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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 1999
ERC Industries, Inc.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 0-14439 76-0382879
-------- ------- ----------
(State or other (Commission File Number) (IRS Employer
jurisdiction of incorporation) Identification No.)
1441 Park Ten Blvd., Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 398-8901
Not Applicable
(Former name or former address, if changed since last report)
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With respect to each contract, agreement or other document referred to
herein and filed with the Securities and Exchange Commission as an exhibit to
this report, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 14, 1999, ERC Industries, Inc., a Delaware corporation (the
"Company"), in a privately-negotiated transaction (the "Pressure Control
Acquisition"), completed its acquisition from John Wood Group PLC ("Wood Group")
of all of the outstanding capital stock of Wood Group Pressure Control Holdings
Limited, a company incorporated in Scotland under the Companies Act of the
United Kingdom ("WGPCHL"). Prior to the Pressure Control Acquisition, WGPCHL
was a wholly-owned subsidiary of Wood Group, the owner of approximately 88.5% of
the then issued and outstanding shares of the Company's common stock.
The sole assets of WGPCHL consist of all of the issued and outstanding
capital stock of each of Wood Group Engineering Services (Peterhead) Limited and
Wood Group Engineering (Middle East) Limited, which in turn beneficially owns
Arabian Oil Equipment Services LLC (collectively, the "Group Companies"). The
Group Companies market, manufacture and service products used in the drilling
and production segment of the Oil and Gas Industry, primarily consisting of the
repair and overhaul of valves and wellheads. The Group Companies operate out of
one facility located in Scotland and one facility in the United Arab Emirates.
The Company plans to continue to operate the Group Companies in substantially
the same manner as they were operated prior to the acquisition.
In connection with the transaction and in exchange for all of the shares of
the capital stock of WGPCHL, the Company issued to Wood Group 1,350,000 shares
of its common stock, par value $0.01 per share (the "Common Stock"),
representing approximately 0.5% of the currently issued and outstanding shares
of Common Stock. In addition, the Company issued 1,850,000 shares of its Series
A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"), which
is only convertible following approval of the conversion by the Company's
stockholders.
The holders of Series A Preferred Stock are entitled to receive cumulative
cash dividends of $0.01 per annum (1% of the liquidation preference) for each
share of Series A Preferred Stock beginning on January 1, 2000 in the event that
the Series A Preferred Stock is not then convertible into shares of Common
Stock. The Series A Preferred Stock is entitled to a liquidation preference of
$1.00 per share, plus all accrued but unpaid dividends.
The Series A Preferred Stock is convertible at the holder's option into an
equal number of shares of Common Stock at any time following the approval of the
issuance of such shares of Common Stock by a majority of the holders of the
issued and outstanding Common Stock at the next annual or special meeting of
stockholders called for this purpose.
The Series A Preferred Stock is not entitled to vote on any matters
submitted to the stockholders of the Company, except as may otherwise be
provided by law or matters which adversely affect the rights of the holders of
the Series A Preferred Stock. The Company may redeem the Series A Preferred
Stock at any time after December 31, 1999 for $1.00 per share.
On May 13, 1999, the closing sales price per share of the Common Stock on
the NASDAQ Small Cap Market was $1.00.
In connection with the transaction, as part of the consideration for the
acquisition, the Company granted certain registration rights to Wood Group
pursuant to a Registration Rights Agreement, dated
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as of May 14, 1999 (the "Registration Rights Agreement"). Under the terms of the
Registration Rights Agreement, the Company granted to Wood Group and its
assignees the right to require the Company to register the offer and sale of the
Common Stock issued in the transaction and the Common Stock issuable upon the
conversion of the Series A Preferred Stock up to two times, subject to certain
deferral and cutback provisions. In addition, the Company also granted to Wood
Group and its assignees, certain incidental or "piggyback" registration rights,
which allow Wood Group to participate in certain underwritten public offerings
initiated by the Company, subject to certain limitations and conditions set
forth therein. Under the terms of the Registration Rights Agreement, the ability
of Wood Group to exercise the rights granted thereunder may not be subordinated
or subject to registration rights of any other person or entity. The rights
granted under the Registration Rights Agreement terminate on the earlier of (i)
the fifth anniversary date of the Registration Rights Agreement, or (ii) such
time as the shares may be immediately sold under Rule 144 under the Securities
Act of 1933, as amended, during any 90-day period.
Prior to the consummation of the transactions described in this Current
Report, Wood Group owned approximately 88.5% of the outstanding shares of the
Company's Common Stock. Prior to the negotiation and consummation of this
transaction, the Company's Board of Directors appointed a special committee
consisting of its two outside independent directors (the "Special Committee") to
evaluate and negotiate the transaction. The Special Committee engaged Schroder
& Co. Inc. ("Schroders"), as its financial advisor to assist it in evaluating
and determining the fairness of the transaction to the Company's stockholders.
On February 1, 1999, Schroders delivered an opinion stating that the
consideration to be received by the Company in the transaction was fair to the
Company's stockholders from a financial point of view. Because the terms,
conditions and consideration for the transaction as consummated were the same as
the terms, conditions and consideration analyzed by Schroders, and the valuation
of the Group Companies increased since the date of the fairness opinion, the
Special Committee determined that the transaction was fair to the Company's
stockholders as of the date of the Pressure Control Acquisition.
As a result of the Pressure Control Acquisition, Wood Group owns an
aggregate of 25,687,702 shares of Common Stock (without giving effect to the
conversion, subject to stockholder approval, of the Series A Preferred Stock),
representing approximately 89% of the issued and outstanding shares of Common
Stock.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
At this time it is impracticable to provide the required consolidated
financial statements for WGPCHL; therefore, the required financial
statements will be filed with the Commission no later than July 27, 1999.
(b) Pro Forma Financial Information:
At this time it is impracticable to provide the required pro forma
financial information required pursuant to Article 11 of Regulation S-X;
therefore, all required pro forma financial information will be filed with
the Securities and Exchange Commission no later than July 27, 1999.
(c) Exhibits:
*10.1 Share Sale and Purchase Agreement between the Company and
John Wood Group PLC dated May 14, 1998.
*10.2 Certificate of Designations of Series A Cumulative
Convertible Preferred Stock dated May 14, 1998.
*10.3 Registration Rights Agreement between the Company and John
Wood Group PLC dated May 14, 1998.
*23.1 Consent of Schroder & Co. Inc.
____________________________
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ERC Industries, Inc.
By: /s/ James Klima
------------------------------------------
Vice President and Chief Financial Officer
Date: May 14, 1999
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SHARE SALE AND PURCHASE AGREEMENT
BETWEEN
JOHN WOOD GROUP PLC
AND
ERC INDUSTRIES, INC
- --------------------------------------------------------------------------------
IN RESPECT OF THE ENTIRE ISSUED SHARE CAPITAL OF
WOOD GROUP PRESSURE CONTROL HOLDINGS LIMITED
- --------------------------------------------------------------------------------
MAY 1999
WGPS LEGAL DEPARTMENT
16920 PARK ROW
HOUSTON, TEXAS
77084
TEL (1) 281 398 0911
FAX (1) 281 398 9862
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SHARE SALE AGREEMENT
Parties:
JOHN WOOD GROUP PLC a company incorporated in Scotland under the Companies Acts
of the United Kingdom (company number 36219) and having it's Registered Office
at John Wood House, Greenwell Road, Aberdeen, Scotland AB12 3AX ("the Vendor");
and
ERC INDUSTRIES, INC. a corporation incorporated under the Laws of Delaware and
having a place of business at 1441 Park Ten Boulevard, Houston, Texas 77084
("the Purchaser")
Recitals
WHEREAS:-
(A) The Vendor is the owner of the entire issued share capital of Wood Group
Pressure Control Holdings Limited a company incorporated in Scotland under
the Companies Acts of the United Kingdom (company number 191311) and having
it's Registered Office at John Wood House, Greenwell Road, Aberdeen,
Scotland AB12 3AX ("the Company");
(B) The Purchaser wishes to buy and the Vendor has agreed to sell the entire
issued share capital of the Company;
(C) The parties wish to record the terms of their agreement in writing.
NOW THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
Operative provisions:
1. INTERPRETATION
1.1. In this agreement, including the Schedules the following terms have
the following meanings, unless they are inconsistent with the context:
TERM MEANING
- ---- -------
`AGREED FORM' the form agreed between the parties on or prior to the
date of this agreement and initialled for the purpose
of identification by their respective solicitors
`CA' Companies Act 1985
`COMPANIES ACTS' CA, the former Companies Acts (within the meaning of CA
s 735(1)) and the Companies Act 1989
`COMPANY' Wood Group Pressure Control Holdings Limited
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`COMPLETION' Completion of the purchase of the Shares in accordance
with clause 4
`COMPLETION DATE' Friday May 14th, 1999
`CONSIDERATION SHARES' 1,350,000 ordinary shares of $0.01 each and 1,850,000
preferred shares of $1.00, credited as fully paid, of
the Purchaser to be allotted to the Vendor pursuant to
clause 3.1
`DEED OF INDEMNITY' The Deed of Indemnity referred to in Clause 4.2.5
`DISCLOSURE LETTER' The disclosure letter of the same date as this
Agreement from the Vendor to the Purchaser
`GROUP COMPANIES' the Company and its Subsidiaries for the time being
`FRS' a financial reporting standard issued by The Accounting
Standards Board Limited or an SSAP
`INDUSTRIAL PROPERTY any patent, patent application, know-how, trade mark,
RIGHTS' trade mark application, trade name, registered design,
copyright or other similar industrial or commercial
right
`LAST ACCOUNTS DATE' December 31, 1998 (being the date to which the
Principal Accounts have been prepared)
`MANAGEMENT ACCOUNTS' the unaudited management accounts of the subsidiaries
and the Company for the period to March 31, 1999
`PLANNING ACTS' as defined in the Town and Country Planning Act 1990, s
336
`PRINCIPAL ACCOUNTS' the audited balance sheet as at the Last Accounts Date
and audited profit and loss account for the year ended
on the Last Accounts Date of each Group Company
`PROPERTIES' the properties of the Group Companies shortly described
in Schedule Part Five
`SHARES' the one thousand ordinary shares of one pound Sterling
in the capital of the Company comprising the whole of
its issued and allotted share capital
`SSAP' is a reference to a statement of standard accounting
practice adopted by The Accounting Standards Board
Limited;
`SUBSIDIARY' a subsidiary as defined in CA, s 736
`WARRANTIES' the warranties and undertakings of the Vendor contained
in Clause 5 and Schedule Part Two
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`WARRANTY CLAIM' Any claim made by the Purchaser for breach of any of
the Warranties or any claim made by any Group Company
under the Deed of Indemnity;
1.2. all references to a statutory provision shall be construed as including
references to:
1.2.1. any statutory modification, consolidation or re-enactment for the time
being in force;
1.2.2. all statutory instruments or orders made pursuant to a statutory
provision;
1.2.3. any statutory provisions of which a statutory provision is a
modification, consolidation, or re-enactment;
1.3. except where the context otherwise requires words denoting the singular
include the plural and vice versa;
1.4. Clause headings in this agreement and in the Schedules are for ease of
reference only and do not affect the construction of any provision.
2. AGREEMENT FOR SALE
2.1. Subject to the terms and conditions of this Agreement, the Vendor shall
sell the Shares with full title guarantee free from all liens charges and
encumbrances and the Purchaser shall purchase the Shares with all rights now or
hereafter attaching to them and with effect from the date of this Agreement.
3. PURCHASE CONSIDERATION
3.1. The purchase consideration for the Shares shall be the allotment at
Completion of the Consideration Shares.
3.2. The Consideration Shares shall be issued on terms that the Ordinary
Shares will rank pari passu in all respects with the ordinary shares of the
Purchaser in issue at the date of allotment save as regards any dividend
declared or paid by reference to a record date which is prior to Completion and
that the preferred stock will rank in accordance with the terms of the
Certificate of stock designation relating to such stock.
3.3. The Parties agree that they will as soon as practicable after the
closing of the transaction contemplated in this Agreement enter into a
Registration Rights Agreement in relation to the Consideration Shares which will
be in substantially the same terms as the last Registration Rights Agreement
entered into in relation to the last stock of the Purchaser issued to the
Vendor.
4. COMPLETION
4.1. Completion shall take place at the offices of the Company or the
Purchaser on the Completion Date when all the transactions mentioned in the
following sub-clauses shall take place.
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4.2. The Vendor shall deliver to the Purchaser:
4.2.1. duly completed and signed transfers in favour of the Purchaser or as it
may direct in respect of the Shares together with the relative share
certificates;
4.2.2. A certified copy of the minutes of the meeting of the Board of the
Vendor approving this transaction;
4.2.3. the statutory books of each Group Company complete and up-to-date and
their certificates of incorporation;
4.2.4. written confirmation from the Vendor that there are no subsisting
guarantees given by any Group Company in it's favour;
4.2.5. a validly executed Tax Deed of Indemnity of the form set out in Part Six
of the Schedule.
4.3. A Board meeting of the Company shall be held at which:
4.3.1. such persons as the Purchaser may nominate shall be appointed additional
directors;
4.3.2. the transfers referred to in clause 4.2.1 shall be approved (subject to
stamping); and
4.4. Upon completion of the matters referred to in clauses 4.2 & 4.3 the
Purchaser shall deliver to the Vendor definitive share certificates in respect
of the Consideration Shares;
4.5. Following Completion, the Purchaser shall use its reasonable endeavours
to procure the release of the Vendor from all liability arising after Completion
under any guarantees given by it on behalf of the Group Companies.
5. WARRANTIES AND UNDERTAKINGS BY THE VENDOR
5.1. The Vendor warrants to the Purchaser that:
5.1.1. the Vendor has and will have full power and authority to enter into and
perform this agreement which when executed will constitute a binding obligation
on it in accordance with it's terms;
5.1.2. the Shares constitute the whole of the issued and allotted share capital
of the Company;
5.1.3. there is and at Completion will be no pledge, lien or other encumbrance
on, over or affecting the Shares and there is and at Completion will be no
agreement or arrangement to give or create any such encumbrance and no claim has
been or will be made by any person to be entitled to any of the foregoing;
5.1.4. the Vendor will be entitled to transfer the full legal and beneficial
ownership of the Shares to the Purchaser on the terms of this Agreement without
the consent of any third party;
5.1.5. the Subsidiaries listed in Schedule Part One are all the present
Subsidiaries of the Company;
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5.1.6. the information in the Disclosure Letter relating to the Group Companies
is true and accurate in all material respects;
5.1.7. Other than as disclosed to the Purchaser in the Disclosure Letter, the
Company or (where specified) a Subsidiary of the Company is the sole beneficial
owner of the shares in the Subsidiaries of the Company listed in Schedule Part
One free from any encumbrance;
5.1.8. the Warranties in Schedule Part Two are true and accurate in all
material respects;
5.1.9. the contents of the Disclosure Letter, are true and accurate in all
material respects and fully and fairly disclose the matters to which they
relate.
5.2. the Vendor undertakes in relation to any Warranty which refers to the
knowledge, information or belief of the Vendor, that it has made due enquiry
into the subject matter of that Warranty.
5.3. Each of the Warranties is without prejudice to any other Warranty and,
except where expressly stated otherwise, no clause of this agreement shall
govern or limit the extent or application of any other clause.
5.4. The rights and remedies of the Purchaser in respect of any breach of the
Warranties shall not be affected by Completion, or by it failing to exercise or
delaying the exercise of any right or remedy (except a specific and duly
authorised written waiver or release), and no single or partial exercise of any
right or remedy shall preclude any further or other exercise.
5.5. The Purchaser acknowledges that it has not been induced to enter into
this agreement by any representation or warranty other than the Warranties.
5.6. The Warranties are given subject to the matters fully and fairly
disclosed in the Disclosure Letter.
5.7. Without restricting the rights of the Purchaser or the ability of the
Purchaser to claim damages on any basis in the event that any of the Warranties
proves to be untrue or misleading, the Vendor hereby covenants to pay to the
Purchaser:
5.7.1. The amount necessary to put the Group Company into the position which
would have existed if such Warranties had been true and not misleading; and
5.7.2. All proper and reasonable costs and expenses incurred by the Purchaser
and the Group Company directly as a result of such breach.
6. PENSIONS
6.1. The provisions of Schedule Part Three shall apply.
7. VENDOR' PROTECTION
7.1. The provisions of Schedule Part Four shall apply.
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8. GENERAL
8.1. This agreement shall be binding upon each party's successors and assigns
and personal representatives (as the case may be) but, except as expressly
provided, none of the rights of the parties under this agreement or the
Warranties may be assigned or transferred.
8.2. all expenses incurred by or on behalf of the parties, including all fees
of agents, representatives, solicitors, accountants and actuaries employed by
any of them in connection with the negotiation, preparation or execution of this
agreement, shall be borne solely by the party who incurred the liability and no
Group Company shall have any liability in respect of them.
8.3. Any notice required to be given by any of the parties under this
agreement may be sent by post to the address of the addressee as set out in this
agreement or to such other address as the addressee may have notified for the
purpose of this clause. Communications sent by post shall be deemed to have been
received forty-eight hours after posting. In proving service by post it shall be
necessary to prove only that the communication was contained in an envelope
which was duly addressed and posted in accordance with this clause.
9. ARBITRATION.
9.1. In the event that there shall be any dispute arising out of or in any
way relating to this Agreement, or the contemplated transactions, any document
referred to or incorporated herein by reference or centrally related to the
subject matter hereof, or the subject matter of any of the same, the Parties
covenant and agree as follows:
9.1.1. The Parties shall first use their reasonable best efforts to resolve
such dispute among themselves, with or without mediation.
9.1.2. If the Parties are unable to resolve such dispute among themselves, such
dispute shall be submitted to binding arbitration in Aberdeen, Scotland, under
the auspices of, and pursuant to the arbitration rules of the International
Chamber of Commerce as then in effect, or such other procedures as the Parties
may agree to at the time, before a tribunal of three arbitrators, one of which
shall be selected by the Vendor, one of which shall be selected by Purchaser,
and the third of which shall be selected by the two arbitrators so selected.
Any award issued as a result of such arbitration shall be final and binding
between the Parties, and shall be enforceable by any court having jurisdiction
over the Party against whom enforcement is sought. A ruling by the arbitrators
shall be non-appealable. The Parties agree to abide by and perform any award
rendered by the arbitrators. If either Vendor or Purchaser seeks enforcement of
the terms of this Agreement or seeks enforcement of any award rendered by the
arbitrators, then the prevailing Party (designated by the arbitrators) to such
proceeding(s) shall be entitled to recover its costs and expenses from the non-
prevailing Party, in addition to any other relief to which it may be entitled.
If a dispute arises and one Party fails or refuses to designate an arbitrator
within 30 days after receipt of a written notice that an arbitration proceeding
is to be held, then the dispute shall be
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resolved solely by the arbitrator designated by the other Party and such
arbitration award shall be as binding as if 3 arbitrators had participated in
the arbitration proceeding. Either Vendor or Purchaser may cause an arbitration
proceeding to commence by giving the other Party notice in writing of such
arbitration. Vendor and Purchaser covenant and agree to act as expeditiously as
practicable in order to resolve all disputes by arbitration. Notwithstanding
anything in this section to the contrary, neither Vendor nor Purchaser shall be
precluded from seeking court action in the event the action sought is either
injunctive action, a restraining order or other equitable relief.
9.2. Except as expressly provided herein and except for injunctions and other
equitable remedies that are required in order to enforce this Agreement, no
action may be brought in any court of law and EACH OF THE PARTIES WAIVES ANY
RIGHTS THAT IT MAY HAVE TO BRING A CAUSE OF ACTION IN ANY COURT OR IN ANY
PROCEEDING INVOLVING A JURY TO THE MAXIMUM EXTENT PERMITTED BY LAW.
10. GOVERNING LAW
10.1. This Agreement shall be governed by the Law of Scotland.
IN WITNESS WHEREOF this Agreement and the Schedule annexed are executed as
follows:-
At _____________________ on _________________1999 for and on behalf of the
Vendor as follows:-
By __________________ Director _____________________________
Signature
In the presence of the following witness:-
Witness Name______________________ _____________________________
Signature
Address___________________________
And at _____________________ on _________________1999 for and on behalf of the
Purchaser as follows:-
By __________________ Director _____________________________
Signature
In the presence of the following witness:-
Witness Name______________________ _____________________________
Signature
Address___________________________
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SCHEDULE PART ONE
Details of group companies
Part 1: The Company
Company number: 191311
- --------------------------------------------------------------------------------
Date of incorporation: 19th November 1998
- --------------------------------------------------------------------------------
Share capital: Ordinary Shares of One Pound Sterling
each
- --------------------------------------------------------------------------------
Authorised 10,000
- --------------------------------------------------------------------------------
Issued 1,000
- --------------------------------------------------------------------------------
Registered office: John Wood House, Greenwell Road,
Aberdeen, Scotland AB12 3AX
- --------------------------------------------------------------------------------
Directors: Hugh Fraser, Kenneth Andrew Wade
Taggart & Allister Langlands
- --------------------------------------------------------------------------------
Secretary: Graham Good
- --------------------------------------------------------------------------------
Part 2: The Subsidiaries of the Company
Wood Group Engineering Services (Peterhead) Limited
Wood Group Engineering (Middle East) Limited
Arabian Oil Equipment Services LLC
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SCHEDULE PART TWO
Warranties
1. ACCOUNTS
1.1. The Principal Accounts
1.1.1. gave a true and fair view of the assets and liabilities of each Group
Company at the Last Accounts Date and its profits for the financial period ended
on that date;
1.1.2. comply with the requirements of the Companies Acts and other relevant
statutes;
1.1.3. comply with all FRSs applicable to a United Kingdom company;
1.1.4. are not affected by any extraordinary, exceptional or non-recurring
item;
1.2. Book debts
1.2.1. No part of the amounts included in the Principal Accounts, or
subsequently recorded in the books of any Group Company, as owing by any debtors
is overdue by more than twelve weeks, or has been released on terms that any
debtor pays less than the full book value of his debt or has been written off or
has proved to any extent to be irrecoverable or is now regarded by the relevant
Group Company as irrecoverable in whole or in part.
1.2.2. To the best of the Vendors knowledge, the amounts due from debtors as at
Completion (less the amount of any relevant provision or reserve,) will be
recoverable in full in the ordinary course of business; and none of those debts
is subject to any counter-claim or set off, except to the extent of any such
provision or reserve.
1.3. Books and records
1.3.1. All the accounts, books, ledgers, financial and other records, of
whatsoever kind, of each Group Company are in its possession or control; do not
contain any material inaccuracies or discrepancies and fairly record its trading
transactions.
1.4. Management Accounts
1.4.1. The Management Accounts of each Group Company disclose all material
tangible assets of the Group Company and all material liabilities known to the
Directors of that Group Company as at their date.
2. CORPORATE MATTERS
2.1. Subsidiaries, associations and branches
2.1.1. No Group Company is the holder or beneficial owner of or has agreed to
acquire any share or loan capital of any company (whether incorporated in the
United Kingdom or elsewhere) other than the Subsidiaries listed in Schedule Part
One.
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2.2. Options over group companies' capital
2.2.1. Except as required by this agreement, there are no agreements or
arrangements in force which provide for the present or future issue, allotment
or transfer of or grant to any person the right (whether conditional or
otherwise) to call for the issue, allotment or transfer of any share or loan
capital of any Group Company (including any option or right of pre-emption or
conversion).
2.3. New issues of capital
2.3.1. No share or loan capital has been issued or allotted, or agreed to be
issued or allotted, by any Group Company since the Last Accounts Date.
2.4. Commissions
2.4.1. No one is entitled to receive from any Group Company any finder's fee,
brokerage or other commission in connection with the sale and purchase of the
Shares under this agreement.
2.5. Memoranda and articles of association, statutory books and resolutions
2.5.1. The copy of the memorandum and articles of association of each Group
Company attached to the Disclosure Letter is accurate and complete in all
material respects
2.5.2. The register of members and other statutory books of each Group Company
have been properly kept in all material respects and fairly record the matters
with which they should deal.
2.5.3. No notice or allegation that any of the foregoing is incorrect or should
be rectified has been received.
2.5.4. Since the Last Accounts Date no alteration has been made to the
memorandum or articles of association of any Group Company and no resolution of
any kind of the shareholders of any Group Company has been passed (other than
resolutions relating to routine business at annual general meetings and in
respect of the renewal of the Group Companies banking facilities).
2.6. Investigations
2.6.1. No investigations or enquiries by, or on behalf of, any governmental or
other body in respect of the affairs of any Group Company are pending or taking
place and to the best of the Vendors knowledge none are threatened.
3. FINANCE
3.1. Capital commitments
3.1.1. There are no outstanding commitments on capital account at the date of
this agreement other than (1) those incurred in the ordinary course of the
business of each Group Company and (2) those not exceeding $250,000.
3.2. Dividends and distributions
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3.2.1. All dividends or distributions declared, made or paid by each Group
Company have been declared, made or paid in accordance with its articles of
association and the applicable provisions of the Companies Acts. No dividends
have been declared which have not been paid in full.
3.3. Bank and other borrowings
3.3.1. No Group Company has outstanding, or has agreed to create or issue, any
loan capital; nor has it factored any of its debts, or engaged in financing of a
type which would not require to be shown or reflected in the Principal Accounts,
or borrowed any money which it has not repaid, save for borrowings not exceeding
the amounts shown in the Management Accounts.
3.4. Liabilities
3.4.1. There are no material liabilities of any Group Company which are
outstanding other than those liabilities disclosed in the Principal Accounts and
Management Accounts, or liabilities not exceeding $250,000 in aggregate incurred
in the ordinary and proper course of trading since the date of the Management
Accounts.
3.4.2. There has been no exercise, purported exercise or claim for any charge,
lien, encumbrance or equity over any of the fixed assets of any Group Company;
3.4.3. No Group Company has been the tenant of, or a guarantor in respect of,
any leasehold heritable property other than the Properties.
3.5. Government grants
3.5.1. Full details of all grants, subsidies or financial assistance applied
for or received by the Group Companies from any governmental department or
agency or any local or other authority are set out in the Disclosure Letter.
3.5.2. No Group Company has done or omitted to do any act or thing which could
result in all or any part of any investment grant, employment subsidy or other
similar payment made, or due to be made, to it becoming repayable or being
forfeited or withheld in whole or in part.
4. TRADING
4.1. Since the date of the Management Accounts (1) the business of each Group
Company has been continued in the ordinary and normal course (2) there has been
no deterioration in the turnover or the financial or trading position of any
Group Company and (3) no part of the business has been affected by any abnormal
factor not affecting similar businesses to a like extent.
4.1.1. There is no outstanding indebtedness of the Vendor to a Group Company
other than indebtedness not exceeding $250,000 in aggregate incurred in the
ordinary course of business.
4.2. Effect of sale of shares
4.2.1. The Vendor has no knowledge or information that solely as a result of
the proposed acquisition of the Company by the Purchaser:
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4.2.1.1. any supplier of any Group Company will be entitled to cease supplying
it or may substantially reduce its supplies to it;
4.2.1.2. any customer of any Group Company will be entitled to cease to deal
with it or may substantially reduce its existing level of business with it;
4.2.2. Compliance with the terms of this agreement does not and will not:
4.2.2.1. conflict with, or result in the breach of, or constitute a default
under any agreement or document to which any Group Company is a party, or any
provision of the memorandum or articles of association of any Group Company or
any encumbrance, lease, contract, order, judgment, award, injunction, regulation
or other restriction or obligation of any kind by which or to which any asset of
any Group Company is bound or subject;
4.2.2.2. relieve any person from any obligation to any Group Company (whether
contractual or otherwise), or enable any person to determine any such obligation
or any right or benefit enjoyed by any Group Company, or to exercise any right,
whether under an agreement with or otherwise in respect of any Group Company;
4.2.2.3. result in the creation, imposition, crystallisation or enforcement of
any encumbrance on any of the assets of any Group Company;
4.2.2.4. result in any present or future indebtedness of any Group Company
becoming due and payable or capable of being declared due and payable prior to
its stated maturity.
to the extent that any such event will have a material adverse effect on any
Group Company.
4.3. Conduct of businesses in accordance with memoranda and articles of
association
4.3.1. Each Group Company has at all times carried on business and conducted
its affairs in all material respects in accordance with its memorandum and
articles of association for the time being in force and any other documents to
which it is or has been a party.
4.3.2. Each Group Company is empowered and duly qualified to carry on business
in all jurisdictions in which it carries on business to any material extent.
4.4. Joint ventures and partnership
4.4.1. No Group Company is or has agreed to become a member of any joint
venture, consortium, partnership or other unincorporated association.
4.5. Agency agreements and agreements restricting business
4.5.1. No Group Company is a party to any agency, distributorship, marketing,
purchasing, manufacturing or licensing agreement or arrangement, or any
restrictive trading or other agreement or arrangement pursuant to which
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any part of its business is carried on which in any way restricts its freedom to
carry on the whole or any part of its business in the United Kingdom or
elsewhere in such manner as it thinks fit to the extent that such restriction
would have a material adverse effect on the financial or trading position of any
Group Company.
4.5.2. No Group Company is bound by any undertaking or assurances given to any
court or governmental agency.
4.5.3. No order has been made or petition presented or resolution passed for
the winding up of any Group Company, no material diligence, execution or other
process has been levied in respect of any Group Company which remains
undischarged, and there are no unfulfilled or unsatisfied judgements or court
orders outstanding against any Group Company.
4.6. Litigation, disputes and winding up
4.6.1. No Group Company is engaged in any litigation or arbitration
proceedings as plaintiff or defendant; to the best of the Vendors knowledge
information and belief there are no proceedings pending or threatened either by
or against any Group Company; and to the best of the Vendors knowledge there are
no circumstances which are likely to give rise to any litigation or arbitration.
4.6.2. There is no dispute with any revenue or other official, department in
the United Kingdom or elsewhere, in relation to the affairs of any Group
Company, and to the best of the Vendors knowledge there are no facts which may
give rise to any dispute.
4.7. Compliance with statutes
4.7.1.1. No Group Company and none of its officers, agents or employees (during
the course of their duties in relation to it) has committed or omitted to do any
act or thing the commission or omission of which is or could be in contravention
of any act, order, regulation or the like (whether of the United Kingdom or
elsewhere) giving rise to any substantial fine, penalty, default proceedings or
other liability on its part.
4.7.1.2. Each Group Company has conducted and is conducting its business in
accordance with all applicable laws and regulations.
4.7.1.3. Any breach of 4.7.1.1 and 4.7.1.2 shall only be actionable to the
extent that such breach has a material adverse effect on the financial or
trading position of any Group Company.
4.8. Licences and consents
4.8.1. Each Group Company has obtained all necessary material licences and
consents for the proper carrying on of its business and all the material
licences and consents are valid and subsisting.
4.8.2. No Group Company is in breach of any of the terms or conditions of any
of the material licences or consents; and there are no factors known to the
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Vendor that might in any way material prejudice the continuation or renewal of
any of them.
4.9. Subsisting contracts
4.9.1. No Group Company is a party to any contract which is of an unusual or
abnormal nature or outside the ordinary and proper course of business.
4.10. Defaults by Group Company
4.10.1. No Group Company is in default under any contract to which it is a
party to the extent that it would have a material adverse effect on any Group
Company;
4.10.2. No written notice or claim of default under any contract has been made
and is outstanding against any Group Company and to the best of the Vendors
knowledge there are no circumstances which would give rise to a default;
4.11. Other party's defaults
4.11.1. To the best of the Vendors knowledge information and belief no party to
any agreement or arrangement with or under an obligation to any Group Company is
in default under it to the extent that it would have a material adverse effect
on any Group Company's financial or trading position;
4.12. Defective products
4.12.1.1. To the best of the Vendors knowledge no Group Company has
manufactured, sold or supplied products which are in any material respect faulty
or defective or which do not comply in any material respect with any warranties
or representations expressly or impliedly made by it.
4.13. Insurance
4.13.1. The Group Companies carry and at all material times have carried
insurance cover in an amount and against such risks as are normal for similar
companies in their respective industries and geographical locations.
5. EMPLOYMENT
5.1. Employees and terms of employment
5.1.1. Each Group Company employs it's employees on terms which are broadly
similar in all material respects to industry practice in relation to the
business of each Group Company and the country in which each Group Company
trades
5.2. Industrial disputes and negotiations
5.2.1. None of the Group Companies or their respective employees is involved in
any material industrial dispute, and to the knowledge of the Vendor there are no
facts which might give rise to any material industrial dispute involving a Group
Company.
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6. ASSETS
6.1. Ownership of assets
6.1.1. The Group Companies owned at the Last Accounts Date all material assets
included in the Principal Accounts and (except for current assets subsequently
sold or realised in the ordinary course of business) still own all material
assets included in the Principal Accounts (excluding the Properties) and all
material tangible assets acquired since the Last Accounts Date.
6.1.2. Other than encumbrances arising as a mater of law there are no
encumbrances over any material assets of the Group Companies.
6.2. Plant in working order
6.2.1. To the best of the Vendors knowledge all material plant, machinery,
vehicles and other equipment used in connection with the business of each Group
Company is in a reasonable state of repair and condition (fair wear and tear
excepted) and is not in need of any repair or replacement which will cost in
excess of $250,000 in the next six months.
6.3. Industrial property rights and trade secrets
6.3.1. To the best of the Vendors knowledge the Group Companies have valid
rights to use all Industrial Property Rights required by any Group Company in
connection with its business.
7. PROPERTIES
7.1. Title
7.1.1. The Properties comprise all the properties owned, occupied or otherwise
used in connection with their businesses by the Group Companies.
7.1.2. Those of the Properties which are occupied or otherwise used by the
Group Companies in connection with their businesses are occupied or used by
right of ownership or under lease or licence, the terms of which permit the
occupation or use.
7.1.3. The information contained in Schedule Part Five as to the tenure of each
of the Properties, the principal terms of the leases or licences held by the
Group Companies, and the principal terms of the tenancies and licences subject
to and with the benefit of which the Properties are held is accurate in all
material respects.
7.2. Encumbrances
7.2.1. The Properties are free from any mortgage, debenture, charge, rent-
charge, lien or any other encumbrance securing the repayment of monies or other
obligation or liability of any of the Group Companies or any other person.
7.2.2. The Properties are not subject to any unusual and unduly onerous
outgoings.
7.3. Planning matters
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7.3.1. To the best of the Vendors knowledge the use of each of the Properties
is the permitted use for the purposes of the Planning Acts.
7.3.2. To the best of the Vendors knowledge planning permission has been
obtained or is deemed to have been granted for the purposes of the Planning Acts
with respect to the development of the Properties, no permission has been
suspended or called in and no application for planning permission is awaiting
decision.
7.3.3. To the best of the Vendors knowledge building regulation consents have
been obtained with respect to all material development, alterations and
improvements to the Properties.
7.4. Statutory obligations
7.4.1. To the best of the Vendors knowledge the Group Companies have complied
and are complying in all material respects with all applicable statutory and by-
law requirements with respect to the Properties.
7.5. Adverse orders
7.5.1. There are no compulsory purchase notices, orders or resolutions
affecting any of the Properties and to the best of the Vendors knowledge there
are no circumstances likely to lead to any being made.
7.5.2. There are no closing, demolition or clearance orders, enforcement
notices or stop notices affecting the Properties and to the best of the Vendors
knowledge there are no circumstances likely to lead to any being made.
With regard to the maters covered in warranties 7.3.1, 7.3.2, 7.3.3, 7.4.1,
7.5.1 and 7.5.2 they shall only be deemed to be breached to the extent that the
breach would result in a material adverse effect on the relevant Group Company.
7.6. Condition of the properties
7.6.1. The buildings and other structures on the Properties are in reasonable
repair (fair wear and tear excepted) and fit for the purposes for which they are
used.
7.6.2. There are no disputes with any neighbouring owner with respect to
boundary walls and fences or with respect to any easement or right over or means
of access to any of the Properties.
7.6.3. The principal means of access to each of the Properties is over roads
which have been taken over by the local or other highway authority and which are
maintainable at the public expense and no means of access to any of the
Properties is shared with any other party nor subject to rights of determination
by any other party.
7.6.4. Each of the Properties currently enjoys the main services of water,
drainage, electricity and gas.
7.7. Leasehold properties
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7.7.1. The relevant Group Companies have paid the rent in respect of the
Properties and to the best of the Vendors knowledge no obligation necessary to
comply with any notice given by the landlord under any leases of the Properties
is outstanding and unobserved or unperformed.
7.7.2. To the best of the Vendors knowledge all licences, consents and
approvals required from the landlords and any superior landlords under any
leases of the Properties have been obtained and the covenants on the part of the
tenant contained in the licences, consents and approvals have been duly
performed and observed.
8. ENVIRONMENTAL
8.1. To the best of the Vendor's knowledge the Group Companies are complying in
all material respects with all laws and regulations relating to the protection
of the environment which apply to them.
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SCHEDULE PART THREE
Pension arrangements
It is not anticipated that there will be any adverse impact on the entitlement
of any of the employees of any of the Group Companies to continue their existing
pension arrangements and it is not anticipated that there will be any increased
pension cost to any of the Group Companies as a result of their purchase by the
Purchaser. In the event that there are any increased costs, the Parties will
negotiate in good faith in order to reach agreement on an alternative
arrangement which minimises the impact of the cost increase.
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SCHEDULE PART FOUR
Vendor' protection provisions
(1) The liability of the Vendor in relation to the Warranties shall cease on
the 2nd anniversary of the date of this Agreement (and on the 6th
anniversary of the date of this Agreement in relation to claims under the
Tax Deed of Indemnity) save as regards any alleged specific breach of which
notice in writing (containing details of the event or circumstance giving
rise to the breach, the basis upon which the Purchaser is making a claim
against the Vendor and the total amount of liability which results) has
been given to the Vendor prior to that anniversary.
(2) The Vendor shall not be liable for any Warranty Claim unless their
aggregate liability (or what would be their liability apart from this
paragraph) exceeds (Pounds)250,000.
(3) The total liability of the Vendor under the Warranties and the Deed of
Indemnity shall not in any event exceed (Pounds)2,500,000.
(4) In the event of any Warranty Claim being established, the Vendor shall be
entitled to set off against the amount of any depletion in or reduction in
the value of the assets of the Group Companies giving rise to the Claim (1)
the amount by which (after adjustment where appropriate for taxation in
respect of revenue items) the position of the Group Companies (taken as a
whole) in respect of any other matter is established to be better than as
so warranted (after adjustments where appropriate for taxation) and (2) the
amount which has been established by way of a provision in the books of
account of the Group Companies to reflect the matters giving rise to such
Warranty Claim.
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SCHEDULE PART FIVE
Workshop No1(0.866 acres rental (Pounds)4,600 per year excl VAT - terminates 15
March 2043) and Workshop No 2 (0.47 acres - rental (Pounds)2,690 per year excl.
VAT - terminated 21 August 2042) at Blackhouse Industrial Estate, Peterhead,
Aberdeenshire.
Old Fleming Building (2.10 acres - rental (Pounds)9,500 per year excl. VAT -
terminates 27 May 2040) at Blackhouse Industrial Estate, Peterhead
Aberdeenshire.
Leasehold workshop and office premises in Abu Dhabi on a short term leasehold
extension while new leasehold premises are being purpose built for the Group
Company
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SCHEDULE PART SIX
Deed of Indemnity
Parties:
JOHN WOOD GROUP PLC a company incorporated in Scotland under the Companies Acts
of the United Kingdom (company number 36219) and having it's Registered Office
at John Wood House, Greenwell Road, Aberdeen, Scotland AB12 3AX ("the
Covenantors"); and
WOOD GROUP PRESSURE CONTROL HOLDINGS LIMITED a company incorporated in Scotland
under the Companies Acts of the United Kingdom (company number 191311) and
having it's Registered Office at John Wood House, Greenwell Road, Aberdeen,
Scotland AB12 3AX ("the Company")
Recital:
This deed is entered into pursuant to an agreement made between the Covenantors
(1) and ERC INDUSTRIES, INC. a corporation incorporated under the Laws of
Delaware and having a place of business at 1441 Park Ten Boulevard, Houston,
Texas 77084 ("the Purchaser") (2) relating to the sale of all the ordinary share
capital of the Company (`the Agreement').
Operative provisions:
1. DEFINITIONS
In this deed:
1.1. Words and expressions defined in the Agreement shall, except where
otherwise provided or expressly defined below, have the same meaning in this
deed.
1.2. `TAXATION' means all forms of taxation, duties, imposts and levies
whatsoever and whenever imposed and whether of the United Kingdom or elsewhere,
and without prejudice to the generality of that expression includes:
1.2.1. income tax, corporation tax, capital gains tax, inheritance tax, stamp
duty, stamp duty reserve tax, value added tax, customs and other import duties
and national insurance contributions, any payment whatsoever which the Company
may be or become bound to make to any person as a
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result of any enactment relating to taxation and any other taxes, duties or
levies supplementing or replacing any of the above;
1.2.2. all costs, charges, interest, fines, penalties and expenses incidental,
or relating, to any Taxation.
1.3. Where the context admits, `COMPANY' includes each Group Company, so that
this deed shall apply to each Group Company as if it were the Company, and the
covenants given by the Covenantors are expressly given to each Group Company and
may be enforced against the Covenantors by each and every Group Company acting
jointly or severally.
1.4. `RELIEF' includes any relief, allowance, exemption, set-off or deduction
in computing or against profits, income or gains of any description or from any
source, or credit against Taxation.
1.5. `LIABILITY TO TAXATION' means any liability to make a payment in respect
of Taxation but does not include:
1.5.1. the loss, counteracting or clawing back of any Relief which would
otherwise have been available to the Company;
1.5.2. the nullifying, cancellation or set-off of a right to repayment of
Taxation which would otherwise have been available to the Company;
provided however that if such loss, counteracting or clawing back of any such
Relief as is referred to in clause 1.5.1 or the nullifying, cancellation or set-
off of that right to repayment as is referred to in clause 1.5.2 results in the
Company thereby suffering a liability to make a payment in respect of Taxation,
that liability shall itself be a `Liability to Taxation' for the purposes of
this deed.
1.6. `CLAIM FOR TAXATION' includes any notice, demand, assessment, letter
or other document issued, or action taken, by or on behalf of the Inland Revenue
or Customs and Excise authorities or any other statutory or governmental
authority or body whatsoever in any part of the world, whereby it appears that
the Company is or may be subject to a liability to Taxation (whether or not it
is primarily payable by the Company and whether or not the Company has or may
have any right of reimbursement).
1.7. `FINAL DETERMINATION' means in relation to a Claim for Taxation where
there is an appeal against that assessment:
1.7.1. an agreement under TMA s 54 or any legislative provision corresponding
to that section; or
1.7.2. a decision of a court or tribunal from which either no appeal lies, or
in respect of which no appeal is made within the prescribed time limit.
2. INDEMNITY
2.1. Subject as provided below, the Covenantors jointly and severally
covenant with the Company (for itself and as trustee for each Group Company)
that they will indemnify each Group Company against:
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2.1.1. either any Liability to Taxation or any depletion in the value of the
assets of the Company arising by reason of or in consequence of or in connection
with any Liability to Taxation;
2.1.2. any settlement of a Claim for Taxation; and
2.1.3. the costs incurred by the Company in relation to any demands, actions,
proceedings and claims in respect of Liabilities to Taxation or Claims for
Taxation.
2.2. The indemnity in clause 2.1 shall apply only where the Liability to
Taxation or the Claim for Taxation:
2.2.1. is made wholly or partly in respect of or in consequence of any acts,
omissions or transactions of the Company or of the Covenantors occurring or
entered into on or before the date of this deed; or
2.2.2. results from or is calculated by reference to any actual or deemed
income, profits or gains earned, received or accrued, or deemed to have been
earned, received or accrued, on or before that date; or
2.2.3. results from or is made by reference to any dividend or distribution
paid or made, or deemed to have been paid or made, before that date.
2.3. In respect of any payment due from the Covenantors under clause 2.1, the
Company may if it is satisfied that it will be or has been subject to a
Liability to Taxation calculate and demand in writing from the Covenantors from
time to time such amount as will ensure that the net receipt to the Company
(after Taxation) in respect of the payment is the same as it would have been
were the payment not subject to Taxation in the hands of the Company.
3. EXCLUSIONS
3.1. The indemnity in clause 2.1 shall not apply to any Liability to Taxation
or Claim for Taxation:
3.1.1. to the extent that an appropriate provision or reserve was made in the
Principal Accounts or was specifically referred to in the notes to those
Accounts;
3.1.2. for which the Company is or may become liable wholly or primarily as a
result of transactions in the ordinary course of its business after the Last
Accounts Date;
3.1.3. to the extent that the Liability or Claim arises as a result only of the
appropriate provision or reserve in the Principal Accounts being insufficient by
reason of any increase in rates of Taxation made after the date of the
Agreement;
3.1.4. which would not have arisen but for a voluntary act or transaction
carried out by the Company after the date of this deed otherwise than in the
ordinary course of business;
3.1.5. to the extent that liability is excluded or limited under the provisions
of Schedule Part Four to the Agreement.
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4. MITIGATION
4.1. Except as provided in clause 4.2, the Covenantors shall be liable under
the indemnity in clause 2.1 notwithstanding any Reliefs, rights of repayment or
other rights or claims of a similar nature, which may be available to any person
entitled to the benefit of the indemnity to set against or otherwise mitigate
any Liability to Taxation, so that the indemnity in clause 2.1 shall take effect
as though no such Reliefs, rights of repayment or other rights or claims were
available.
4.2. The provisions of clause 4.1 shall not apply if and to the extent that
the Reliefs, rights of repayment, or other rights or claims mentioned in that
clause arose:
4.2.1. wholly or mainly by reason of any act, omission or transaction of any
other Group Company before the Last Accounts Date;
4.2.2. wholly or mainly by reason of any act, omission or transaction of the
Covenantors which does not cause the Company to incur any liabilities, costs or
expenses (unless the Company receives a satisfactory indemnity against them)
and, without prejudice to the generality of this clause, the Company shall co-
operate at the cost of the Covenantors in making a claim for group relief which
falls within this clause.
4.3. Where and to the extent that clause 4.2 applies, credit shall be given
to the Covenantors against any liability under this deed for any such Reliefs,
rights of repayment or other rights or claims as are mentioned in clause 4.1.
4.4. When the Covenantors have satisfied an obligation under this deed to
indemnify the Company against a Liability to Taxation and the Company has
(whether by operation of law, contract or otherwise) a right of reimbursement
(including by way of indemnity) against any other person in respect of the
Liability to Taxation, the Company shall take all reasonable steps to enforce
the right, giving credit to the Covenantors for any sum recovered by the Company
by reason of the right, or shall at the request and expense of the Covenantors
assign the right to the Covenantors, in such form as they shall reasonably
require.
4.5. If:
4.5.1. any provision for Taxation contained in the Principal Accounts is or has
been at the date that any payment is due to be made by the Covenantors under
clause 2 certified by the Company's auditors at the Covenantors' request and
expense to be an over-provision; or
4.5.2. the tax liability which has resulted in the payment by the Covenantors
gives rise to a corresponding saving for any Group Company;
the value (as certified by the Company's auditors) of the over-provision or
corresponding provision shall be set off first against the payment then due from
the Covenantors and secondly (to the extent there is any excess) against any
further such payment(s) in chronological order until exhausted but if it is
subsequently found that the over-provision or corresponding saving as certified
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was not in fact an over-provision or corresponding saving or that the certified
amount or value was excessive any amount which has been set off under this
clause in respect of the purported over-provision or corresponding saving shall
on demand be repaid forthwith by the Covenantors to the Purchaser or (as the
case may be) to the appropriate Group Company, the obligations of the
Covenantors to make the repayment being joint and several.
5. CONDUCT OF CLAIMS
5.1. The Company shall notify the Covenantors in writing of any Claim for
Taxation which comes to its notice whereby it appears that the Covenantors are
or may become liable to indemnify the Company under this deed. Where a time
limit for appeal applies to the Claim, the notification shall be given as soon
as reasonably possible after the date on which the Claim comes to the notice of
the Company but, where no time limit applies or the period to which the limit
relates has not commenced, the notification shall be given within fifty six days
of that date.
5.2. The Company shall ensure that a Claim for Taxation to which this deed
applies, is, so far as reasonably practicable, dealt with separately from claims
to which it does not apply and is not paid prematurely; and for this purpose any
payment made by the Company to avoid incurring interest or any penalty in
respect of unpaid taxation shall be deemed not to be paid prematurely.
5.3. the Company shall ensure at the request in writing of the Covenantors
that the Covenantors are placed in a position to dispute on behalf of the
Company any Claim for Taxation to which this deed applies and shall render, or
cause to be rendered, to the Covenantors at their expense all such assistance as
the Covenantors, or a majority of them, may reasonably require in disputing any
Claim for Taxation.
5.4. Subject to clause 5.5, the Covenantors shall be entitled on behalf of
the Company to instruct such solicitors or other professional advisers as the
Covenantors, or a majority of them, may nominate to act on behalf of the
Covenantors or the Company, to the intent that the conduct, and costs and
expenses, of the dispute shall be delegated entirely to and be borne solely by
the Covenantors. The costs arising from obtaining the determination of counsel
shall be borne as to one half by the Covenantors and as to the other half by the
Company.
5.5. In connection with the conduct of any dispute relating to a Claim for
Taxation to which this deed applies:
5.5.1. the Covenantors shall keep the Company fully informed of all relevant
matters and the Covenantors shall promptly forward or procure to be forwarded to
the secretary of the Company copies of all correspondence and other written
communications pertaining thereto;
5.5.2. the appointment of solicitors or other professional advisers shall be
subject to the approval of the Company, such approval not to be unreasonably
withheld or delayed;
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5.5.3. the Covenantors shall make no settlement or compromise of the dispute,
nor agree any matter in the conduct of the dispute which is likely to affect the
amount involved or the future Liability to Taxation of the Company without the
prior approval of the Company, such approval not to be unreasonably withheld or
delayed;
5.5.4. if any dispute arises between the Company and the Covenantors as to
whether the Claim should at any time be settled in full or contested in whole or
in part, the dispute shall be referred to the determination of a senior tax
counsel of at least ten years standing appointed by agreement between the
Company and the Covenantors, or (if they do not agree) upon the application by
either party to the President for the time being of The Law Society of Scotland,
whose determination shall be final. The counsel shall be asked to advise whether
in his opinion an appeal against the Claim would on the balance of probabilities
be likely to succeed and as to how the costs of such dispute should be allocated
between the Covenantors and the Company. Only if his opinion is in the
affirmative shall an appeal be made and that Claim not then settled. Any further
dispute arising between the Covenantors and the Company as to whether any
further appeal should be pursued following determination of an earlier appeal
(whether or not in favour of the Company) shall be resolved in a similar manner.
5.6. The Company shall not be subject to any claim by or liability to, any of
the Covenantors on the ground that it has not complied with the foregoing
provisions, if it has bona fide acted in accordance with the instructions or
approval of any one or more of the Covenantors.
6. DATES FOR AND QUANTUM OF PAYMENTS
6.1. This clause shall apply solely for determining the date on which any
payments or repayments shall be made by or to the Covenantors pursuant to this
deed and (where expressly provided) the amounts of the payments or repayments.
6.2. The Covenantors shall make payment to the Company to the extent that and
on the date on which the Company discharges or is deemed to discharge a
Liability to Taxation in respect of which the Company is entitled to be
indemnified under this deed.
6.3. The Company shall make a repayment to the Covenantors to the extent that
and on the date on which the Company receives any repayment of any amount paid
in respect of any Liability to Taxation pursuant to clause 6.2. Any repayment to
the Covenantors pursuant to this clause 6.3 shall not prejudice the right of the
Company to recover from the Covenantors under this deed in the event that a
further Liability to Taxation is imposed upon the Company, whether in respect of
matters to which the repayment relates or otherwise.
6.4. For the purposes of clause 6.2, the Company shall be deemed to discharge
a Liability to Taxation:
6.4.1. on the date on which the Company pays any amount of Taxation;
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6.4.2. on the date on which any Liability to Taxation would have fallen due but
for Reliefs, rights of repayment or other rights or claims of a similar nature
to which clause 4.1] applies.
6.5. For the purpose of clause 6.3, the Company shall be deemed to receive a
repayment:
6.5.1. on the date on which the Company receives a repayment of Taxation to
which clause 6.2 applies;
6.5.2. if and when the Company would have received a repayment but for a
Liability to Taxation in respect of which the Company is not entitled to be
indemnified under this deed;
6.5.3. if and when the Company would have received a repayment had the
Liability to Taxation been discharged by a payment of Taxation; or
6.5.4. if and when the Company is able to obtain the benefit of a reduction in
its Liability to Taxation as a result of the right to repayment.
6.6. Upon Final Determination of a relevant Claim for Taxation the
Covenantors shall promptly pay to the Company such amount or further amount in
addition to any sums already paid under this deed as is required to cover the
full liability of the Covenantors under this deed.
6.7. Any dispute in relation to the provisions of clauses 6.4, 6.5 or 6.6 may
be referred, by the Company or the Covenantors, to the auditors for the time
being of the Company, acting as experts and not as arbitrators, whose
certificate shall be final and binding upon the parties in the absence of
manifest error.
7. GENERAL
7.1. The Company shall procure that each other Group Company performs its
obligations under this deed.
7.2. This deed shall be binding on the Covenantors and their respective
successors and personal representatives.
7.3. The benefit of this deed may not be assigned in whole or in part by the
Company.
7.4. The provisions of the Agreement relating to notices shall apply to any
notice to be given under, or in connection with, this deed.
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<PAGE>
7.5 The construction, validity and performance of this deed shall be
governed by the laws of Scotland.
IN WITNESS WHEREOF this Agreement and the Schedule annexed are executed as
follows:-
At _____________________ on _________________1999 for and on behalf of the
Covenantors as follows:-
By __________________ Director _____________________________
Signature
In the presence of the following witness:-
Witness Name______________________ _____________________________
Signature
Address___________________________
And at _____________________ on _________________1999 for and on behalf of the
Company as follows:-
By __________________ Director _____________________________
Signature
In the presence of the following witness:-
Witness Name______________________ _____________________________
Signature
Address___________________________
Page 29
<PAGE>
ERC INDUSTRIES, INC.
___________________________________________________________________
CERTIFICATE OF DESIGNATIONS
OF PREFERRED STOCK
TO BE DESIGNATED
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
___________________________________________________________________
Pursuant to Section 151(g) of the
General Company Law of the State of Delaware
The undersigned DO HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of ERC Industries, Inc., a Delaware
corporation (the "Company"), in accordance with Section 141(f) of the General
Corporation Law of the State of Delaware (the "DGCL"):
"RESOLVED, that pursuant to the authority conferred on the Board of
Directors of the Company by the Company's Certificate of Incorporation, the
issuance of a series of preferred stock, par value $1.00 per share, of the
Company (the "Preferred Stock") which shall consist of an aggregate of up to
1,850,000 shares of Preferred Stock be, and the same hereby is, authorized; and
the Chairman and Chief Executive Officer and Secretary of the Company be, and
they hereby are, authorized and directed to execute and file with the Secretary
of State of the State of Delaware the Certificate of Designations of Series A
Cumulative Convertible Preferred Stock of the Company fixing the designations,
powers, preferences and rights of the shares of such Preferred Stock, and the
qualifications, limitations or restrictions thereof (in addition to the
designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which may be applicable to the Company's Preferred Stock), as
follows:
1. DESIGNATION
The distinctive serial designation of the series of Preferred Stock
authorized by this resolution shall be "Series A Cumulative Convertible
Preferred Stock" (the "Series A-Convertible Preferred Stock"). The number of
shares of Series A Convertible Preferred Stock shall initially be 1,850,000,
which number may from time to time be increased or decreased (but not below the
number then outstanding) by the Board of Directors.
<PAGE>
2. RANK
The Series A Convertible Preferred Stock shall, with respect to payment of
dividends, redemption payments and rights upon liquidation, dissolution or
winding up of the affairs of the Company, rank (a) senior and prior to (i) the
Common Stock, par value $0.01 per share, of the Company (the "Common Stock"),
and (ii) any preferred stock convertible into or exchangeable for other equity
securities of the Company that may in the future be issued by the Company, and
(b) pari passu with any additional preferred stock which may in the future be
issued by the Company that is not convertible into or exchangeable for other
equity securities of the Company (all shares identified in this clause (b) which
are pari passu with the shares of the Series A Convertible Preferred Stock with
respect to the payment of dividends are hereinafter referred to as "Parity
Dividend Shares" and all shares identified in this clause (b) which are pari
passu with the shares of the Series A Convertible Preferred Stock with respect
to redemption, payment and rights upon liquidation, dissolution or winding up of
the affairs of the Company are hereinafter referred to as "Parity Liquidation
Shares"), but only to the extent any such non-convertible preferred stock is not
stated to be junior to the Series A Convertible Preferred Stock in the related
Certificate of Designations or amendment to the Company's Certificate of
Incorporation (all shares identified in this clause (b) and in clause (a) above
which are junior to the shares of the Series A Convertible Preferred Stock with
respect to the payment of dividends are hereinafter referred to as "Junior
Dividend Shares" and all shares identified in this clause (b) and in clause (a)
above which are junior to the shares of the Series A Convertible Preferred Stock
with respect to redemption, payment and rights upon liquidation, dissolution or
winding up of the affairs of the Company are hereinafter referred to as "Junior
Liquidation Shares"). The Company shall not, without the consent of the holders
of at least two-thirds (2/3) of the outstanding shares of Series A Convertible
Preferred Stock, create, authorize or issue, or reclassify any authorized
Capital Stock of the Company into, or create, authorize or issue any obligation
or security convertible or exchangeable into or evidencing a right to purchase,
any shares of any class of Capital Stock of the Company ranking senior to the
Series A Convertible Preferred Stock. The Company may issue additional series
of Preferred Stock ranking on parity with or junior to the Series A Convertible
Preferred Stock without the consent of the holders of the Series A Convertible
Preferred Stock.
3. DIVIDENDS
(a) The cash dividend rate on shares of the Series A Convertible Preferred
Stock shall be 1% per annum ($0.01 per share) beginning on January 1, 2000 (the
"Dividend Date") if the Series A Convertible Preferred Stock shall not be
convertible into shares of Common Stock in accordance with Section 9 hereof.
Dividends on shares of the Series A Convertible Preferred Stock shall be fully
cumulative, accruing, without interest, from the Dividend Date and shall be
payable quarterly in arrears, when, as and if declared by the Board of Directors
out of funds legally available for the payment of cash dividends, on March 31,
June 30, September 30 and December 31 of each year, except that if such date is
not a business day then the dividend shall be payable on the first immediately
succeeding business day (as used herein, the term "business day" shall mean any
day except a Saturday, Sunday or day on which banking institutions are
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<PAGE>
legally authorized to close in New York, New York) (each such period being
hereinafter referred to as a "Quarterly Dividend Period"). Each dividend shall
be paid to the holders of record of shares of the Series A Convertible Preferred
Stock as they appear on the stock register of the Company on the record date,
which shall be not less than 10 nor more than 60 days preceding the payment date
thereof, as shall be fixed by the Board of Directors of the Company. Dividends
payable for each Quarterly Dividend Period shall be computed by dividing the
annual dividend by four (rounded to the nearest cent). Dividends payable for any
partial Quarterly Dividend Period shall be computed on the basis of a 360-day
year of twelve 30-day months. Dividends on account of arrearages for any past
Quarterly Dividend Period may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors of the Company. No interest shall be payable with
respect to any dividend payment that may be in arrears. Holders of shares of the
Series A Convertible Preferred Stock called for redemption between the close of
business on a dividend payment record date and the close of business on the
corresponding dividend payment date shall, in lieu of receiving such dividend on
the dividend payment date fixed therefor, receive such dividend payment on the
date fixed for redemption together with all other accrued and unpaid dividends
to the date fixed for redemption. The holders of shares of the Series A
Convertible Preferred Stock shall not be entitled to any dividends other than
the cash dividends provided for in this paragraph.
(b) No dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any Parity Dividend Shares
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and set apart for payment with respect to the
Series A Convertible Preferred Stock through the most recent Quarterly Dividend
Period ending on or prior to the date of payment (or the date of setting apart
for payment) of such dividends on such Parity Dividend Shares. Unless dividends
accrued and payable but unpaid on shares of the Series A Convertible Preferred
Stock and any Parity Dividend Shares at the time outstanding have been paid in
full, all dividends declared by the Company upon shares of the Series A
Convertible Preferred Stock or Parity Dividend Shares shall be declared pro rata
with respect to all such shares, so that the amounts of any dividends declared
on shares of the Series A Convertible Preferred Stock and the Parity Dividend
Shares shall in all cases bear to each other the same ratio that, at the time of
the declaration, all accrued but unpaid dividends on shares of the Series A
Convertible Preferred Stock and the other Parity Dividend Shares, respectively,
bear to each other.
(c) If at any time the Company has failed to pay or set apart for payment
all accrued dividends on any shares of the Series A Convertible Preferred Stock
through the then most recent Quarterly Dividend Period, the Company shall not:
(i) declare or pay or set aside for payment any dividend or other
distribution on or with respect to any Junior Dividend Shares, whether in
cash, securities, obligations or otherwise (other than dividends or
distributions paid in shares, options, warrants or rights to subscribe for
or purchase shares of Capital Stock, which are both Junior Dividend Shares
and Junior Liquidation Shares); or
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<PAGE>
(ii) redeem, purchase or otherwise acquire, or set apart money for a
sinking or other analogous fund for the redemption, purchase or other
acquisition of any Parity Dividend Shares, Junior Dividend Shares, Parity
Liquidation Shares or Junior Liquidation Shares for any consideration
(except by conversion into or exchange for shares which are both Junior
Liquidation Shares and Junior Dividend Shares)
unless, in each case, all dividends accrued on shares of the Series A
Convertible Preferred Stock through the most recent Quarterly Dividend Period
and on any Parity Dividend Shares have been or contemporaneously are declared
and paid in full or are declared and a sum sufficient for the payment thereof is
set aside for such payment. Notwithstanding anything to the contrary contained
in this paragraph 3, the foregoing shall not affect in any respect the ability
of the Company or holders of any stock options of the Company to surrender or
have withheld any shares of Common Stock in payment of the exercise price of any
such stock option(s) or any tax withholding obligations in connection therewith.
(d) Any reference to "distribution" contained in this paragraph 3 shall not
be deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
4. LIQUIDATION
(a) The liquidation value of shares of the Series A Convertible Preferred
Stock, in case of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, shall be $1.00 per share, plus an amount equal to the
dividends accrued and unpaid thereon, whether or not earned or declared, to the
payment date (such aggregate total being hereinafter referred to as the
"Aggregate Liquidation Preference").
(b) In the event of any voluntary liquidation, dissolution or winding up of
the Company, the holders of such shares of the Series A Convertible Preferred
Stock shall be entitled to receive the liquidation value of such shares held by
them in preference to and in priority over distributions upon the Junior
Liquidation Shares. Upon payment in full of the liquidation value to which the
holders of shares of the Series A Convertible Preferred Stock are entitled, the
holders of shares of the Series A Convertible Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Company. If the assets of the Company are not sufficient to pay in full the
liquidation value payable to the holders of shares of the Series A Convertible
Preferred Stock and the liquidation value payable to the holders of any Parity
Liquidation Shares, the holders of all such shares shall share ratably in such
distributions of assets in proportion to and in accordance with the amounts that
would be payable on the distribution if the amounts to which the holders of
shares of the Series A Convertible Preferred Stock and the holders of Parity
Liquidation Shares are entitled were paid in full.
(c) Neither a consolidation or merger of the Company with or into any
other entity, nor a merger of any other entity with or into the Company, nor a
share exchange involving the
4
<PAGE>
Company, nor a sale or transfer of all or any part of the Company's assets for
cash or securities or other property shall be considered a liquidation,
dissolution or winding up of the Company within the meaning of this paragraph 4.
(d) Written notice of any liquidation, dissolution or winding up of the
Company, stating the payment date or dates when and the place or places where
the amounts distributable in such circumstances shall be payable, shall be given
by first-class mail, postage prepaid, not less than 30 days prior to any payment
date stated therein, to the holders of record of shares of the Series A
Convertible Preferred Stock at their respective addresses as the same shall
appear on the books of the Company or the transfer agent for the Series A
Convertible Preferred Stock.
5. OPTIONAL REDEMPTIONS
(a) Subject to the restrictions in paragraph 3 above, shares of the Series
A Convertible Preferred Stock will be redeemable at the option of the Company,
in whole or in part, from and after December 31, 2000 at a redemption price per
share of $1.00 (in each case, together with an amount equal to the dividends
accrued and unpaid thereon, whether or not declared, to the redemption date).
(b) Not less than 30 nor more than 60 days prior to the date fixed for any
redemption of shares of the Series A Convertible Preferred Stock pursuant to
this paragraph 5, a notice specifying the time and place of the redemption and
the number of shares to be redeemed shall be given by first-class mail, postage
prepaid, to the holders of record of the shares of the Series A Convertible
Preferred Stock to be redeemed at their respective addresses as the same shall
appear on the books of the Company or the transfer agent for the Series A
Convertible Preferred Stock, calling upon each holder of record to surrender to
the Company at such place as shall be designated in such notice on the
redemption date such holder's certificate or certificates representing the
number of shares specified in the notice of redemption. Neither failure to mail
such notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to any other holder. Any notice mailed
in the manner herein provided shall be conclusively presumed to have been duly
given whether or not the holder receives the notice. On or after the redemption
date, each holder of shares of the Series A Convertible Preferred Stock to be
redeemed shall present and surrender such holder's certificate or certificates
for such shares to the Company at the place designated in the redemption notice
and thereupon the redemption price of the shares shall be paid to or on the
order of the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled. In case
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued to the holder representing the unredeemed shares of
the Series A Convertible Preferred Stock.
(c) If a notice of redemption has been given pursuant to this paragraph 5
and if, on or before the date fixed for redemption, the funds necessary for such
redemption shall have been
5
<PAGE>
set aside by the Company, separate and apart from its other funds, in trust for
the pro rata benefit of the holders of the shares of the Series A Convertible
Preferred Stock so called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares of the Series A
Convertible Preferred Stock to be redeemed, and at the close of business on the
redemption date the holders of such shares shall cease to be stockholders with
respect to those shares, shall have no interest in or claims against the Company
by virtue thereof and shall have no voting or other rights with respect thereto,
except the right to receive the money payable upon such redemption, without
interest thereon, upon surrender (and endorsement, if required by the Company)
of their certificates, and the shares evidenced thereby shall no longer be
outstanding. Subject to applicable escheat laws, any money so set aside by the
Company and unclaimed at the end of two years from the redemption date shall
revert to the general funds of the Company, after which reversion the holders of
such shares so called for redemption shall look only to the general funds of the
Company for the payment of the redemption price. Any interest accrued on funds
so deposited shall be paid to the Company from time to time.
(d) In every case of redemption of less than all of the outstanding shares
of the Series A Convertible Preferred Stock pursuant to this paragraph 5, the
shares to be redeemed shall be selected pro rata or by lot or in such other
manner as the Board of Directors may equitably determine, as may be prescribed
by resolution of the Board of Directors of the Company, provided that only whole
shares shall be selected for redemption. Notwithstanding the foregoing, the
Company shall not redeem any of the shares of the Series A Convertible Preferred
Stock at any time outstanding until all dividends accrued and in arrears upon
all shares of the Series A Convertible Preferred Stock then outstanding shall
have been paid for all past dividend periods.
6. STATUS OF SHARES
All shares of the Series A Convertible Preferred Stock that are at any time
redeemed pursuant to paragraph 5 above, and all shares of the Series A
Convertible Preferred Stock that are otherwise reacquired by the Company and
subsequently canceled by the Board of Directors, shall have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, subject to reissuance by the Board of Directors as shares of any one or
more other series. Notwithstanding the foregoing, shares of Series A
Convertible Preferred Stock redeemed or otherwise reacquired by the Company may
be put in Treasury by the Company and would be available for subsequent issuance
upon a vote of the Board of Directors.
7. VOTING RIGHTS
(a) General. Holders of the Series A Convertible Preferred Stock shall
have no right to vote on any matter voted on by the stockholders of the Company,
except as may otherwise be provided by law.
6
<PAGE>
(b) So long as any shares of the Series A Convertible Preferred Stock
remain outstanding, the consent of the holders of at least two-thirds (2/3) of
the shares of the Series A Convertible Preferred Stock outstanding at the time,
given in person or by proxy either in writing (as permitted by law and the
Certificate of Incorporation and Bylaws of the Company) or at any special or
annual meeting, shall be necessary to permit, effect or validate any one or more
of the following:
(i) the creation, authorization, issuance or reclassification of any
authorized stock of the Company into (or the creation, authorization or
issuance of any obligation or security convertible or exchangeable into or
evidencing a right to purchase) any share of Capital Stock of the Company
ranking senior to the Series A Convertible Preferred Stock as to dividends
or the distribution of assets upon liquidation, dissolution or winding up;
or
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate of
Incorporation (including this Certificate of Designations) or the Bylaws of
the Company which would adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series A Convertible
Preferred Stock or of the holders thereof.
8. MANDATORY REDEMPTION
The shares of the Series A Convertible Preferred Stock are not subject to
mandatory redemption or sinking fund requirements.
9. CONVERSION
The shares of the Series A Convertible Preferred Stock shall be
convertible, in whole or in part, at the election of each of the preferred
stockholders, into an equal number of shares of Common Stock at any time
following the approval of the issuance of such shares of Common Stock by a
majority of the holders of the issued and outstanding Common Stock at the next
annual or special meeting of stockholders called for this purpose.
10. CERTAIN DEFINITIONS
As used in this Certificate, the following terms shall have the following
respective meanings:
"Capital Stock" of any Person means the common stock or preferred stock of
such Person. Unless otherwise stated herein or the context otherwise requires,
"Capital Stock" means Capital Stock of the Company.
7
<PAGE>
"Person" means any individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or any agency or instrumentality thereof.
* * * *
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed on its behalf by its undersigned President and Chief Executive Officer
and attested to by its Secretary this 8th day of May, 1999.
[Corporate Seal] ERC INDUSTRIES, INC.
By: /s/ Wendell Brooks
------------------
Chief Executive Officer
ATTEST:
/s/ James Klima
- ---------------
Secretary
9
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("AGREEMENT") is made and entered into
as of May 14, 1999, by and between ERC Industries, Inc., a Delaware corporation
(the "COMPANY") and John Wood Group PLC, a company incorporated in the United
Kingdom and registered in Scotland (the "INVESTOR").
RECITALS:
WHEREAS, the Company and the Investor have entered into a Share Sale and
Purchase Agreement dated as of May 14, 1999 (the "INVESTMENT AGREEMENT"),
pursuant to which the Investor has acquired 1,350,000 shares of the Company's
$0.01 per share par value common stock (the "COMMON STOCK") and 1,850,000 shares
of the Company's Series A Cumulative Convertible Preferred (the "PREFERRED
STOCK") Stock (collectively with the Common Stock, the "SHARES"); and
WHEREAS, the Investor is willing to enter into the Investment Agreement and
to consummate the transactions contemplated by the Investment Agreement only if
the Company grants the registration rights provided in this Agreement; and
WHEREAS, the Company has agreed to grant the registration rights provided
in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"INVESTOR" shall mean collectively, John Wood Group PLC, a company
incorporated in the United Kingdom and registered in Scotland and any
transferees of Registrable Securities from the Investor, provided such
transfer complies with Section 3.2 of this Agreement.
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock
included in the Shares , and (ii) any Common Stock issued or issuable at
any time or from time to time in respect of the Shares, including those
shares of Common Stock issuable upon conversion of the Preferred Stock and
shares issuable upon a stock split, stock dividend, recapitalization or
other similar event involving the Company.
<PAGE>
The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with
Sections 2.1 and 2.2 hereof, including, without limitation, all
registration, qualification and filing fees, exchange listing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean only the underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Investor and all fees and disbursements of counsel for
the Investor.
"UNDERWRITTEN PUBLIC OFFERING" shall mean a public offering in which
the Common Stock is offered and sold on a firm commitment or best efforts
basis through one or more underwriters, all pursuant to an underwriting
agreement between the Company and such underwriters.
2. REGISTRATION RIGHTS.
2.1 DEMAND REGISTRATION RIGHTS. If the Company shall receive from
the Investor at any time from and after the date of this Agreement a
written request that the Company effect any registration with respect to
all or a part of the Registrable Securities, the Company will use its best
efforts to effect such registration within 120 days thereafter (including,
without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws,
and appropriate compliance with the Securities Act) and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request. The Company shall
not be required to effect more than two registrations pursuant to this
Section 2.1.
2
<PAGE>
2.2 COMPANY REGISTRATION - "PIGGY-BACK REGISTRATION RIGHTS".
(a) Notice of Registration. Subject to the terms hereof, if at any
time or from time to time prior to the expiration of five (5) years from
the date of this Agreement (except as otherwise provided in Section 3.2),
the Company shall determine to register any of its Common Stock, for its
own account relating to an Underwritten Public Offering, the Company shall:
(i) promptly, but in any event at least 30 days before the
Company files a registration statement pursuant to an Underwritten
Public Offering, give to the Investor written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in the underwriting involved
therein, such Registrable Securities as the Investor may request in a
writing delivered to the Company within 20 days after the Investor's
receipt of the Company's written notice delivered pursuant to Section
2.2(a)(i) above.
(b) Underwriting. The right of the Investor to registration pursuant
to Section 2.2 shall be conditioned upon the Investor's participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein. The Investor
and all other stockholders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Subject only to the
provisions of Section 2.2(c) below, if the managing underwriter determines
that marketing factors require a limitation on the number of shares to be
underwritten, the managing underwriter may limit some or all of the
Registrable Securities that may be included in the registration and
underwriting as follows: the number of Registrable Securities that may be
included in the registration and underwriting by the Investor shall be
determined by multiplying the number of shares of Registrable Securities of
all selling stockholders of the Company which the managing underwriter is
willing to include in such registration and underwriting, times a fraction,
the numerator of which is the number of Registrable Securities requested to
be included in such registration and underwriting by the Investor, and the
denominator of which is the total number of Registrable Securities which
all selling stockholders of the Company have requested to have included in
such registration and underwriting (but taking into account for this
purpose, only those stockholders of the Company who have been granted
registration rights with respect to their shares of Common Stock). To
facilitate the allocation of shares in accordance with the above
provisions, the Company may round the
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<PAGE>
number of shares allocable to any such person to the nearest 100 shares. If
the Investor disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
managing underwriter, delivered not less than seven days before the
effective date.
(c) Subordination of Registration Rights. The registration rights
granted pursuant to this Agreement shall not be subordinate to the
registration rights granted to any other person or entity.
(d) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not
the Investor has elected to include its Registrable Securities in such
registration, provided, however, that in such event, the Company shall
promptly pay all reasonable out-of-pocket costs and expenses of the
Investor (including, without limitation, all reasonable fees and
disbursements of one law firm chosen to represent the Investor) incurred in
connection with such terminated registration.
2.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 2.1 and 2.2 shall be
borne by the Company. Unless otherwise stated herein, all Selling Expenses
relating to securities registered on behalf of the Investor shall be borne
by the Investor.
2.4 COMPANY'S OBLIGATIONS IN REGISTRATION. In the case of each
registration, qualification or compliance effected by the Company pursuant
to this Agreement, the Company will keep the Investor advised in writing as
to the initiation of each registration, qualification and compliance and as
to the completion thereof. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable
best efforts to cause such registration statement to become and remain
effective with respect to a registration statement filed regarding an
Underwritten Public Offering, for the lesser of (i) 90 days or (ii)
until the distribution described in such registration statement has
been completed; and
(b) Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
underwriter may reasonably request in order to facilitate the public
sale of the shares by such underwriter, and
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promptly furnish to each underwriter and Investor notice of any stop-
order or similar notice issued by the Commission or any state agency
charged with the regulation of securities, and notice of any NASDAQ or
securities exchange listing; and
(c) Furnish prospectuses, including preliminary prospectuses and
amendments and supplements thereto, to the Investor electing to sell
any of its Registrable Securities pursuant to Section 2.2 hereof, all
in accordance with applicable securities laws; and
(d) Notify the Investor in the event that the Company becomes
aware that a prospectus relating to the Registrable Securities
contains a materially untrue statement or omits to state a material
fact; and
(e) Apply to register or otherwise qualify the Registrable
Securities offered by the Investor under all applicable blue sky laws
of any state.
2.5 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Investor, each of its officers and directors and
stockholders, and each person controlling the Investor within the meaning
of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof) to the extent to which such person or entity is subject,
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, to the extent such expenses, claims, losses,
damages or liabilities (or proceedings in respect thereof) arise out of or
are based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or arise
out of or are based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated under the Securities Act applicable to
the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse the Investor, each of its
officers and directors and stockholders, and each person controlling the
Investor for any legal and any other expenses reasonably
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incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided, however, that the
indemnity contained herein shall not apply to amounts paid in settlement of
any claim, loss, damage, liability or expense if settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld); provided, further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company expressly for
inclusion in such registration by the Investor or such controlling person
specifically for use therein. Notwithstanding the foregoing, insofar as the
foregoing indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the registration statement becomes
effective or in the final prospectus filed with the Commission pursuant to
the applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of
any underwriter or (if there is no underwriter) the Investor if a copy of
the final prospectus filed pursuant to such rules, together with all
supplements and addenda thereto, was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act.
(b) To the extent permitted by law, the Investor will, if securities
held by the Investor are included in the securities as to which such
registration, qualification or compliance is being effected pursuant to the
terms hereof, indemnify and hold harmless the Company, each of its
directors and officers, each person who controls the Company within the
meaning of Section 15 of the Securities Act, and each other person selling
the Company's securities covered by such registration statement, each of
such person's officers and directors and each person controlling such
persons within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) to
the extent to which such person or entity is subject, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or arising out of or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Investor of any rule or regulation promulgated under the
Securities Act applicable to the Investor and relating to any action or
inaction required of the Investor in connection with any such registration,
qualification or compliance, and will reimburse the Company, such other
persons, such directors, officers, persons or control persons for
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any legal or other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
information furnished to the Company by the Investor expressly for
inclusion in such registration; provided, however, that the indemnity
contained herein shall not apply to amounts paid in settlement of any
claim, loss, damage, liability or expense if settlement is effected without
the consent of the Investor (which consent shall not be unreasonably
withheld). Notwithstanding the foregoing, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the registration statement becomes
effective or in the final prospectus filed pursuant to applicable rules of
the Commission or in any supplement or addendum thereto, the indemnity
agreement herein shall not inure to the benefit of the Company, any
underwriter or any other person if a copy of the final prospectus filed
pursuant to such rules, together with all supplements and addenda thereto,
was not furnished to the person or entity asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act.
(c) Each party entitled to indemnification under this Section 2.5 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified
Party has actual knowledge of any action or proceeding commenced against,
or written demand made on any such party in respect of which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement unless the failure to give such notice is materially prejudicial
to an Indemnifying Party's ability to defend such action and provided
further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different defenses, which
defenses are inconsistent with the defenses of the Indemnified Party. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as
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an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such
claim or litigation. No Indemnified Party shall consent to entry of any
judgment or enter into any settlement without the consent of each
Indemnifying Party.
(d) If the indemnification provided for in this Section 2.5 is
unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and all stockholders offering securities in the offering (the
"Selling Stockholders") on the other from the offering of the Company's
securities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Selling
Stockholders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Selling Stockholders on the other
shall be the net proceeds from the offering (before deducting expenses)
received by the Company on the one hand and the Selling Stockholders on the
other. The relative fault of the Company on the one hand and the Selling
Stockholders on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Selling Stockholders and the
parties' relevant intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Selling Stockholders agree that it would not be just and equitable if
contribution pursuant to this Section 2.5(d) were based solely upon the
number of entities from whom contribution was requested or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 2.5(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages
and liabilities referred to above in this Section 2.5(d) shall be deemed to
include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or
claim, subject to the provisions of Section 2.5(c) hereof. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act).
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2.6 CERTAIN INFORMATION. The Investor agrees, with respect to any
Registrable Securities included in any registration, to furnish to the
Company such information regarding the Investor, the Registrable Securities
and the distribution proposed by the Investor as the Company may reasonably
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in Section 2.2.
2.7 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time
permit the sale of the Restricted Securities (used herein as defined in
Rule 144 under the Securities Act) to the public without registration, the
Company agrees to use its best lawful efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
during which the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at all times during which the Company is subject to such reporting
requirements); and
(c) So long as the Investor owns any Restricted Securities, to furnish
to the Investor forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 and
with regard to the Securities Act and the Exchange Act (at all times during
which the Company is subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other non-
confidential reports and documents of the Company and other non-
confidential information in the possession of or reasonably obtainable by
the Company as the Investor may reasonably request in availing itself of
any rule or regulation of the Commission allowing it to sell any such
securities without registration.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the internal laws of the State of Texas. In the event any dispute
arises between the parties, venue of any such dispute shall be proper only
in Harris County, Texas.
3.2 TRANSFERABILITY; TERMINATION. The registration rights
contemplated herein are transferable by the Investor to any person or
entity, in whole or in part, which acquires all or part of the shares which
the Investor
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is acquiring pursuant to the Investment Agreement. The registration rights
granted herein shall terminate, and the registration rights will not be
exercisable by the Investor (or the Investor's lawful transferees pursuant
to this Section 3.2) after said termination date, on the earlier of (i) the
fifth anniversary date of this Agreement, or (ii) at such time as all
shares of Registrable Securities held by the Investor may immediately be
sold under Rule 144 (as amended from time to time) during any 90-day
period.
3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to
the subject hereof. This Agreement, or any provision hereof, may be
amended, waived, discharged or terminated only upon the written consent of
the Company and those Investors (assuming the original Investor has
transferred part of its Shares) who are the record holders of a majority of
the Shares.
3.4 NOTICES. All notices or other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person, transmitted by
telecopier or mailed by registered or certified first class mail, postage
prepaid, return receipt requested to the parties hereto at the address set
forth below (as the same may be changed from time to time by notice
similarly given) or the last known business or residence address of such
other person as may be designated by either party hereto in writing.
If to the Investor:
John Wood Group PLC
John Wood House
Greenwell Road
Aberdeen, AB1 4AX
Scotland
Attention: Group Financial Director
Fax: 011-44-1-224-871997
If to the Company:
ERC Industries, Inc.
16920 Park Row
Houston, Texas 77084
Attn.: Mr. James Klima
Fax: 713/398-8086
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3.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement shall impair any such right, power or remedy of
such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind
or character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this agreement, must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party to
this Agreement, shall be cumulative and not alter native.
3.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
3.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
3.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
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IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
COMPANY:
ERC INDUSTRIES, INC.
a Delaware corporation
By:
----------------------------
INVESTOR:
JOHN WOOD GROUP PLC
a U. K. company
By:
----------------------------
Its:
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EXHIBIT 23.1
The undersigned, Schroder & Co. Inc., hereby consents to the references
to it in the Current Report on Form 8-K filed by ERC Industries, Inc. dated May
14, 1999. By giving such consent, we do not thereby admit that we are experts
with respect to any part of such Current Report on Form 8-K within the meaning
of the term "expert" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or are within the class of persons whose consent is required
thereunder.
SCHRODER & CO. INC.
Houston, Texas
May 14, 1999
