERAL INDEMNITY. Notwithstanding anything to the
contrary in this Agreement, the General Indemnity shall, except as to pending
claims with respect to which the Sellers have previously received written
notice, terminate upon the first to occur of the following events: (a)
cumulatively more than two-thirds (2/3) of the outstanding equity interests in
Newco (which for purposes of this Section 6.5 and Sections 7.3 and 8.2 shall
include any successor thereto or any holding company whose principal asset
consists of its investment in Newco or such successor) are, in one or more
transactions, sold to an "Unrelated Third Party," which shall mean one or more
parties not directly or indirectly controlled by, controlling, or under common
control with
27
<PAGE> 32
EXHIBIT 10.21
Newco (an "Overall Ownership Shift"); (b) at such time as the Management Group
and other then current management employees of Newco or their family members or
trusts, limited liability companies or partnerships for their benefit (together,
the "Employee Ownership Group") collectively cease to retain a beneficial
ownership interest of at least 50% of the equity interest in Newco initially
reserved for the Employee Ownership Group (excluding any amounts reserved for
the Employee Ownership Group which are contingent upon the future performance of
Newco) unless such reduction is the result of (i) the issuance of additional
equity interests by Newco to persons other than the Employee Ownership Group or
(ii) a sale of such equity interests by the Employee Ownership Group due to
Newco's being in substantial distress as, for example, evidenced by the
declaration of a default by the holders of Newco's debt instruments (an
"Employee Ownership Shift"); (c) the transfer of substantially all of the assets
of Newco to an Unrelated Third Party whether by sale, merger, consolidation or
otherwise (an "Asset Shift") or (d) the consummation of an initial public
offering of the equity securities of Newco (an "IPO").
SECTION 7. [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
.
28
<PAGE> 33
EXHIBIT 10.21
SECTION 7. [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
28
<PAGE> 34
EXHIBIT 10.21
SECTION 8. [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
SECTION 9. PRIORITY AND PROCEDURES FOR SATISFACTION OF GENERAL
INDEMNITY, [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2]
9.1 UPON REDEMPTION OF SERIES A AND SERIES B PREFERRED STOCK. The
General Indemnity, [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2] obligations of
each Seller as the same shall have accrued from the date of Closing to the date
of redemption of the Series A and Series B Preferred Stock shall be satisfied
from such Seller's shares of the Series A and Series B Preferred Stock and
required cash payments in accordance with the priorities and solely and
exclusively in the manner hereinafter set forth.
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EXHIBIT 10.21
(a) First, the [THIS PROVISION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT
TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION
240.24b2] obligation (as the same shall exist at the time of
redemption of the Series B Preferred Stock) shall be satisfied in full
and solely and exclusively (i) first, by reducing the redemption price
of the Series B Preferred Stock and (ii) second, by reducing the
dividends accrued on the Series B Preferred Stock.
(b) Second, the [THIS PROVISION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR
SECTION 240.24b2] obligation (as the same shall exist at the time of
redemption of the Series A and Series B Preferred Stock) shall be
satisfied in full and solely and exclusively (i) first, by reducing
any remaining redemption price of the Series B Preferred Stock, (ii)
second, by reducing any remaining dividends accrued on the Series B
Preferred Stock, (iii) third, by reducing the dividends accrued on the
Series A Stock and (iv) fourth, by reducing the redemption price of
the Series A Preferred Stock.
(c) Third, the General Indemnity obligation (as the same shall
exist at the time of redemption of the Series B Preferred Stock) shall
be satisfied in full and solely and exclusively (i) first, by reducing
any remaining redemption price of the Series B Preferred Stock, (ii)
second, by reducing any remaining dividends accrued on the Series B
Preferred Stock, (iii) third, by reducing any remaining dividends
accrued on the Series A Preferred Stock, (iv) fourth, by reducing any
remaining redemption price of the Series A Preferred Stock and (v)
fifth, by cash payment from the Seller.
9.2 SUBSEQUENT TO REDEMPTION OF SERIES A AND SERIES B PREFERRED STOCK.
Subject in all respects to the limitations on indemnification set forth
in Sections 6, 7 and 8 of this Agreement, the General Indemnity, [THIS
PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2] obligations of each Seller as the same
shall accrue from and after the date of redemption of the Series A and Series B
Preferred
30
<PAGE> 36
EXHIBIT 10.21
Stock shall be satisfied in accordance with the priorities and solely and
exclusively in the manner hereinafter set forth.
(a) First, any unfulfilled [THIS PROVISION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR
SECTION 240.24b2] obligation shall be satisfied by cash payment from
the Seller to the Purchaser Group, with such payment not to exceed an
amount equal to (i) the cash proceeds in payment of the redemption
price and accrued dividends actually received by the Seller upon
redemption of its Series B Preferred Stock, plus (ii) the amount of
any General Indemnity obligation of the Seller that was satisfied at
the time of redemption by offset against the redemption price and/or
accrued dividends paid with respect to the Seller's Series B Preferred
Stock, plus (iii) the amount of any [THIS PROVISION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR
SECTION 240.24b2] obligation of the Seller that was satisfied at the
time of redemption by offset against the redemption price and/or
accrued dividends paid with respect to the Seller's Series B Preferred
Stock, minus (iv) any previous payments made by the Seller to the
Purchaser Group subsequent to the date of such redemption pursuant to
this paragraph (a).
(b) Second, any unfulfilled [THIS PROVISION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR
SECTION 240.24b2] obligation shall be satisfied by cash payment from
the Seller to the Purchaser Group, with such payment not to exceed an
amount equal to (i) the cash proceeds in payment of the redemption
price and accrued dividends actually received by the Seller upon
redemption of its Series A and Series B Preferred Stock, plus (ii) the
amount of any General Indemnity obligation of the Seller that was
satisfied at the time of redemption by offset against the redemption
price and/or accrued dividends paid with respect to the Seller's
Series A or Series B Preferred Stock, minus (iii) the sum of (A) any
previous payments made by the Seller to the Purchaser Group subsequent
to the date of such redemption pursuant to paragraph (a) immediately
above or this paragraph
31
<PAGE> 37
EXHIBIT 10.21
(b), plus (B) any current payment to be made by the Seller pursuant to
paragraph (a) immediately above.
(c) Third, any unfulfilled General Indemnity obligation shall
be satisfied by cash payment from the Seller to the Purchaser Group,
with such payment not to exceed an amount equal to Five Million Dollars
($5,000,000) minus the sum of (i) the amount of any General Indemnity
obligation of the Seller that was satisfied at the time of redemption
by offset against the redemption price and/or accrued dividends paid
with respect to the Seller's Series A or Series B Preferred Stock, and
minus the sum of (ii) any previous payments made by the Seller to the
Purchaser Group subsequent to the date of such redemption pursuant to
this paragraph (c).
Notwithstanding anything to the contrary in this Section 9.2, the total
indemnity to the Purchaser Group with respect to [THIS PROVISION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION
240.24b2] and interest thereon shall not exceed the lesser of (i) the
redemption price plus accrued dividends for the Series A and Series B Preferred
Stock and (ii) $10,000,000.
SECTION 10. TERMINATION.
Notwithstanding anything in this Agreement to the contrary, this
Agreement may be terminated as follows, and in no other manner:
(a) by the mutual written consent of the parties to this
Agreement; or
(b) by the Sellers and Aqua-Chem on the one hand or by the
Purchaser and Newco on the other hand if, for any reason, the Closing
has not occurred on or prior to August 1, 1997.
32
<PAGE> 38
EXHIBIT 10.21
SECTION 11. MISCELLANEOUS.
11.1 EXPENSES. The Purchaser and Newco have used the services of SPP
Hambro & Co. and Robert D. Endacott as placement agent and financial advisor in
connection with the transactions contemplated by this Agreement. The Purchaser
and Newco have agreed to pay such parties a success fee for their services and
shall be solely responsible for such fees in the event the transactions
contemplated by this Agreement are consummated. Aqua-Chem has agreed to pay the
monthly retainer due Robert D. Endacott, the expense reimbursements due Robert
D. Endacott and SPP Hambro & Co., the fees and disbursements of Whyte
Hirschboeck Dudek S.C. and the costs of obtaining financing for the transactions
contemplated by this Agreement. Neither the Purchaser nor Aqua-Chem has entered
into an agreement with any other party obligating either of them to pay any
brokerage or other commissions or fees in connection with the transactions
contemplated by this Agreement. The Sellers have used the services of Alan
Nelson and Baker & Botts, L.L.P. in connection with the preparation and
execution of this Agreement and consummation of the transactions contemplated
hereby and shall be solely responsible for all fees and disbursements owed to
them. Neither of the Sellers has entered into an agreement with any other party
obligating either of them to pay any brokerage or other commissions or fees in
connection with the transactions contemplated by this Agreement.
11.2 PUBLIC DISCLOSURE. Each of the parties to this Agreement hereby
agrees with the other parties that, except as may be necessary to comply with
the requirements of applicable law (in the reasonable opinion of counsel), no
press release or similar public announcement or communication or any
announcement or communications to customers or suppliers of Aqua-Chem
33
<PAGE> 39
EXHIBIT 10.21
or its Subsidiaries will be made or caused to be made concerning the execution
or performance of this Agreement unless specifically approved in advance by both
parties.
11.3 GOVERNING LAW. This Agreement shall be deemed to be made in and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of the State of Wisconsin. Any dispute relating to this Agreement
or its interpretation or the transactions contemplated hereby shall be resolved
by binding arbitration in Chicago, Illinois, in accordance with the rules of the
American Arbitration Association by a panel of three arbitrators. Any
arbitration award so obtained may be enforced in any Wisconsin State court or
Federal court of the United States of America sitting in Milwaukee, Wisconsin
and each of the parties hereto hereby irrevocably and unconditionally submits
itself and its property to the jurisdiction of such courts. Each of the parties
hereby agrees that a judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
11.4 NOTICES. Any notices or other communications required under this
Agreement shall be in writing and, shall be deemed to have been given and
received when (a) delivered in person (b) if mailed, sent by United States
certified mail, return receipt requested or (c) if by overnight delivery, sent
by an internationally recognized delivery service, with proper postage prepaid
and if mailed and sent by overnight delivery:
to the Sellers and/or Aqua-Chem, addressed to:
Lyonnaise American Holding, Inc. Gestra Corporation N.V.
c/o Patrick Babin c/o J. Barry Switzer
Northumbrian Water Group Rezayat America Inc.
24. St James's Square Suite 580
SW1Y6HZ London, England 11000 Richmond Avenue
Houston, TX 77042
34
<PAGE> 40
EXHIBIT 10.21
Aqua-Chem, Inc.
c/o Patrick Babin
P.O. Box 421
Milwaukee, WI 53202
with a copy to:
Robert P. Wright
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
if to the Purchaser and/or Newco, addressed to:
Rush Creek LLC
ATTN: Jeffrey A. Miller
P.O. Box 421
Milwaukee, WI 53201
A-C Acquisition Corp.
ATTN: Jeffrey A. Miller
P.O. Box 421
Milwaukee, WI 53201
with a copy to:
James A. Feddersen
Whyte Hirschboeck Dudek S.C.
111 East Wisconsin Avenue, Suite 2100
Milwaukee, WI 53202
or at such other place or places or to such other person or persons as shall be
designated in writing by the parties to this Agreement in the manner herein
provided.
11.5 SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
35
<PAGE> 41
EXHIBIT 10.21
11.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
11.7 ENTIRE AGREEMENT; MODIFICATION. This Agreement embodies the entire
agreement and understanding among the parties hereto and supersedes all prior
agreements and understandings. Except as set forth herein, there are no
agreements or understandings, and no party makes any representations or
warranties to any other party, except as and to the extent set forth herein.
This Agreement may be modified only by a written instrument signed by each of
the parties hereto.
11.8 EXCLUSIVITY OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
PROVISION; RELATIONSHIP BETWEEN THE PARTIES. It is the explicit intent and
understanding of each of the parties hereto that no party nor any of its
affiliates, representatives or agents is making any representation or warranty
whatsoever, oral or written, express or implied, other than those set forth in
this Agreement, and no party is relying on any statement, representation or
warranty, oral or written, express or implied, made by any other party or any
other party's affiliates, representatives or agents, except for the
representations and warranties so set forth. The indemnity provided for in
Section 6 hereto shall be the sole and exclusive remedy of the Purchaser Group
and the Seller Group from and after the Closing for any inaccuracy of any
representation or warranty or any failure of breach of any covenant,
obigations, condition or agreement to be performed or fulfilled by any party.
[THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2]
36
<PAGE> 42
EXHIBIT 10.21
11.9 POST-CLOSING ACCESS. In connection with any matter relating to any
period prior to, or any period ending on, the Closing, the Purchaser shall, upon
request and at the expense of the Sellers, permit the Sellers and their
representatives full access at all reasonable times to the books and records of
Newco and the Subsidiaries which shall have been transferred to the Purchaser to
the extent necessary to permit the Sellers to defend any third party claims for
which the Purchaser Group is seeking indemnification. The Purchaser shall not
dispose of such books and records during the seven-year period following the
Closing Date without the Sellers' consent, which shall not be unreasonably
withheld. Following the expiration of such seven-year period, the Purchaser may
dispose of such books and records at any time upon giving 60 days prior written
notice to the Sellers, unless the Sellers agree to take possession of such books
and records within 60 days at no expense to the Purchaser.
11.10 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; provided, however, that prior to the Closing, this
Agreement may not be assigned without the prior written consent of all parties.
11.11 WAIVER OF PUNITIVE AND OTHER DAMAGES. Notwithstanding anything to
the contrary contained in this Agreement, except with respect to the provisions
of Section 4.5 of this Agreement relating to lost profits, the parties to this
Agreement expressly waive and forego any right to recover punitive, exemplary,
lost profits, consequential or similar damages in any arbitration, lawsuit,
litigation or proceeding arising out of or resulting from any controversy or
claim arising out of or relating to this Agreement or the transactions
contemplated hereby.
37
<PAGE> 43
EXHIBIT 10.21
11.12 AUDIT RIGHTS. Sellers and their representatives shall have the
right to audit Newco's books and records relating to the calculation of (i) the
redemption value of the Series B preferred Stock and/or (ii) General Indemnity
Damages, [THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17CFR SECTION 240.24b2.] during business hours at Newco's
offices for the purposes of confirming such calculations. All relevant
books and records will be kept at such offices and will be made available for
inspection and copying. All information received as part of such audits
(including all copies thereof and any analyses reflecting such information)
shall be destroyed by Sellers immediately upon resolution of any dispute
concerning such calculations, and no such information shall be disclosed by
Sellers to any third party except as may be necessary to enforce their rights
under this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be excuted by their duly authorized officers as of the date first
above written.
RUSH CREEK LLC LYONNAISE AMERICAN HOLDING, INC.
By: /s/ Jeffrey A. Miller By: /s/ Patrick Babin
--------------------------- -----------------------------
Patrick Babin
Authorized Signatory
/s/ Jeffrey A. Miller
- -----------------------------------
Jeffrey A. Miller, Individually
AQUA-CHEM, INC. GESTRA CORPORATION, N.V.
By: /s/ Patrick Babin By: /s/ Barry Switzer
-------------------------------- ------------------------------
J. Barry Switzer
Authorized Signatory
A-C ACQUISITION CORP.
By: /s/ Jeffrey A. Miller
--------------------------------
38
<PAGE> 44
EXHIBIT 10.21
EXHIBIT A
CERTIFICATE OF MERGER
AQUA-CHEM, INC.
(A Delware corporation)
WITH AND INTO
A-C ACQUISITION CORP.
(a Delaware corporation)
On behalf of the Surviving Corporation named herein, and pursuant to
Section 251 of the Delaware General Corporation Law, the undersigned hereby
makes and executes this Certificate of Merger and states as follows:
1. The Constituent Corporations:
A-C Acquisition Corp., a Delaware corporation, the Surviving
Corporation.
Aqua-Chem, Inc., a Delaware corporation, the Merging
Corporation.
2. Agreement and Plan of Merger
An Agreement and Plan of Merger has been approved, adopted,
certified, executed, and acknowledged by each of the
Constituent Corporations in accordance with subsection (c) of
Section 251 of the Delaware General Corporation Law.
3. Surviving Corporation
The name of the Surviving Corporation is A-C Acquisition Corp.
4. Amendment to Certificate of Incorporation.
The Certificate of Incorporation of A-C Acquisition Corp.
shall be amended as follows:
<PAGE> 45
EXHIBIT 10.21
EXHIBIT A
a) The name of the corporation shall be
Aqua-Chem, Inc.
b) Schedule A to Article Four of the
Certificate of Incorporation is hereby
replaced in its entirety by Schedule A,
attached hereto.
The Certificate of Incorporation of the Surviving Corporation,
as so amended, shall remain in effect as the Certificate of
Incorporation of the Surviving Corporation after the merger.
5. Agreement and Plan of Merger on File.
The executed Agreement and Plan of Merger is on file at an
office of the Surviving Corporation, located at 7800 N. 113th
Street, Milwaukee, WI 53224.
6. Copy of Agreement and Plan of Merger Available
A copy of the Agreement and Plan of Merger will be furnished
by the Surviving Corporation, upon request and without cost,
to any stockholder of any Constituent Corporation.
Dated: July 31, 1997.
A-C ACQUISITION CORP.
By: /s/ JA Miller
----------------------------------------
Jeffrey A. Miller, President
Attest: /s/ J. Scott Barton
------------------------------------
J. Scott Barton, Vice President
2
<PAGE> 46
EXHIBIT 10.21
SCHEDULE A
WATER TECH
PROJECTED EARNINGS BEFORE INCOME AND TAXES
1997 - 2001
EBIT
1997 $2,474,000
1998 $3,156,000
1999 $4,720,000
2000 $6,890,000
2001 $8,979,000
AQUA-CHEM, INC.
PROJECTED EARNINGS BEFORE INCOME AND TAXES
1997-2001
EBIT
1997 $13,065,000
1998 $15,108,000
1999 $19,684,000
2000 $25,454,000
2001 $32,713,000
<PAGE> 47
EXHIBIT 10.21
EXHIBIT B
TERMS SHEET
SERIES A PREFERRED STOCK
REDEMPTION PRICE: $5,000,000
DIVIDEND: $75,000 per quarter, commencing on the Closing
Date; dividend is cumulative and payable only
upon redemption.
OFFSET ADJUSTMENTS: Redemption Price and Dividends are
subject to offset pursuant to the terms of
the Stock Purchase Agreement.
TRANSFER RESTRICTIONS: Not Transferable other than to
companies controlled by, controlling or under
common control with the initial Holder,
provided that such transferee is not engaged
in any business which is in competition with
any business engaged in by Aqua-Chem.
VOTING RIGHTS: None
LIQUIDATION PREFERENCE: Right to receive Redemption Price
plus all accrued dividends before any amounts
are distributed with respect to the Common
Stock.
REDEMPTION PROVISIONS:
PUT OPTION -- Holders of Series A Preferred shall
have the right, at the Holders election, by
written notice to the Company, to require the
Company to redeem the Series A Preferred at
the Redemption Price plus accrued dividends
(i) simultaneous with the occurrence of an
Overall Ownership Shift, Employee Ownership
Shift or an Asset Shift (ii) within the 120
day period following an IPO of the Company's
equity securities (iii) within the 120 day
period following a refinancing and retirement
of the J.H. Whitney Subordinated Debt, (iv)
seven years after issuance. In the event that
the Put Option would become exercisable by
reason of an Overall Ownership Shift or an
Employee Ownership Shift under the
circumstances other than a sale of all of the
stock of the Company (other than the Series A
and B Preferred Stock), and the exercise of
the Put Option under such other circumstances
would cause the Company to be in default of
covenants with lenders, the exercise of the
Put Option shall
1
<PAGE> 48
EXHIBIT 10.21
EXHIBIT B
be deferred until such time as its exercise would
not cause a default (but not later than 7 years
after issuance). During any such deferral
period, the Company shall use its best efforts
with lenders to obtain an amendment or waiver
to permit such exercise and shall not permit any
increase to occur in the compensation payable to
any member of the Management Group or repurchase
any of its other outstanding stock. No deferral
or delay in the exercise of the Put Option
shall prevent the termination of the [THIS
PROVISION HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION AND
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17CFR SECTION 240.24b2]
or General Indemnity in accordance with the
terms of the Stock Purchase Agreement.
CALL OPTION -- Company shall have the right to call the Series
A Preferred at any time at the Redemption Price
plus accrued dividends.
DEFAULT: In the event of a default in payment of
redemption price or accrued dividends, dividend
increases to $112,500 per quarter (50% increase).
RIGHT TO RECEIVE FINANCIAL INFORMATION; NON DISCLOSURE:
The Company shall each year furnish the Holders with its June 30 internally
prepared unaudited income statement and balance sheet on or before August 31
and with its annual audited year end income statement and balance sheet on or
before March 31. Access to such financial statements shall be strictly limited
by Holder to those persons employed by Holder and its affiliates who have
responsibility for monitoring the investment in the Company and, under no
circumstances, shall such financial statements or the information contained
therein be made available or disclosed to any other persons or used for any
other purposes.
2
<PAGE> 49
EXHIBIT 10.21
EXHIBIT B
TERMS SHEET
SERIES B PREFERRED STOCK
REDEMPTION PRICE:
NORMAL REDEMPTION PRICE
Except as hereinafter specifically set forth to the contrary in this
Terms Sheet, the redemption price of the Series B Preferred Stock (the
"Normal Redemption Price") shall be based upon the level of attainment
of Water Tech cumulative EBIT for the period 1997 through 2001 as set
forth in attached Schedule as hereinafter set forth.
If actual cumulative EBIT is less than 80% of cumulative EBIT shown on
the Schedule, the Normal Redemption Price shall be zero.
If actual cumulative EBIT is 80% or more of cumulative EBIT shown on
the Schedule, the Normal Redemption Price shall be $2.5 million.
If actual cumulative EBIT is 120% or more of cumulative EBIT shown on
the Schedule, the Normal Redemption Price shall be $7.5 million.
If actual cumulative EBIT is more than 80% but less than 120% of
cumulative EBIT shown on the Schedule, the Normal Redemption Price
shall move proportionately from $2.5 million to $7.5 million, so that
at 90% it shall be $3.75 million, at 100% it is $5 million, at 110% it
is $6.25 million, etc.
Cumulative EBIT thresholds shown on the Schedule shall not be adjusted
in the event of an acquisition.
If prior to December 31, 2001 either (a) the Water Tech business is
sold to an Unrelated Third Party or (b) there occurs an Overall
Ownership Shift or an Employee Ownership Shift, then in any of such
event, post sale EBIT requirements will be deemed to be fulfilled to
the extent of actual pre-divestiture fulfillment of EBIT requirements.
SALE OF WATER TECH BUSINESS (WITH ALTERNATIVES DEPENDENT UPON WHETHER
TRANSACTION RESTRUCTURED AS MERGER)
(APPLICABLE ONLY IF TRANSACTION RESTRUCTURED AS MERGER)
If the Water Tech business is sold to an Unrelated Third Party prior to
redemption of the Series B Preferred Stock, the redemption price shall be
the greater of (i) the Normal Redemption Price or (ii) the "Alternative
Redemption Price" as hereinafter defined.
1
<PAGE> 50
EXHIBIT 10.21
EXHIBIT B
(APPLICABLE IF TRANSACTION IS NOT RESTRUCTURED AS MERGER)
If the Water Tech business is sold to an Unrelated Third Party prior to
redemption of the Series B Preferred Stock and the Normal Redemption Price is
zero, redemption price shall be the "Alternative Redemption Price" as
hereinafter defined.
ALTERNATIVE REDEMPTION PRICE
If the sale of the Water Tech business occurs prior to the fifth
anniversary of the Closing Date the Alternative Redemption Price shall
be an amount equal to (1) $10,000 for each percentage point of the net
book value of Water Tech that the actual selling price represents, up
to and including 200% of net book value, plus (2) $15,000 for each
percentage point of the net book value of Water Tech above 200% that
the actual selling price represents.
If the sale of the Water Tech business occurs subsequent to the fifth
anniversary of the Closing Date, the Alternative Redemption Price shall
be one-half of the amount determined under the immediately preceding
formula.
lf the actual selling price represents less than 50% of the net book
value of Water Tech, then the Alternative Redemption Price shall be
zero.
In determining the selling price for purposes of the preceding
calculations, an appropriate dollar for dollar adjustment shall be made
to reflect any Water Tech assets or liabilities retained by Aqua-Chem.
IPO (APPLICABLE ONLY IF TRANSACTION RESTRUCTURED AS MERGER)
If prior to the first to occur of (i) December 31, 2001 or (ii) a sale of the
Water Tech business, there occurs an IPO, then, in such event, but only in such
event, the redemption price for the Series B Preferred Stock shall be the
greatest of (a) $5,000,000, (b) the Normal Redemption Price or (c) the
Alternative Redemption Price. In determining the Alternative Redemption Price in
the event of an IPO, the Alternative Redemption Price provisions applicable upon
a sale of the Water Tech business shall be applied with the Water Tech business
deemed to have been sold at a selling price representing the same multiple of
Water Tech EBIT for the most recently completed fiscal year as the multiple of
Company-wide EBIT for such fiscal year that the offering price in the IPO
represents. If the IPO occurs after December 31, 2001 but before a sale of the
Water Tech business the redemption price for the Series B Preferred Stock shall
be the same as it would be had the transaction not been restructured as a
merger.
2
<PAGE> 51
EXHIBIT 10.21
EXHIBIT B
SALE OF THE COMPANY (APPLICABLE ONLY IF TRANSACTION RESTRUCTURED AS
MERGER)
If prior to the first to occur of (i) December 31, 2001 or (ii) a sale of the
Water Tech business, there occurs either (a) an Overall Ownership Shift, (b) an
Employee Ownership Shift or (c) an Asset Shift and, in the further event, that
at the time of the closing of a transaction described in clause (a), (b) or (c)
above the actual cumulative Company-wide EBIT for the cumulative period
beginning 1997 and ending on such closing date is at least 80% of the projected
cumulative Company-wide EBIT for such cumulative period as set forth in the
attached Schedule then, in the event that all of the preceding conditions
precedent have been met, the redemption price for the Series B Preferred Stock
shall be the greatest of (x) $5,000,000, (y) the Normal Redemption Price or (z)
the Alternative Redemption Price. In determining the Alternative Redemption
Price in the event of a sale transaction described in this paragraph, Water Tech
shall be deemed to have been sold at a selling price representing the same
multiple of Water Tech EBIT for the most recently completed fiscal year as (i)
in the event of an Overall Ownership or an Employee Ownership Shift, the
multiple of per share Company-wide EBIT for such fiscal year that the actual per
share selling price of a share of the Company's common stock represents or (ii)
in the event of an Asset Shift, the multiple of Company-wide EBIT for such year
that the selling price (adjusted for any retained assets or liabilities)
represents. If (a), (b) or (c) above occur after December 31, 2001 but before a
sale of the Water Tech business, or if they occur and the Company-wide EBIT test
above has not been met, the redemption price for the Series B Preferred Stock
shall be the same as it would be had the transaction not been restructured as a
merger.
ALTERNATIVE REDEMPTION PRICE UPON SALE OF COMPANY (APPLICABLE IF TRANSACTION IS
NOT RESTRUCTURED AS MERGER)
If prior to a sale of the Water Tech business there occurs either an Overall
Ownership Shift or an Employee Ownership Shift, the redemption price shall be
the Alternative Redemption Price and Water Tech shall be deemed to have been
sold at selling price representing the same multiple of Water Tech EBIT for the
most recently completed fiscal year as the multiple of per share Company- wide
EBIT for such fiscal year that the actual per share selling price of a share of
the Company's common stock represents.
MAXIMUM REDEMPTION PRICE
Notwithstanding anything to the contrary herein, the maximum redemption price
under any circumstances or alternatives shall not exceed $7.5 million.
AUDITORS: DISPUTE RESOLUTION: The Company shall retain a Big Six
accounting firm to audit its annual
financial statements and may switch to a
non-Big Six accounting firm only with the
prior written consent of Holders of Series B
Preferred, which consent shall not
unreasonably be withheld. In connection with
any
3
<PAGE> 52
EXHIBIT 10.21
EXHIBIT B
redemption of the Series B Preferred,
Holders (upon execution of a confidentiality
agreement) shall have the right to review the
Company's determination of the redemption
price and auditors work papers. Any disputes
to be resolved by binding arbitration in
accordance with the arbitration provisions
set forth in the Stock Purchase Agreement.
DIVIDEND: $50,000 per quarter, commencing on the Closing
Date; dividend is cumulative and payable only
upon redemption.
OFFSET ADJUSTMENTS: Notwithstanding anything to the contrary
herein, the redemption price (regardless
of how determined) and dividends are
subject to offset pursuant to the terms
of the Stock Purchase Agreement.
TRANSFER RESTRICTIONS: Not Transferable other than to companies
controlled by, controlling or under common
control with the initial Holder, provided
that such transferee is not engaged in any
business which is in competition with any
business engaged in by Aqua-Chem.
VOTING RIGHTS: None
LIQUIDATION PREFERENCE: Right to receive Redemption Price
(as determined pursuant to the applicable
formula set forth herein) plus all accrued
dividends before any amounts are distributed
with respect to the Common Stock.
REDEMPTION PROVISIONS:
PUT OPTION -- The Holders of Series B Preferred
Stock shall have the right at the Holders
election, by written notice to the Company, to
require the Company to redeem the Series B
Preferred at the applicable Redemption Price
plus accrued dividends (i) simultaneous with
the occurrence of an Overall Ownership Shift,
Employee Ownership Shift or an Asset Shift
(ii) within the 120 day period following an
IPO of the Company's equity securities (iii)
within the 120 day period following a
refinancing and retirement of the J.H. Whitney
Subordinated Debt, (iv) seven years after
issuance. In the event that the Put Option
would become exercisable by reason of an
Overall Ownership Shift or an Employee
4
<PAGE> 53
EXHIBIT 10.21
EXHIBIT B
Ownership Shift under the circumstances
other than a sale of all of the stock of
the Company (other than the Series A and B
Preferred Stock), and the exercise of the
Put Option under such other circumstances
would cause the Company to be in default
of covenants with lenders, the exercise of
the Put Option shall be deferred until
such time as its exercise would not cause
a default (but not later than 7 years
after issuance). During any such deferral
period, the Company shall use its best
efforts with lenders to obtain an
amendment or waiver to permit such
exercise and shall not permit any increase
to occur in the compensation payable to
any member of the Management Group or
repurchase any of its other outstanding
stock. No deferral or delay in the
exercise of the Put Option shall prevent
the termination of the [THIS PROVISION HAS
BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
AND IS SUBJECT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO 17CFR
SECTION 240.24b2] or General Indemnity
in accordance with the terms of the Stock
Purchase Agreement.
CALL OPTION -- Company shall have the right at any time
seven years after issuance to call the
Series B Preferred at the Normal
Redemption Price plus accrued dividends.
DEFAULT: In the event of a default in payment of
the Redemption Price or accrued dividends,
dividend increases to $75,000 per quarter
(50% increase).
RIGHT TO RECEIVE FINANCIAL INFORMATION; NON DISCLOSURE:
The Company shall each year furnish the Holders with its June 30 internally
prepared unaudited income statement and balance sheet on or before August 31
and with its annual audited year end income statement and balance sheet on or
before March 31. Access to such financial statements shall be strictly limited
by Holder to those persons employed by Holder and its affiliates who have
responsibility for monitoring the investment in the Company and, under no
circumstances, shall such financial statements or the information contained
therein be made available or disclosed to any other persons or used for any
other purposes.
5
<PAGE> 1
EXHIBIT 10.22
AMENDMENT
TO
AGREEMENT AND PLAN OF REORGANIZATION
THE UNDERSIGNED, being all of the parties to that certain AGREEMENT AND
PLAN OF REORGANIZATION (hereinafter referred to as the "Agreement") made and
entered into as of the 31st day of July, 1997, by and among LYONNAISE AMERICAN
HOLDING, INC., a Delaware corporation, GESTRA CORPORATION N.V., a company
organized in the Netherlands Antilles, RUSH CREEK LLC, a Wisconsin limited
liability company, AQUA-CHEM, INC., a Delaware corporation, A-C ACQUISITION
CORP., a Delaware corporation, and JEFFREY A. MILLER hereby agree as follows:
1. Capitalized terms used herein and not defined shall have the meaning
set forth in the Agreement.
2. Section 9.1 of the Agreement is amended to read as follows in its
entirety:
9.1 UPON REDEMPTION OF SERIES A AND SERIES B PREFERRED STOCK.
The General Indemnity, [THIS PROVISION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT
TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION
240.24b2] obligations of each Seller as the same shall have
accrued from the date of Closing to the date of complete redemption
of the Series A and Series B Preferred Stock shall be satisfied from
such Seller's shares of the Series A and Series B Preferred Stock and
required cash payments in accordance with the priorities and solely
and exclusively in the manner hereinafter set forth.
(a) First, the [THIS PROVISION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2] obligation (as the
same shall exist at the time of redemption of the Series B
Preferred Stock) shall be satisfied in full and solely and
exclusively (i) first, by reducing the redemption price of the
Series B Preferred Stock and (ii) second, by reducing the
dividends accrued on the Series B Preferred Stock.
(b) Second, the [THIS PROVISION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2] obligation (as the
same shall exist at the time(s) of any redemption(s) of all or
any part of the Series A and Series B Preferred Stock) shall
be satisfied in full and solely and exclusively (i) first, by
reducing any remaining redemption price of the Series B
Preferred Stock, (ii) second, by reducing any remaining
dividends accrued on the Series B Preferred Stock, (iii)
third, by reducing the dividends accrued on the Series A Stock
and (iv) fourth, by reducing the redemption price of the
Series A Preferred Stock.
1
<PAGE> 2
EXHIBIT 10.22
(c) Third, the General Indemnity obligation (as the
same shall exist at the time of any redemption(s) of all or
any part of the Series A and Series B Preferred Stock) shall
be satisfied in full and solely and exclusively (i) first, by
reducing any remaining redemption price of the Series B
Preferred Stock, (ii) second, by reducing any remaining
dividends accrued on the Series B Preferred Stock, (iii)
third, by reducing the dividends accrued on the Series A Stock
(iv) fourth, by reducing the redemption price of the Series A
Preferred Stock and (v) fifth, by cash payment from the
Seller.
3. Section 9.2 of the Agreement is amended to read as follows in its
entirety
9.2 SUBSEQUENT TO THE COMPLETE REDEMPTION OF ALL ISSUED AND
OUTSTANDING SERIES A AND SERIES B PREFERRED STOCK. Subject in all
respects to the limitations on indemnification set forth in Sections 6,
7 and 8 of this Agreement, the General Indemnity, [THIS PROVISION HAS
BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT
PURSUANT TO 17 CFR SECTION 240.24b2] obligations of each Seller as
the same shall accrue from and after the date of the complete
redemption of all of the issued and outstanding shares of Series A and
Series B Preferred Stock shall be satisfied in accordance with the
priorities and solely and exclusively in the manner hereinafter set
forth.
(a) First, any unfulfilled [THIS PROVISION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2] obligation
shall be satisfied by cash payment from the Seller to the
Purchaser Group, with such payment not to exceed an amount
equal to (i) the total cash proceeds in payment of the
redemption price and accrued dividends actually received by
the Seller upon redemption of its Series B Preferred Stock,
plus (ii) the amount of any General Indemnity obligation of
the Seller that was satisfied at the time of redemption by
offset against the redemption price and/or accrued dividends
paid with respect to the Seller's Series B Preferred Stock,
plus (iii) the amount of any [THIS PROVISION HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2] obligation of
the Seller that was satisfied at the time of redemption by
offset against the redemption price and/or accrued dividends
paid with respect to the Seller's Series B Preferred Stock,
minus (iv) any previous payments made by the Seller to the
Purchaser Group subsequent to the date of such redemption
pursuant to this paragraph (a).
(b) Second, any unfulfilled [THIS PROVISION HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO 17 CFR SECTION 240.24b2] obligation
shall be satisfied by cash payment from the Seller to the
Purchaser Group, with such payment not to exceed an amount
equal to (i) the cash proceeds in payments of the redemption
price and accrued dividends actually received by the Seller
with respects to theSeries A and Series B Preferred Stock
owned by the Seller, plus (ii) the amount of any General
Indemnity obligation of the Seller that was satisfied at any
times by offset against the redemption price
2
<PAGE> 3
EXHIBIT 10.22
and/or accrued dividends paid with respect to the Seller's
Series A or Series B Preferred Stock, minus (iii) the sum of
(A) any previous payments made by the Seller to the Purchaser
Group subsequent to the date of such redemption pursuant to
paragraph (a) immediately above or this paragraph (b), plus
(B) any current payment to be made by the Seller pursuant to
paragraph (a) immediately above.
(c) Third, any unfulfilled General Indemnity
obligation shall be satisfied by cash payment from the Seller
to the Purchaser Group, with such payment not to exceed an
amount equal to Five Million Dollars ($5,000,000) minus the
sum of (i) the amount of any General Indemnity obligation of
the Seller that was satisfied by offset against the redemption
price and/or accrued dividends paid with respect to the
Seller's Series A or Series B Preferred Stock, and minus the
sum of (ii) any previous payments made by the Seller to the
Purchaser Group subsequent to the date of such redemption
pursuant to this paragraph (c).
Notwithstanding anything to the contrary in this Section 9.2,
the total indemnity to the Purchaser Group with respect to
[THIS PROVISION HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO 17 CFR SECTION
240.24b2] and interest thereon shall not exceed the lesser of
(i) the redemption price plus accrued dividends for the
Series A and Series B Preferred Stock and (ii) $10,000,000.
4. There shall be substituted for Exhibit B to the Agreement the terms
of the Series A and Series B Preferred Stock as set forth in the Certificate of
Amendment attached hereto.
5. Except to the extent expressly set forth herein, all provisions of
the Agreement shall continue in full force and effect.
6. This Amendment to Agreement and Plan of Reorganization may be
executed in counterparts, which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
Agreement and Plan of Reorganization as of the 22nd day of June, 1998.
Lyonnaise American Holding, Inc.
By: /s/ Joseph V. Boyle
--------------------------------------
Vice President-Finance
3
<PAGE> 4
EXHIBIT 10.22
Gestra Corporation, N.V.
By: /s/ Miraj Ubdin
---------------------------
Rush Creek LLC
By: /s/ JA Miller
---------------------------
Aqua-Chem, Inc.
By: /s/ JA Miller
---------------------------
A-C Acquisition Corp.
By: /s/ JA Miller
---------------------------
/s/ JA Miller
- ---------------------------
Jeffrey A. Miller, Individually
4
<PAGE> 1
EXHIBIT 16.1
[KPMG PEAT MARWICK LLP LETTERHEAD]
August 18, 1998
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
We were previously principal accountants for Aqua Chem, Inc. and, under the
date of January 24, 1997, we reported on the consolidated financial statements
of Aqua Chem, Inc. and subsidiaries as of and for the years ended December 31,
1996 and 1995. On January 23, 1998 our appointment as principal accountants was
terminated. We have read Aqua Chem's statements included under item 12
(b)(3)(vi) of its Form S-4 dated August 18, 1998 and we agree with such
statements, except that we are not in a position to agree or disagree with Aqua
Chem's statement that the change was approved by the Board of Directors.
Very truly yours,
KPMG Peat Marwick LLP
<PAGE> 1
[ARTHUR ANDERSEN LLP LETTERHEAD]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
August 17, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Aqua-Chem, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Independent Auditors" in the prospectus.
/s/ KPMG Peat Marwick LLP
Milwaukee, Wisconsin
August 17, 1998
<PAGE> 1
Exhibit 23.3
KPMG Peat Marwick LLP [LOGO}
<TABLE>
<S> <C> <C>
Two Central Park Plaza Telephone 402 348 1450 Telefax 402 348 0152
Suite 1501
Omaha, NE 68102
233 South 13th Street, Suite 1600 Telephone 402 476 1216 Telefax 402 476 1944
Lincoln, NE 68508-2041
</TABLE>
ACCOUNTANTS' CONSENT
The Board of Directors
Aqua-Chem, Inc.:
We consent to the use of our report on the financial statements of National
Dynamics Corporation included herein and to the references to our firm under the
headings "Selected Financial Data of NDC" and "Independent Auditors" in the
Prospectus.
/s/KPMG Peat Marwick LLP
Omaha, Nebraska
August 18, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
Each of the undersigned officers and directors of Aqua-Chem, Inc.
(hereinafter the "Company") hereby severally constitutes Jeffrey A. Miller and
J. Scott Barton, and each of them, severally, our true and lawful
attorneys-in-fact with full power to them and each of them to sign for us, and
in our names as officers or directors, or both, of the Company, a Registration
Statement (and any and all amendments thereto, including post-effective
amendments) on Form S-4 to be filed with the Securities and Exchange Commission
for the purpose of registering under the Securities Act of 1933 up to a maximum
of $125,000,000 principal amount of the Company's 11-1/4% Senior Subordinated
Notes due 2008, granting unto said attorneys-in-fact, and each of them, full
power and authority to do and to perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or any of them, may lawfully do or cause to be
done by virtue hereof.
/s/ Jeffrey A. Miller 8/4/98 /s/ J. Scott Barton 8/4/98
- --------------------- ------ ------------------- ------
Jeffrey A. Miller Date J. Scott Barton Date
/s/ James H. Fordyce 8/11/98 /s/ James W. Hook 8/3/98
- --------------------- ------ ------------------- ------
James H. Fordyce Date James W. Hook Date
/s/ William P. Killian 8/4/98 /s/ Michael R. Stone 8/4/98
- ---------------------- ------ -------------------- ------
William P. Killian Date Michael R. Stone Date
