<PAGE> 1
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SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CHEMPOWER, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Shares, par value $.10 per share
(2) Aggregate number of securities to which transaction
applies: 7,565,113
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was
determined): $46,903,700.60(a)
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: $9,380.74
--------------------
(a) Based on the product of the number of outstanding Common Shares as of
September 26, 1996 and the consideration to be paid in the merger of
$6.20 per Common Share.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
[CHEMPOWER LETTERHEAD]
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Chempower, Inc. ("Chempower") which will be held on November 12, 1996 at 1:00
p.m. at the offices of Thompson Hine & Flory LLP, 3900 Key Center, 127 Public
Square, Cleveland, Ohio 44114 (the "Special Meeting"). I hope that you will be
present or represented by proxy at this important meeting.
At the Special Meeting, holders of Chempower Common Shares, .10 par value
per share (a "Share"), as of October 7, 1996 (the "Shareholders"), will be asked
to adopt the Agreement and Plan of Merger by and among American Eco Corporation,
Sub Acquisition Corp., and Chempower, dated September 10, 1996 (the "Merger
Agreement"), and approve the merger contemplated thereby (the "Merger"),
pursuant to which Sub Acquisition Corp., a newly-formed, wholly-owned subsidiary
of American Eco Corporation, will be merged with and into Chempower. If the
proposed Merger is consummated, Chempower, as the surviving corporation, will
become a wholly-owned subsidiary of American Eco Corporation and the
Shareholders of Chempower will be entitled to receive $6.20 in cash for each
Share owned by them.
Adoption of the Merger Agreement and approval of the Merger require the
affirmative vote of holders of Shares entitling them to exercise a majority of
the voting power of Chempower. Shareholders are entitled to vote all Shares held
by them on October 7, 1996.
We urge you to consider carefully these important matters, which are
described in the enclosed Proxy Statement. In order to ensure that your vote is
represented at the Special Meeting, please indicate your choices on the proxy
form, date and sign it, and return it in the enclosed envelope. A prompt
response will be appreciated. If you are able to attend the Special Meeting, you
may revoke your proxy at any time before its exercise and vote in person if you
wish.
Sincerely,
/s/ Toomas J. Kukk
Toomas J. Kukk
Chairman, President and
Chief Executive Officer
<PAGE> 3
[CHEMPOWER LETTERHEAD]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1996
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Chempower, Inc. ("Chempower") has been called by the Board of
Directors of Chempower and will be held at the offices of Thompson Hine & Flory
LLP, 3900 Key Center, 127 Public Square, Cleveland, Ohio 44114 at 1:00 p.m. on
November 12, 1996 to consider and vote upon:
1. Adoption of the Agreement and Plan of Merger by and among American
Eco Corporation, Sub Acquisition Corp., and Chempower, dated September 10,
1996 ( the "Merger Agreement"), and approval of the merger contemplated
thereby (the "Merger"), pursuant to which Sub Acquisition Corp., a newly
formed and wholly-owned subsidiary of American Eco Corporation, will be
merged with and into Chempower and each outstanding Chempower Common Share,
$.10 par value per share (a "Share"), will be converted into the right to
receive $6.20 in cash; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Only holders of Shares of record at the close of business on October 7,
1996 are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof.
Adoption of the Merger Agreement and approval of the Merger require the
affirmative vote of the holders of Shares entitling them to exercise a majority
of the voting power of Chempower.
THE BOARD OF DIRECTORS OF CHEMPOWER UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE MERGER.
/s/ Toomas J. Kukk
--------------------------------
Toomas J. Kukk
Chairman, President
and Chief Executive Officer
IMPORTANT
Your prompt dating, signing, and returning of the enclosed proxy card in the
enclosed envelope would be appreciated. If you attend the Special Meeting, you
may nevertheless vote in person should you desire. The return of proxies is
important, regardless of the number of Shares owned.
<PAGE> 4
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to shareholders (the
"Shareholders") of Chempower, Inc. ("Chempower") in connection with the
solicitation of proxies by the Board of Directors of Chempower for use at a
Special Meeting of Shareholders to be held at 1:00 p.m. on November 12, 1996
(the "Special Meeting"), at the offices of Thompson Hine & Flory LLP, 3900 Key
Center, 127 Public Square, Cleveland, Ohio 44114, and at any adjournment or
adjournments thereof. This Proxy Statement and the accompanying proxy form are
first being mailed to Shareholders on or about October 10, 1996.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, Shareholders will be asked to consider and vote
upon (1) the adoption of the Agreement and Plan of Merger by and among American
Eco Corporation ("American Eco"), Sub Acquisition Corp. ("Sub"), and Chempower,
dated September 10, 1996 (the "Merger Agreement"), and approval of the merger of
Sub with and into Chempower as contemplated thereby (the "Merger") and (2) such
other business as may properly come before the Special Meeting or any
adjournment thereof. If the Merger becomes effective, each Chempower Common
Share, .10 par value per share (a "Share") (other than Shares as to which the
holder perfects dissenters' rights under the Ohio General Corporation Law ("Ohio
Law")) will be converted into the right to receive $6.20 net to the Shareholder
in cash (the "Merger Consideration"). As a result of the Merger, the
Shareholders will no longer have any ownership interest in Chempower and
Chempower, as the surviving company in the Merger, will become a wholly-owned
subsidiary of American Eco.
The principal executive offices of Chempower are located at 807 East
Turkeyfoot Lake Road, Akron, Ohio 44319 and its telephone number is (330)
896-4202.
VOTING RIGHTS AND PROXY INFORMATION
The Board of Directors has fixed the close of business on October 7, 1996
as the record date for determining Shareholders entitled to notice of and to
vote at the Special Meeting (the "Record Date"). Only Shareholders of record on
the books of Chempower at the close of business on the Record Date are entitled
to vote at the Special Meeting or any adjournment thereof. The securities which
may be voted at the Special Meeting consist of the Shares, with each Share
entitling its owner to one vote on each matter under consideration. As of the
Record Date, there were Shares issued and outstanding and entitled to
vote, exclusive of Shares held in the treasury which will not be voted
at the Special Meeting and Shares issuable upon exercise of currently
exercisable options.
At the Special Meeting, Shareholders will vote upon the matters described
above. Shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting, and not revoked, will be voted at
the Special Meeting in accordance with the instructions indicated thereon. If no
instructions are indicated with respect to any item for which properly executed
proxies have been received, such proxies will be voted FOR approval of the
Merger and adoption of the Merger Agreement. If a Shareholder abstains from
voting by marking "abstain" on the proxy form, those Shares will be considered
as being present at the Special Meeting for quorum purposes, but the abstention
will have the practical effect of a "no" vote. If a broker indicates on the
proxy form that it does not have discretionary authority as to certain Shares to
vote on the Merger Agreement and the Merger, those Shares will be considered as
being present at the Special Meeting for quorum purposes, but not entitled to
vote with respect to such matter, and therefore also will have the practical
effect of a "no" vote.
A proxy may be revoked by the person giving it at any time before it is
exercised by providing written notice of such revocation, bearing a later date
than the proxy, to the Secretary of Chempower, 807 East Turkeyfoot Lake Road,
Akron, Ohio 44319; by submitting a proxy having a later date; or by such person
appearing at the Special Meeting and electing to vote in person. Attendance at
the Special Meeting will not, in and of itself, constitute revocation of such
proxy.
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The presence, in person or by proxy, of at least a majority of the total
number of outstanding Shares is necessary to constitute a quorum at the Special
Meeting. If there are not sufficient votes for a quorum or to approve the
proposal at the Special Meeting, the Special Meeting may be adjourned in order
to permit further solicitation of proxies by Chempower. Proxies given pursuant
to this solicitation, and not revoked, will be voted at any adjournment of the
Special Meeting in the manner set forth above.
The Amended and Restated Articles of Incorporation of Chempower (the
"Articles") provide, as permitted by Section 1701.78 of Ohio Law, that approval
of the Merger and adoption of the Merger Agreement must be authorized by the
holders of Shares entitling them to exercise a majority of the voting power of
Chempower. The obligations of the parties to the Merger Agreement to consummate
the Merger are subject to the condition, among others, that such affirmative
vote shall have been obtained. See "THE MERGER -- Conditions to the Merger."
Toomas J. Kukk, Chairman, President and Chief Executive Officer of Chempower,
and Ernest M. Rochester, Vice Chairman and Secretary of Chempower, and members
of their immediate families, who own in the aggregate 54.6% of the Shares to be
voted at the Special Meeting, have indicated their intention to vote their
shares FOR the approval of the Merger and adoption of the Merger Agreement. In
the event that such persons vote their Shares in such a manner, sufficient
Shares would be voted in favor of the Merger and the Merger Agreement so that
the Merger would be approved and the Merger Agreement adopted. See "SECURITY
OWNERSHIP."
Chempower will bear the cost of its solicitation of proxies for the Special
Meeting from Shareholders. In addition to using the mails, proxies may be
solicited by personal interview, telephone, e-mail, and wire. Banks, brokerage
houses, other institutions, nominees, and fiduciaries will be requested to
forward proxy soliciting material to their principals and obtain authorizations
for, and appropriate certifications in connection with, the execution of proxy
cards. Officers and other employees of Chempower, acting on Chempower's behalf,
may solicit proxies personally. Chempower has retained Morrow & Co., Inc. to
assist in such solicitation. The fee of Morrow & Co., Inc. is $15,000 plus
reasonable out-of-pocket fees and expenses. Chempower does not expect to pay any
other compensation for solicitation of proxies, but will, upon request, pay the
standard charges and expenses of banks, brokerage houses, other institutions,
nominees, and fiduciaries for forwarding proxy material to, and obtaining
proxies and certifications from, their principals.
INCORPORATION BY REFERENCE
Chempower is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and in accordance therewith
files periodic reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). All reports, proxy
statements, and other information filed by Chempower with the Commission can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the regional offices of the Commission
located at 7 World Trade Center, Thirteenth Floor, New York, New York 10048, and
The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission also maintains a Web site, located at http://www.sec.gov,
where such reports, proxy statements, and other information may be inspected or
obtained. Copies of such materials may also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The following documents filed with the Commission are incorporated herein
by reference:
(a) Chempower's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; and
(b) All other reports filed by Chempower pursuant to Section 13(a) or 15(d)
of the 1934 Act since December 31, 1995.
Chempower undertakes to provide without charge to each person to whom a
copy of this document has been delivered, upon the written or oral request of
such person, a copy of any or all of the documents incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference into such documents). Requests for
such copies should be directed to the Office of the Secretary, Chempower, Inc.,
807 East Turkeyfoot Lake Road, Akron, Ohio 44319, telephone number (330)
896-4202.
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SUMMARY OF PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This Summary is qualified in its entirety by the more
detailed information contained in this Proxy Statement, the Appendices hereto,
and the documents referred to herein. Certain capitalized terms used in this
summary are defined elsewhere in this Proxy Statement. Cross references in this
summary are to the indicated captions or portions of this Proxy Statement.
THE COMPANIES
Chempower, Inc. is an Ohio corporation with its principal offices in Akron,
Ohio. Chempower and its Subsidiaries currently provide a full range of
construction services which include asbestos abatement, insulation, sheetmetal,
and mechanical services; and manufacturing services which include the design and
fabrication of pre-insulated panels for industrial equipment, roll-coating, the
fabrication of metal casings for machines used in the gaming industry, and the
design and manufacture of electrical metal-clad switchgear, power distribution
systems, and bus duct systems. Chempower and its Subsidiaries, through its
construction services, serve an industrial region which includes Ohio,
Pennsylvania, West Virginia, Tennessee, Indiana, Virginia, Kentucky, New Jersey,
Delaware, Georgia, North Carolina, South Carolina, Alabama, Missouri, and
Maryland. Chempower has manufacturing facilities in Washington, Pennsylvania,
Waverly, Tennessee, Canton, Ohio, and Las Vegas, Nevada.
American Eco, a corporation organized under the laws of Ontario, Canada, is
an integrated industrial services company which acts as a single-source
environmental remediation and industrial maintenance provider to the
petrochemical, petroleum refining, utility, and pulp and paper industries in the
United States and Canada. The business of American Eco consists of three major
segments: environmental services, industrial maintenance services, and
construction services. The environmental services consist of providing hazardous
waste removal, encapsulation, treatment, and disposal services, and, through a
recent acquisition, manufacture and sale of specialized filtration and
separation systems used in the petroleum refining industry. Industrial
maintenance services, consisting of construction, maintenance, demolition, and
industrial support, are provided primarily to the petroleum and petrochemical
industries. Construction management services consist of providing project
management and construction planning.
Sub Acquisition Corp., an Ohio corporation and a wholly-owned subsidiary of
American Eco, was organized solely to facilitate the acquisition of Chempower.
Sub will not engage in any business activity.
THE SPECIAL MEETING
TIME, DATE, AND PLACE. The Special Meeting of Shareholders of Chempower
will be held at 1:00 p.m. on November 12, 1996, at the offices of Thompson Hine
& Flory LLP, 3900 Key Center, 127 Public Square, Cleveland, Ohio 44114.
RECORD DATE, SHARES ENTITLED TO VOTE. The Board of Directors of Chempower
(the "Board" or "Board of Directors") has fixed the close of business on October
7, 1996 as the Record Date. Each Share entitles its owner to one vote on each
matter under consideration. As of the Record Date, there were Shares
issued and outstanding and entitled to vote, exclusive of Shares held
in the treasury which will not be voted at the Special Meeting and
Shares issuable upon exercise of currently exercisable options.
PURPOSE OF THE SPECIAL MEETING. At the Special Meeting, Shareholders will
be asked to consider and vote upon (1) the approval of the Merger and adoption
of the Merger Agreement and (2) such other business as may properly come before
the Special Meeting or any adjournment thereof.
THE MERGER: CONSIDERATION PAYABLE TO SHAREHOLDERS
If the Merger is approved and the Merger Agreement is adopted by the
Shareholders and certain other conditions, including the receipt of all required
regulatory approvals and the availability of financing, are met, Sub will be
merged with and into Chempower at the Effective Time and each Share (other than
Shares as to which the holder perfects dissenters' rights under Ohio Law) will
be converted into the right to receive $6.20
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<PAGE> 7
net to the Shareholder in cash. As a result of the Merger, the Shareholders will
no longer have any ownership interest in Chempower and Chempower, as the
surviving corporation, will become a wholly-owned subsidiary of American Eco.
See "THE MERGER -- General."
SHAREHOLDER APPROVAL; VOTE REQUIRED
The Merger will not be consummated unless the Merger is approved and the
Merger Agreement is adopted by the holders of Shares entitling them to exercise
a majority of the voting power of Chempower and certain other conditions
specified in the Merger Agreement are satisfied or, if permissible, waived.
Messrs. Kukk and Rochester and members of their immediate families, who own in
the aggregate 54.6% of the Shares to be voted at the Special Meeting, have
indicated their intention to vote their Shares FOR the approval of the Merger
and adoption of the Merger Agreement. In the event that such persons vote their
Shares in such a manner, sufficient Shares would be voted in favor of the Merger
and the Merger Agreement so that the Merger would be approved and the Merger
Agreement adopted. See "THE MERGER -- Conditions to the Merger" and "SECURITY
OWNERSHIP."
RECOMMENDATION OF BOARD OF DIRECTORS; OPINION OF INVESTMENT BANKER
The Board of Directors has determined that the price to be paid to
Shareholders in connection with the Merger is fair and has unanimously approved
the Merger and the Merger Agreement and unanimously recommends that the
Shareholders vote FOR approval of the Merger and the adoption of the Merger
Agreement. See "THE MERGER -- Reasons for the Merger; Recommendation of the
Board of Directors."
The Board of Directors has engaged McDonald & Company Securities, Inc.
("McDonald") to act as its financial advisor and McDonald has so acted in
connection with the Merger. On August 26, 1996, McDonald delivered to the Board
of Directors of Chempower its oral opinion, confirmed in writing on September 3,
1996, and has delivered a written opinion dated the date of this Proxy Statement
that, as of such dates, the $6.20 per Share in cash to be received by the
Shareholders pursuant to the Merger Agreement is fair to such Shareholders. A
copy of McDonald's opinion, dated as of the date of this Proxy Statement, which
sets forth the assumptions made, matters considered, and limits on the review
undertaken, is attached as Appendix A to this Proxy Statement and is
incorporated herein by reference. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ
MCDONALD'S OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. For a discussion
of the foregoing and of certain factors that McDonald considered in reaching its
opinion, see "THE MERGER -- Fairness Opinion."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, a Shareholder who exchanges his Shares for cash will recognize
capital gain or loss in an amount equal to the difference between the cash
received by him and his basis in the Shares exchanged. Shareholders exchanging
Shares acquired pursuant to stock options which fail to meet certain holding
period requirements under the Internal Revenue Code, however, will be treated as
having received compensation, which is taxable as ordinary income.
All Shareholders should read carefully the discussion in "THE
MERGER -- Certain Federal Income Tax Consequences of the Merger" and other
sections of this Proxy Statement. Shareholders are urged to consult their own
tax advisors for more specific and definitive advice as to the federal income
tax consequences to them of the exchange of their Shares pursuant to the Merger,
as well as advice as to the application and effect of state, local, and foreign
income and other tax laws.
CERTAIN CORPORATE AND RELATED MATTERS AFTER THE EFFECTIVE TIME
The Merger Agreement provides that the Amended and Restated Articles of
Incorporation and Code of Regulations of Chempower as in effect immediately
prior to the Effective Time will be the Articles of Incorporation and Code of
Regulations of Chempower following the Effective Time, unless and until duly
amended, altered, or repealed. The directors and officers of Sub immediately
prior to the Effective Time will become the directors and officers of Chempower
at the Effective Time, each to hold office in accordance with
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<PAGE> 8
the Articles of Incorporation and Code of Regulations of Chempower, in each case
until their respective successors are duly elected or appointed and qualified.
The Merger Agreement further provides that, for a period of five (5) years
after the Effective Time, the provisions of Chempower's Code of Regulations (the
"Regulations") with respect to indemnification of directors and officers will
not be amended, repealed, or otherwise modified in any manner that would
adversely affect the rights of individuals who at the Effective Time were
directors and officers of Chempower, unless such modification is required by
law. Moreover, after the Effective Time, American Eco will cause Chempower to
indemnify the present and former directors and officers of Chempower and its
Subsidiaries against claims arising out of acts or omissions occurring at or
prior to the Effective Time or, except for a claim arising out of or based upon
the gross negligence or willful misconduct of such directors and officers,
arising out of or pertaining to the transactions contemplated by the Merger
Agreement. For at least five (5) years after the Effective Time, American Eco
has agreed to use its best efforts to cause Chempower to provide officers' and
directors' liability insurance in respect of acts or omissions occurring prior
to the Effective Time without any lapse in coverage. See "THE MERGER -- Certain
Corporate and Related Matters After the Effective Time."
American Eco and Chempower have entered into employment agreements and
non-competition agreements with Toomas J. Kukk, Chairman, President and Chief
Executive Officer of Chempower, and Ernest M. Rochester, Vice Chairman and
Secretary of Chempower. The employment agreements and the non-competition
agreements will commence at the Effective Time and continue for a term of three
(3) years and five (5) years thereafter, respectively. American Eco and Holiday
Properties, a partnership all of the interests in which are owned by Messrs.
Kukk and Rochester, have entered into an agreement providing for the purchase by
American Eco or its designee of certain real property owned by Holiday
Properties and currently leased to Chempower. For a summary of the terms of
these agreements, see "INTERESTS OF CERTAIN PERSONS."
PAYMENT FOR SHARES
If the Merger is consummated, Shareholders will be notified promptly of the
consummation of the Merger and will be advised of the procedure for surrender of
their share certificates in exchange for the Merger Consideration, which will be
paid as soon as practicable after such surrender. SHAREHOLDERS SHOULD NOT SEND
ANY SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD. See "THE MERGER -- Payment
for Shares."
CONDITIONS TO THE MERGER
The respective obligations of Chempower and American Eco to consummate the
Merger are subject to the satisfaction of certain conditions, including approval
of the Merger by the Shareholders, receipt of required regulatory approval
(including filings required under the HSR Act), and the availability of
financing. See "THE MERGER -- Conditions to the Merger."
DISSENTERS' RIGHTS
The Shareholders of Chempower will be entitled to dissenters' rights under
Ohio Law as a result of the matters to be voted upon at the Special Meeting. A
Shareholder entitled to dissenters' rights will be entitled to such relief only
if he or she complies with all of the requirements of Section 1701.85 of the
Ohio Law. Failure to comply precisely with all of the requirements of Section
1701.85 of the Ohio Law will result in the loss of dissenters' rights. See "THE
MERGER -- Dissenters' Rights" and Section 1701.85 of the Ohio Law attached to
this Proxy Statement as Appendix B and incorporated herein by reference. It is a
condition to the obligations of American Eco and Sub to consummate the Merger
that dissenters' rights under Ohio Law shall not have been perfected by the
holders of more than five percent (5%) of the Shares.
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<PAGE> 9
BUSINESS OF CHEMPOWER
GENERAL
Chempower and its Subsidiaries currently provide products and services in
two principal business segments: Construction Services and Manufacturing
Services.
Chempower was incorporated under the laws of the State of Ohio in 1985. The
predecessor of Chempower began as an industrial contractor in 1974 and entered
into the asbestos abatement market in 1980. Through 1995, most of Chempower's
revenues have been derived from its Construction Services. Chempower's
Manufacturing Services developed through acquisitions in an effort to diversify
and are operated through three divisions: Houston Products, Advanced Coil
Industries, and Owens Precision Fabricators. In addition, in May 1995, Chempower
acquired Controlled Power Limited Partnership as part of its diversification
program.
CONSTRUCTION SERVICES
The Construction Services are offered primarily through Chempower and its
Global Power Company subsidiary. Global Power Company was acquired by Chempower
in 1994. This segment provides a full range of construction services including
asbestos abatement, insulation, sheetmetal, and mechanical services primarily to
the industrial market throughout a region which includes: Ohio, Pennsylvania,
West Virginia, Tennessee, Indiana, Virginia, Kentucky, New Jersey, Delaware,
Georgia, North Carolina, South Carolina, Alabama, Missouri, and Maryland.
Chempower also distributes asbestos abatement supplies, specialized products,
and insulation materials throughout this region. Chempower's services and
products are primarily offered to industrial customers in the electric utility,
chemical, petroleum, paper, and steel industries.
In 1995, Chempower began offering mechanical construction services to its
industrial customers through Global Erectors, a division of Global Power
Company. This division maintains and repairs steam boilers and auxiliary
equipment including precipitators, scrubbers, fans, air heaters, etc. Global
Erectors has the equipment and highly skilled personnel necessary to provide
such mechanical services.
To service its customers, Chempower has established a network of facilities
within its region. Chempower currently operates Construction Service offices and
warehouses in Akron, Ohio; Cincinnati, Ohio; Washington, Pennsylvania; Winfield,
West Virginia; Knoxville, Tennessee; and Waverly, Tennessee. Chempower
distributes asbestos abatement equipment and safety supplies, insulation
materials and accessories, and related sheet metal products to industrial
customers and other contractors.
MANUFACTURING SERVICES
The Manufacturing Services segment developed through acquisitions in an
effort to diversify the operations of Chempower. This business operates under
three divisions of Chempower: Houston Products, Advanced Coil Industries, and
Owens Precision Fabricators, as well as Controlled Power Limited Partnership, an
Illinois limited partnership, the partners of which are subsidiaries of
Chempower.
Houston Products division was acquired in March 1989 and is located in
Waverly, Tennessee. This division designs and fabricates pre-insulated panels
and other products for industrial equipment applications.
Advanced Coil Industries division was acquired in November 1990 and is
located in Washington, Pennsylvania. This division provides roll-coating
services to various steel manufacturers for products primarily used in the
construction drainage industry.
Owens Precision Fabricators division was acquired in March 1994 and is
located in Las Vegas, Nevada. This division fabricates metal casings for
machines used in the gaming industry, as well as offering other metal
fabrication services.
Controlled Power Limited Partnership was acquired in May 1995 and is
located in Canton, Ohio. This company designs and manufactures electrical
metal-clad switchgear, power distribution systems, and bus duct systems for mass
transit authorities, utilities, chemical, and other industrial facilities and
also offers a broad range of metal fabrication services.
7
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF CHEMPOWER, INC.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................................. $ 33,478 $78,684 $64,329 $69,533 $62,741 $56,476
Operating Income......................... 430 3,019 680 2,763 2,698 2,155
Non-operating Income (expense)(1)........ 306 538 432 328 468 (1,044)
Net Income (2)........................... 584 2,247 782 1,802 2,004 808
Net income per common share (2).......... .08 .30 .11 .25 .27 .11
Weighted-average common shares
outstanding (000)...................... 7,665 7,403 7,426 7,309 7,328 7,403
BALANCE SHEET DATA
Working Capital.......................... 27,899 27,141 25,432 26,650 24,801 23,490
Total assets............................. 51,274 54,570 44,182 40,496 36,732 35,907
Shareholders' equity..................... 37,634 36,965 33,592 32,256 31,182 29,123
</TABLE>
- - - ---------------
(1) Reflects settlement of litigation for year ended December 31, 1991.
(2) Includes a loss in 1994, net of tax, of $1.9 million ($.26 per share)
resulting from a cost overrun on a major project.
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THE MERGER
GENERAL
The Merger Agreement provides that, subject to all required regulatory
approvals having been obtained and remaining in full force and effect, approval
of the Merger and adoption of the Merger Agreement by the Shareholders as
required by Ohio Law, and the satisfaction or waiver of certain other
conditions, including the availability of financing, Sub will be merged with and
into Chempower. At the Effective Time, each Share, other than Shares owned by
American Eco, Sub, or any other wholly-owned subsidiary of American Eco, Shares
held in the treasury of Chempower, or Shares as to which the holder perfects
dissenters' rights under Ohio Law, will be converted into the right to receive
$6.20 net to the Shareholder in cash. The Shareholders will no longer have an
ownership interest in Chempower, Chempower, as the surviving corporation, will
become a wholly-owned subsidiary of American Eco, and Sub's separate corporate
existence will cease.
At the Effective Time, except as otherwise provided in the Merger
Agreement, all of the property, rights, privileges, powers, and franchises of
Sub and Chempower will vest in Chempower, and all of the debts, liabilities, and
duties of Sub and Chempower will become the debts, liabilities, and duties of
Chempower.
The descriptions in this Proxy Statement of the Merger Agreement are
qualified in their entirety by reference to the Agreement and Plan of Merger, a
copy of which is attached hereto as Appendix C.
BACKGROUND OF MERGER
During the week of June 3, 1996, American Eco contacted Chempower and
expressed an interest in a possible merger acquisition of Chempower. On June 10,
1996, Michael E. McGinnis, President of American Eco, and a consultant to
American Eco, visited Chempower's headquarters in Akron, Ohio for the purpose of
conducting preliminary talks with Toomas J. Kukk, Chairman, President and Chief
Executive Officer of Chempower, and Ernest M. Rochester, Vice Chairman and
Secretary of Chempower, and ascertaining the level of interest in such a
transaction. On July 25, 1996, Messrs. Kukk and Rochester visited the
headquarters of American Eco in Houston, Texas. At that time it was determined
that a potential offer from American Eco, if forthcoming, would be approximately
$6.00 per Share.
At a meeting of the Board of Directors held on August 7, 1996, Messrs. Kukk
and Rochester informed the Board about the interest of American Eco and provided
the Directors with background information on American Eco. The Directors
discussed the types of services and geographical locations of American Eco and
the potential synergies offered by a potential merger. The Directors then
discussed whether there were likely to be any other potential acquirors and
concluded, on the basis of their knowledge of the industries in which Chempower
is engaged, that it was not likely that any other industry participant would be
a potential acquiror or that any potential purchaser outside of the industry
would choose to enter the industry through an acquisition of Chempower. Finally,
the Directors determined to form an ad hoc special committee consisting of
Robert E. Rohr and Norman Jackson, Directors, and assisted by Scott Lowrie,
General Counsel, to interview and engage the services of outside legal counsel
and financial advisors to represent Chempower with respect to such a potential
transaction.
On August 14, 1996, Mr. McGinnis and the same consultant to American Eco
returned to Akron to meet again with Messrs. Kukk and Rochester regarding a
potential merger. At this meeting, a price of $6.20 per Share was agreed in the
event that the companies determined to pursue a merger of the two companies.
On August 20, 1996, the Board of Directors met again for the purpose of
reviewing various matters related to the potential acquisition of Chempower by
American Eco. In the course of that meeting, the Directors discussed and
approved the retention of McDonald as financial advisors to Chempower for the
purpose of evaluating the fairness of the consideration to be received by
Shareholders in connection with a proposed transaction with American Eco, should
such a proposal be forthcoming.
Thompson Hine & Flory LLP ("TH&F"), outside legal counsel retained by
Chempower with respect to the potential transaction, then reviewed for the
benefit of the Directors the fiduciary duties of the Directors under Ohio Law in
considering a potential acquisition of Chempower by another entity. TH&F also
reviewed
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<PAGE> 12
with the Board the various protections provided by Ohio Law in connection with
their consideration of a potential acquisition of Chempower and their right to
indemnification under Ohio Law as well as Chempower's Regulations. The Directors
then discussed with TH&F various matters relating to the timetable for a
potential transaction, due diligence investigations, the status of negotiation
of reciprocal confidentiality agreements, and the engagement of a proxy
solicitor to assist with the transaction. Finally, the Directors discussed with
TH&F several matters with respect to the structure of a potential acquisition,
including the desirability of a "fiduciary out" in the agreement, the
possibility that American Eco might request a voting agreement between American
Eco and the majority Shareholders of Chempower, and the issues raised by
inclusion of a financing contingency in an acquisition agreement.
On August 21, 1996, Chempower and American Eco entered into reciprocal
confidentiality agreements providing, among other things, that any confidential
information disclosed to either of them by the other party in connection with
the consideration of a possible merger of the companies would be kept
confidential, would be used solely for the purpose of evaluating the possible
merger, and would not be used in any way detrimental to the other party.
On August 22, 1996, American Eco provided Chempower with an initial draft
of the Merger Agreement. Chempower management provided comments to this draft to
counsel for American Eco on Monday August 26, 1996. That same day, the Board of
Directors met again to receive a report from TH&F with respect to the status of
the initial draft of the Merger Agreement and from McDonald with respect to its
review of the fairness of the proposed transaction to the Shareholders. TH&F
reviewed for the benefit of the Directors the principal features of the initial
draft of the Merger Agreement. The Directors then engaged in a thorough review
of the issues presented by the initial draft of the Merger Agreement and the
structure of the transaction as proposed therein.
McDonald then made a presentation to the Directors concerning its review of
the fairness of the proposed transaction. McDonald explained to the Directors
that they had analyzed the transaction using four different methods of analyses
assuming an offer price of $6.20 per Share. After a thorough review of the
various methods of analyses, McDonald offered its oral opinion that the
transaction, as described in the draft Merger Agreement, and the consideration
provided for therein, were fair from a financial perspective to the
Shareholders.
On August 27, 1996, representatives of American Eco and their legal counsel
arrived in Cleveland, Ohio for purposes of reviewing confidential information
concerning Chempower pursuant to its due diligence investigation and negotiating
a definitive agreement with respect to the Merger.
On September 3, 1996, the Board of Directors met again to review the
proposed transaction with American Eco. At this time, the Board considered
whether to approve and recommend Shareholder approval of the proposal by
American Eco to acquire all of the issued and outstanding Shares of Chempower
for $6.20 per Share in cash pursuant to the terms of the draft Merger Agreement.
First, McDonald affirmed its opinion delivered on August 26, 1996 that the
transaction, as described in the draft Merger Agreement, and the consideration
provided for therein, were fair from a financial perspective to the
Shareholders. The Directors then reviewed with TH&F and Mr. Lowrie the terms of
the transaction as set forth in the latest draft of the Merger Agreement and the
result of negotiations with respect to various issues. Finally, the Directors
reviewed with TH&F and Mr. Lowrie the terms of several draft agreements
ancillary to the draft Merger Agreement, including drafts of the Real Estate
Purchase Agreement, Employment Agreements, and Non-Competition Agreements (each
as defined herein) with Messrs. Kukk and Rochester, as well as the Directors'
obligations in reviewing and approving these agreements. Mr. Kukk reviewed for
the other Directors the terms of these ancillary agreements and answered
questions of the other Directors concerning these agreements. Mr. Kukk indicated
that the ancillary agreements were the result of arm's length negotiations
between himself and Mr. Rochester and representatives of American Eco. The
Directors then voted unanimously in favor of (i) approving the Merger and
adopting the draft Merger Agreement; (ii) approving the draft Employment
Agreements and Non-Competition Agreements with Messrs. Kukk and Rochester; and
(iii) approving the transactions contemplated by the draft Real Estate Purchase
Agreement.
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On September 10, 1996, the Board of Directors met by telephone to consider
and review several changes to the Merger Agreement, the Employment Agreements,
and the Non-Competition Agreements made subsequent to the drafts approved by the
Directors at the September 3rd meeting. The changes to the Merger Agreement, the
Employment Agreements, and the Non-Competition Agreements were reviewed for the
Directors by TH&F. The Directors then voted unanimously to approve the Merger
Agreement in the form attached hereto as Appendix C and the Employment
Agreements and the Non-Competition Agreements with each of Messrs. Kukk and
Rochester, in the forms attached as Appendices D and E, respectively.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has determined that the price to be paid to
Shareholders in connection with the Merger is fair and has unanimously approved
the Merger and adopted the Merger Agreement. At the meetings of the Board of
Directors held on September 3 and 10, 1996, the Directors unanimously
recommended that the Shareholders vote FOR approval of the Merger and adoption
of the Merger Agreement at the Special Meeting.
The Board of Directors, with the assistance of outside legal and financial
advisors, has evaluated the financial, legal, and market considerations bearing
on the decision to recommend the Merger.
In deciding to approve the Merger and adopt the Merger Agreement, the Board
of Directors considered many factors, including: the consideration per Share to
be received by Shareholders pursuant to the Merger in relation to the historical
trading prices and book value of the Shares; the earnings record, operations,
and financial condition of Chempower; the support and strength that American Eco
would bring to Chempower and its operations and employees; Chempower's future
prospects; and the opinion of McDonald that the $6.20 per Share in cash to be
received by Shareholders pursuant to the Merger Agreement is fair to
Shareholders.
In reaching its recommendation, no specific weightings were given by the
Board of Directors to any particular factors, although the Merger Consideration
was a significant factor in reaching its conclusions. Such a determination of
specific weightings would, in the view of the Board of Directors, be
impracticable. In addition, individual members of the Board of Directors may
have given various weightings to different factors.
FAIRNESS OPINION
On August 26, 1996, McDonald delivered to the Board of Directors of
Chempower its oral opinion, confirmed in writing on September 3, 1996, and has
delivered a written opinion dated the date of this Proxy Statement that, as of
such dates, the $6.20 per Share in cash to be received by the Shareholders
pursuant to the Merger Agreement is fair to such holders. No limitations were
imposed by the Chempower Board of Directors upon McDonald with respect to its
investigations or procedures in rendering such opinions.
The full text of McDonald's opinion dated as of the date of this Proxy
Statement, which sets forth assumptions made, matters considered, and limits on
the review undertaken, is attached hereto as Appendix A to this Proxy Statement.
Shareholders are urged to read this opinion in its entirety. McDonald's opinion
is directed only to the $6.20 per Share cash consideration and does not
constitute a recommendation to any Shareholder as to how such Shareholder should
vote at the Special Meeting. The summary of McDonald's opinion set forth in this
Proxy Statement is qualified in its entirety by reference to the full text of
such opinion. The September 3, 1996 opinion was substantially identical to the
opinion attached hereto.
In connection with its opinions, McDonald reviewed, among other things, (i)
the Merger Agreement, (ii) the Annual Reports to Shareholders and Annual Reports
on Form 10-K of Chempower for the five fiscal years ended December 31, 1995,
(iii) certain interim reports to shareholders and Quarterly Reports on Form
10-Q, (iv) certain other communications from Chempower to its shareholders, and
(v) certain internal financial analyses and forecasts for Chempower prepared by
its management. McDonald also held discussions with members of the senior
management of Chempower regarding its past and current business operations,
financial condition, and future prospects. In addition, McDonald reviewed the
reported price and trading activity for the Chempower Shares, compared certain
financial and stock market information for Chempower with similar information
for certain other companies with publicly traded equity securities, reviewed the
11
<PAGE> 14
financial terms of certain recent business combinations in the construction and
engineering services industries specifically and in other industries generally,
and performed such other studies and analyses as it considered appropriate.
McDonald relied without independent verification upon the accuracy and
completeness of all the financial and other information it reviewed for purposes
of its opinions. In addition, McDonald did not make an independent evaluation or
appraisal of Chempower's assets and liabilities and it was not furnished with
any such evaluation or appraisal. McDonald was not authorized to, and therefore
did not, solicit interest from any party with respect to the acquisition of
Chempower.
The following is a brief summary of the analyses utilized by McDonald in
connection with its August 26, 1996 opinion:
Stock Trading History. McDonald examined the history of the trading prices
and volumes for Chempower Shares. This analysis showed that between August 26,
1994 and August 23, 1996, Chempower Shares closed at prices as high as $4.50 and
as low as $3.00. The average daily closing price for this period was $3.75 and
the average daily volume was approximately 3,800 shares. The trading range and
average daily closing price are consistent with the prices for Chempower's
Shares over the last five years. Between August 23, 1991 and August 23, 1996,
Chempower's Shares closed at a high of $5.25 and a low of $2.75, and had an
average daily closing price of $3.83. Even though trading in Chempower's Shares
was more active during the five year period with an average daily volume of
approximately 5,800 shares, this volume was still less than 0.1% of the
outstanding Shares.
From August 26, 1994 to August 23, 1996, Chempower's Shares increased from
$3.875 to $4.125, representing an increase of 6.5%. Over the same period of
time, the S&P Engineering and Construction Index increased by 11.8%, and an
index of comparable public companies increased by 12.0%. During the same period
the change in Chempower's Shares ranged from -22.6% to 16.1%, the change in the
S&P Engineering and Construction Index ranged from -22.3% to 18.2%, and the
change in the comparable public company index ranged from -18.7% to 23.3%.
Overall, Chempower's Shares have performed comparably with these indices.
Comparison with Selected Companies. McDonald compared historical stock
market information, earnings, dividends, and financial ratios for Chempower to
the corresponding data and ratios for selected providers of construction and
engineering services. Such data included: historical and projected price-to-
earnings ("P/E") ratios; ratios of adjusted market value to latest twelve months
("LTM") sales; earnings before interest, taxes, depreciation and amortization
("EBITDA"), and earnings before interest and taxes ("EBIT"); ratios of market
value to book value; operating and net margins; and dividend yields as of March
31, 1996.
The analysis showed that the projected 1997 P/E ratios ranged from 5.8x to
22.5x with an average of 10.1x and projected 1996 P/E ratios ranged from 9.4x to
26.5x with an average of 14.9x for certain companies comparable to Chempower.
The analysis also showed that the ratios of adjusted market value to LTM sales
ranged from 0.1x to 0.7x with an average of 0.2x, adjusted market value to LTM
EBITDA ranged from 3.2x to 12.2x with an average of 6.8x, adjusted market value
to LTM EBIT ranged from 6.1x to 19.5x with an average of 12.7x, and market value
to current book value ranged from 0.3x to 2.7x with an average of 1.2x for such
comparable companies. At the purchase price of $6.20 per Share, the 1997 P/E
ratio is 28.2x, the 1996 P/E ratio is 38.8x, the adjusted market value to LTM
sales is 0.4x, the adjusted market value to LTM EBITDA is 11.8x, the adjusted
market value to LTM EBIT is 20.0x, and the market value to current book value is
1.3x. These multiples resulting from the proposed transaction are substantially
higher than the multiples for such public companies comparable to Chempower.
McDonald also reviewed comparable acquisition transactions from January 1,
1993 through August 23, 1996. During this period, eleven providers of
construction or engineering services were acquired with publicly disclosed
terms. Ten of these acquisitions ranged in value from $18.4 million to $101.7
million. McDonald calculated, among other things, the ratios of leveraged
transaction value to LTM sales, LTM EBITDA and LTM EBIT, transaction value to
LTM net income and book value, and the premium over the pre-announcement stock
price for the public company transactions. The median multiples for these
transactions
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<PAGE> 15
were 0.7x LTM sales, 7.7x LTM EBITDA, 9.1x LTM EBIT, 17.4x LTM net income, 1.7x
book value, and a premium of 48.2% over the pre-announcement stock price. At the
purchase price of $6.20 per Share, the resulting multiples are 0.4x LTM sales,
11.8x LTM EBITDA, 20.0x LTM EBIT, 30.6x LTM net income, 1.3x book value, and a
premium of 50.3% over the pre-announcement stock price as of August 23, 1996.
Overall, the multiples resulting from the proposed transaction compare favorably
to the multiples from the acquisitions comparable to Chempower.
No company or transaction used as a comparison in the above analyses is
identical to Chempower or the contemplated transaction. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather, it involved complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which Chempower is being compared.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis under
various assumptions, McDonald estimated the present value of assumed future
dividend streams that Chempower might produce over a five and one-half year
period from July 1996 to December 2001, plus the present value of the terminal
value of Chempower at the end of such period. McDonald assumed that Chempower
would perform in accordance with management's sales and earnings projections as
well as management's forecasts for working capital and capital expenditure
requirements. In order to estimate the present value of the future dividend
stream and terminal value, McDonald calculated a weighted average cost of
capital ("WACC") for Chempower based on the capital asset pricing model
("CAPM"). Using the CAPM, McDonald estimated a WACC for Chempower of
approximately 13.0%. Chempower's terminal value was estimated by applying a 2.5%
terminal growth rate to projected 2001 operating cash flow. McDonald performed a
sensitivity analysis with discount rates ranging from 12.0% to 14.0% and
terminal growth rates ranging from 1.5% to 3.5% per year. Based on this
analysis, McDonald estimated the future cash flow of Chempower Shares at between
$4.67 to $5.46 per Share with a base cash value of $5.00 per Share.
In connection with its opinion dated as of the date of this Proxy
Statement, McDonald confirmed the appropriateness of its reliance on the
analyses used to render its August 26, 1996 opinion by performing procedures to
update certain of such analyses and by reviewing the assumptions on which such
analyses were based and the factors considered in connection therewith.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses, without considering the analyses as a whole, could
create an incomplete view of the processes underlying McDonald's opinion. The
analyses were considered in the context of general business, market, and
economic conditions existing at the time of the opinions, many of which are
beyond the control of Chempower. Such analyses were prepared solely for purposes
of McDonald's providing its opinion as to the fairness of the cash consideration
to be received by the Shareholders pursuant to the Merger Agreement. The
analyses performed by McDonald are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, the analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold.
McDonald is an investment banking firm engaged, among other things, in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate, and other purposes. The Board of Directors of
Chempower selected McDonald as its financial advisor because it is a recognized
investment banking firm with experience in transactions similar to the Merger
and is familiar with Chempower and its business.
Pursuant to the terms of an engagement letter dated August 20, 1996,
Chempower exclusively retained McDonald as financial advisor to assist Chempower
in responding to the acquisition proposal by American Eco. Chempower paid
McDonald an advisory fee of $150,000 for its services pursuant to such
engagement. This advisory fee became payable upon the rendering of the written
fairness opinion on September 3, 1996. Chempower has agreed to reimburse
McDonald for its reasonable out-of-pocket expenses, including the fees
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<PAGE> 16
and disbursements of their counsel, and to indemnify McDonald and certain
related persons against certain liabilities, including certain liabilities under
the federal securities laws, relating to or arising out of its engagement.
McDonald is a full service securities firm and as such may from time to
time effect transactions for its own accounts or the account of customers and
hold positions in securities or options on securities of Chempower and other
companies which may be the subject of the engagement contemplated by the
engagement letter.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
A Shareholder who exchanges his Shares for cash will recognize gain or loss
in an amount equal to the difference between the cash received by him and his
basis in the Shares exchanged. A Shareholder exercising dissenters' rights under
Ohio Law will also recognize gain or loss in an amount equal to the difference
between the cash received by him pursuant to the court's determination of the
fair cash value in redemption of such Shares and his basis in such Shares.
The preceding discussion of federal income tax consequences may not be
applicable to Shareholders who have acquired Shares pursuant to the exercise of
stock options. Any Shareholder exchanging Shares as a result of the Merger,
which Shares were acquired pursuant to stock options which were (a) granted less
than two years prior to the Effective Time of the Merger, or which were (b)
exercised less than one year prior to such date, will be treated as having
received compensation in an amount equal to the lesser of (x) the difference
between the fair market value of the Shares as of the exercise date of the
option and the Shareholder's adjusted basis in the Shares as of said date and
(y) the difference between the amount realized as a result of the Merger and the
Shareholder's adjusted basis in the Shares as of the Effective Time of the
Merger. Any such amount treated as compensation must be reported as ordinary
income received in the taxable year in which the Merger occurs. Any amount
received as a result of the Merger that is not treated as compensation will be
taxed as a capital gain or loss as discussed above.
The federal tax discussion set forth above is included for general
information only. Shareholders are urged to consult their own tax advisors for
more specific and definitive advice as to the federal income tax consequences to
them of the exchange of their Shares pursuant to the Merger, as well as advice
as to the application and effect of state, local, and foreign income and other
tax laws.
CONDUCT OF BUSINESS OF CHEMPOWER PRIOR TO THE EFFECTIVE DATE
During the period from the execution of the Merger Agreement to the
Effective Time, the Merger Agreement provides that Chempower and its
Subsidiaries (as defined in the Merger Agreement) will conduct their businesses
only in the regular and ordinary course of business, consistent with past
practice. Pursuant to the Merger Agreement, Chempower has agreed to use all
reasonable efforts to preserve intact its business, to keep available the
services of its current officers and employees, and to preserve its
relationships with desirable customers, suppliers, licensors, licensees,
distributors, and others having business dealings with it.
In addition, Chempower has agreed that it will not take certain actions
without the prior written consent of American Eco including, among other things,
that it (and its Subsidiaries) will not (a) adjust, split, combine, or
reclassify any shares of its capital stock; (b) make, declare, set aside, or pay
any dividend or make any other distribution on the Shares; (c) grant any stock
option or appreciation rights with respect to Chempower or any Subsidiary; (d)
make any changes in its Articles or Regulations or those of any Subsidiary; (e)
acquire, sell, lease, encumber, transfer, or dispose of any assets, or make any
capital expenditures, in either case, in excess of $10,000 individually or
$100,000 in the aggregate, outside the ordinary course of business, except
pursuant to obligations in effect on the date of the Merger Agreement; (f) incur
any indebtedness for borrowed money or guarantee any indebtedness except for
obligations or guarantees which in the aggregate do not exceed $100,000; (g)
pay, discharge, or satisfy any claims, liabilities, or obligations, other than
in the ordinary course of business consistent with past practice or liabilities
reflected or reserved against in, or contemplated by, the financial statements
(or the notes thereto) of Chempower; (h) pay, discharge, or satisfy any claims,
liabilities, or obligations in connection with any litigation; (i) change any of
the accounting
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<PAGE> 17
principles or practices used by it (except as required by generally accepted
accounting principles); (j) enter into, adopt, amend, or terminate any employee
benefit plan, or increase in any manner the compensation or fringe benefits of
any director, officer, or employee, grant any bonus, or pay any termination,
severance, or other benefit not required by any plan or agreement in effect on
the date of the Merger Agreement; (k) make or enter into any agreement,
commitment, or contract, except in the ordinary course of business for the
purchase or sale of products in amounts not exceeding $50,000 in any instance
and not giving rise to obligations extending beyond 90 days from the date of the
Merger Agreement, or modify, amend, or terminate any material contract, or pay
any amount not required by law or by any contract in an amount exceeding
$50,000; (l) make or enter into any lease of real property or extend or amend
any existing lease of real property; (m) intentionally take, or enter into an
agreement to take, any action that would result in any of the conditions to the
Merger not being satisfied; or (n) make any material tax election or settle or
compromise any material federal, state, local, or foreign income tax liability,
or waive or extend the statute of limitations in respect of any such taxes.
CERTAIN CORPORATE AND RELATED MATTERS AFTER THE EFFECTIVE DATE
The Articles and Regulations of Chempower as in effect immediately prior to
the Effective Time will be the Articles of Incorporation and Code of Regulations
of Chempower following the Effective Time, unless and until duly amended,
altered, or repealed.
The directors and officers of Sub immediately prior to the Effective Time
will become the directors and officers of Chempower at the Effective Time, each
to hold office in accordance with the Articles of Incorporation and Code of
Regulations of Chempower following the Effective Time, in each case until their
respective successors are duly elected or appointed and qualified.
Pursuant to the Merger Agreement, American Eco has agreed that, for a
period of five (5) years after the Effective Time, the Regulations of Chempower
with respect to indemnification of directors and officers will not be amended,
repealed, or otherwise modified in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors and
officers of Chempower, unless such modification is required by law.
American Eco has further agreed that, after the Effective Time, it will
cause Chempower to indemnify, defend, and hold harmless the present and former
directors and officers of Chempower and its Subsidiaries against all losses,
claims, damages, and liability and amounts paid in settlement in connection with
(a) any claim, action, suit, proceeding, or investigation in respect of acts or
omissions occurring at or prior to the Effective Time, to the fullest extent
that Chempower or such Subsidiary would have been permitted to indemnify such
person under applicable law and the Articles and Regulations of Chempower or
such Subsidiary in effect on the date of the Merger Agreement; or (b) except for
a claim arising out of or based upon the gross negligence or willful misconduct
of such directors and officers, in any event arising out of or pertaining to the
transactions contemplated by the Merger Agreement. For at least five (5) years
after the Effective Time, American Eco has agreed to use its best efforts to
cause Chempower to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time without any
lapse in coverage. Such insurance will provide coverage with respect to each
person currently covered by Chempower's officers' and directors' liability
policy and on terms, with respect to coverage and amount, no less favorable than
those of the policy in effect on the date of the Merger Agreement.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of the
Shareholders and the other conditions to the Merger Agreement are satisfied or,
if permissible, waived, the Merger will be effective at the time that the
parties file a certificate of Merger with the Secretary of State of the State of
Ohio, in the form required by and executed in accordance with the relevant
provisions of Ohio Law (the "Effective Time").
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PAYMENT FOR SHARES
In order to receive the Merger Consideration, each Shareholder will be
required to surrender the certificate or certificates representing the Shares
(the "Certificate") to an exchange agent selected by American Eco. As soon as
reasonably practicable after the Effective Time, the exchange agent will mail to
each Shareholder of record immediately prior to the Effective Time, a letter of
transmittal and instructions for use in effecting the surrender of the
Certificate for payment. Upon surrender of a Certificate for cancellation to the
exchange agent together with the letter of transmittal, duly executed, and other
customary documents which may be required by the instructions, the Shareholder
will be entitled to receive in exchange cash in an amount equal to the product
of the number of Shares represented by the Certificate multiplied by the Merger
Consideration, and the Certificate surrendered will be cancelled. The exchange
agent will not be obligated to deliver the Merger Consideration until the
Shareholder surrenders the Certificate or, if any Certificate is lost, stolen,
or destroyed, an appropriate affidavit of loss and indemnity agreement and, if
required, the posting of a bond in such reasonable amount as shall be required
by American Eco. SHAREHOLDERS SHOULD NOT SEND ANY SHARE CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
STOCK OPTIONS
At the Effective Time, each option to purchase Shares, whether or not
exercisable, shall be canceled in consideration of the payment by Chempower to
each holder thereof of an amount in cash equal to the extent by which the Merger
Consideration exceeds the exercise price per Share payable under the option,
multiplied by the number of Shares subject to the option. If necessary, funds to
cancel stock options will be provided by American Eco.
REGULATORY APPROVAL
To the extent required by law, Chempower and American Eco have filed
Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act") with the Federal Trade Commission ("FTC") and the
Antitrust Division of the Department of Justice ("DOJ"). The parties will
cooperate and consult with each other with respect to the preparation of the
Notification and Report Forms and any other submissions required to be made
pursuant to the HSR Act in connection with the Merger, including, but not
limited to, responses to written or oral comments or requests for additional
information or documenting material by the FTC or the DOJ.
In the event that any regulatory approval required as a condition to the
consummation of the Merger is not obtained, or any other condition to the
consummation of the Merger has not been satisfied, by January 31, 1997, the
Merger Agreement may be terminated.
REPRESENTATIONS AND WARRANTIES OF CHEMPOWER
In the Merger Agreement, Chempower has made customary representations and
warranties to American Eco including, but not limited to, representations and
warranties relating to the following: the organization and qualifications of
Chempower and its Subsidiaries; the authority of Chempower to enter into and
perform its obligations under the Merger Agreement and carry out the
transactions contemplated thereby; consents and approvals required in order to
consummate the Merger; the capitalization of Chempower and the Subsidiaries;
filings made by Chempower with the Commission; the absence of conflicts with the
Articles or Regulations of Chempower or those of any Subsidiary, with any
material agreements, instruments, licenses, franchises, or permits by which
Chempower or a Subsidiary is bound, or with any laws, rules, or regulations to
which either Chempower or a Subsidiary is subject, resulting from execution of
the Merger Agreement; Chempower's consolidated financial statements; the absence
of certain changes or developments since January 1, 1996; litigation; ERISA
compliance; taxes; real and personal property; intellectual property; insurance
coverage; inventory; related party transactions; contracts; personnel;
compliance with laws; accounts receivable; books and records; material
undisclosed liabilities; environmental matters; Board of Directors
recommendation; the Proxy Statement; the Fairness Opinion; and the employment of
brokers and finders with respect to this transaction.
16
<PAGE> 19
REPRESENTATIONS AND WARRANTIES OF AMERICAN ECO AND SUB
American Eco and Sub have also made customary representations and
warranties in the Merger Agreement, including, without limitation,
representations and warranties relating to the following: the organization of
American Eco and Sub; the authority of each of American Eco and Sub to enter
into the Merger Agreement and carry out the transactions contemplated thereby;
the absence of conflicts with charters, by-laws or regulations, material
agreements, instruments, licenses, franchises, permits, laws, rules, or
regulations to which either American Eco or Sub is subject, resulting from
execution of the Merger Agreement; consents and approvals required in order to
consummate the Merger; availability of Financing (as defined herein); the Proxy
Statement; and the employment of brokers and finders with respect to this
transaction.
COVENANTS OF CHEMPOWER
In addition to Chempower's covenants with respect to the conduct of its
business prior to the Effective Time, Chempower has also made covenants in the
Merger Agreement with respect to several other matters. Pursuant to the Merger
Agreement, Chempower has agreed to provide full access to American Eco and its
representatives to all of its properties, books, contracts, commitments, and
records and to promptly provide American Eco with a copy of any report,
schedule, or other document filed or received by it pursuant to either federal
or state securities laws, during the period prior to the Effective Time.
Pursuant to the Merger Agreement, Chempower has further agreed (a) to
convene a meeting of its Shareholders for purposes of voting on the Merger and
the Merger Agreement, (b) to use its reasonable best efforts to solicit from the
Shareholders proxies in favor of and to secure the Shareholder consent necessary
for approval of the Merger and adoption of the Merger Agreement, and (c) in
connection therewith, to prepare, file with, and seek approval of the Commission
with respect to, and thereafter mail to Shareholders, this Proxy Statement,
including therein the recommendation of the Board of Directors that the
Shareholders vote in favor of the Merger and the Merger Agreement (unless such a
recommendation would constitute a violation of the fiduciary duties of the
Directors).
Finally, Chempower has agreed not to solicit, after the date of the Merger
Agreement and prior to the Effective Time, any Acquisition Proposal (as defined
in the Merger Agreement) from any person or persons other than American Eco.
Notwithstanding this covenant, the Board of Directors shall not be prohibited
from considering, negotiating, approving, and recommending to the Shareholders
any bona fide Acquisition Proposal which is not solicited in violation of the
Merger Agreement, provided the Board of Directors determines in good faith (upon
advice of counsel) that it is required to take such actions in order to properly
discharge its fiduciary duties.
COVENANTS OF AMERICAN ECO
Pursuant to the Merger Agreement, American Eco has covenanted to vote the
shares of capital stock of Sub which it holds in favor of approving the Merger
and adopting the Merger Agreement and to cause Sub to take any and all actions
necessary or appropriate to consummate the Merger. Furthermore, American Eco has
agreed to use its best efforts to obtain the financing required to effect the
Merger and to pay related fees and expenses (the "Financing") pursuant to a
commitment letter with Canaccord Capital Corporation (the "Commitment Letter"),
dated September 9, 1996. Parent has further agreed that if Financing is not
obtainable pursuant to the Commitment Letter, then, within thirty (30) days
after being notified that such Financing is not obtainable pursuant to the
Commitment Letter, it will seek alternative Financing on terms, in the
aggregate, no less advantageous to Parent than the terms provided for in the
Commitment Letter.
For a description of American Eco's covenants with respect to
indemnification of Chempower's current directors and officers, see "THE
MERGER -- Certain Corporate and Related Matters After the Effective Time."
17
<PAGE> 20
MUTUAL COVENANTS OF CHEMPOWER AND AMERICAN ECO
Pursuant to the Merger Agreement, the parties have also made mutual
covenants with respect to several matters, including such matters as: (a) the
obligation of each party to use its reasonable best efforts to comply with and
furnish information to the other party in connection with any and all
requirements that the federal or state law may impose on it or them with respect
to the Merger; (b) the obligation that if any action, suit, proceeding, or
investigation by a court of competent jurisdiction or by a governmental,
regulatory, or administrative agency or commission is commenced it will
cooperate with the other and use its reasonable best efforts to defend against
and respond to such action, suit, proceeding, or investigation; (c) the giving
of prompt written notice to the other of (i) the occurrence (or non-occurrence)
of any event which would be likely to cause (A) any representation or warranty
contained in the Merger Agreement to be untrue or inaccurate in any material
respect or (B) any covenant, agreement, or condition in the Merger Agreement not
to be complied with or satisfied in any material respect, and (ii) any failure
by the notifying party to comply with or satisfy any covenant, agreement, or
condition contained in the Merger Agreement in any material respect; and (d) the
obligation to provide one another with copies of all periodic reports to be
filed with the Commission and to solicit comments with respect thereto at least
48 hours prior to the filing thereof.
As discussed in more detail under "THE MERGER -- Regulatory Approval," the
parties have also agreed pursuant to the Merger Agreement to file Notification
and Report Forms under the HSR Act and to cooperate with one another in the
preparation thereof.
The parties have furthermore agreed, pursuant to the Merger Agreement, not
to issue any press release, make any public statements, or issue any
communications to the Shareholders with respect to the Merger and the Merger
Agreement without the prior written approval of the other party, except as may
otherwise be required by law.
Finally, the parties have agreed to use their reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate the Merger; and to use their reasonable best efforts to cause the
conditions precedent to the consummation of the Merger to be satisfied.
CONDITIONS TO THE MERGER
The obligations of Chempower, American Eco, and Sub to consummate the
Merger are subject to the satisfaction, at or before the Effective Time, of the
conditions that (a) the Merger has been approved and the Merger Agreement has
been adopted by the requisite vote of Shareholders; (b) the waiting period, and
any extensions thereof, applicable to the consummation of the Merger under the
HSR Act has expired; (c) no provision of any applicable domestic law or
regulation, and no judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction is in effect which
would prevent the consummation of the Merger; (d) all actions by or in respect
of or filing with any governmental regulatory or administrative agency or
commission required to consummate the Merger has been obtained or made; and (e)
the Fairness Opinion delivered in accordance with the Merger Agreement has not
been modified or withdrawn.
Moreover, the respective obligations of Chempower and American Eco and Sub
to effect the Merger are also subject to the conditions that (a) the other party
has performed in all material respects each obligation and covenant to be
performed by it pursuant to the Merger Agreement at or prior to the Effective
Time; (b) the representations and warranties of the other party are true and
correct in all material respects at and as of the Effective Time; (c) each party
has delivered to the other party certificates issued by appropriate governmental
authorities evidencing its good standing in the jurisdiction of its
incorporation and, with respect to Chempower, in the jurisdictions in which it
is qualified to do business as a foreign corporation; (d) each party has
delivered to the other copies, certified by the Secretary or an Assistant
Secretary, of the resolutions adopted by its board of directors, authorizing the
execution, delivery, and performance of the Merger Agreement, and, with respect
to American Eco and Sub, copies of resolutions of American Eco, as the sole
shareholder of Sub, approving the Merger and adopting the Merger Agreement; and
(e) each party will have delivered to the other a certificate of its Chief
Executive and Chief Financial Officers certifying as to the fulfillment of the
conditions to the other party's obligations set forth in the Merger Agreement.
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<PAGE> 21
Finally, the obligation of American Eco and Sub to effect the Merger is
also subject to the additional conditions that (a) American Eco has received
Financing, pursuant to the Commitment Letter or otherwise; (b) there shall not
have occurred any event which is material and adverse to the business, financial
condition, or results of operations of Chempower and its Subsidiaries, taken as
a whole, other than an effect resulting from this Merger Agreement or the Merger
(a "Company Material Adverse Effect"); (c) by not later than immediately prior
to the Effective Time, Toomas J. Kukk and Ernest M. Rochester have each entered
into employment agreements with Chempower; (d) all incentive stock option and
non-qualified stock option plans of Chempower, and each option issued under any
such plans, has been amended as required by the Merger Agreement; (e) the
consents required to consummate the Merger which are designated as material in
the Merger Agreement have been obtained; (f) appraisal rights under Ohio Law
have been perfected by the holders of not more than five percent (5%) of the
outstanding Shares; (g) American Eco and Sub have received the opinion of
Chempower's outside legal counsel, substantially in the form agreed in the
Merger Agreement; and (h) the officers and directors of Chempower and its
Subsidiaries, specified by American Eco, have resigned their respective
positions as of the Effective Time.
TERMINATION, AMENDMENT, AND EXPENSES
There are several mechanisms by which the Merger Agreement may be
terminated prior to the Effective Time by either or both parties to the Merger
Agreement. These mechanisms include termination (a) by the mutual written
consent of the Board of Directors of Chempower and the Board of Directors of
American Eco; (b) by either Chempower or American Eco if the Merger has not been
consummated by January 31, 1997; (c) by either Chempower or American Eco if the
requisite vote of Shareholders approving the Merger and adopting the Merger
Agreement is not obtained; and (d) by either Chempower or American Eco if any
applicable domestic law, rule, or regulation makes consummation of the Merger
illegal or if any judgment, injunction, order, or decree of a court or
governmental agency or authority of competent jurisdiction restrains or
prohibits the consummation of the Merger, and such judgment, injunction, order,
or decree has become final and nonappealable (provided that such right of
termination will not be available to any party that, at the time of termination,
is in material breach of its obligations under the Merger Agreement).
The Merger Agreement further provides that it may be terminated prior to
the Effective Time by American Eco by written notice to Chempower if (a)
Chempower has materially breached its obligations under the Merger Agreement,
which if not remedied prior to the Effective Time would have a Company Material
Adverse Effect, and such breach has not been remedied or Chempower has not
provided reasonable assurance that the breach will be remedied within the time
specified in the Merger Agreement; (b) the Board of Directors of Chempower
withdraws or modifies in any manner adverse to American Eco its approval or
recommendation of the Merger Agreement or Merger; (c) the Board of Directors of
Chempower, at any time after Chempower or any of its Subsidiaries has become
aware of any event which would require that notice be given to American Eco
pursuant to the provision of the Merger Agreement prohibiting solicitation of
any Acquisition Proposal, withdraws or modifies in any manner adverse to
American Eco its approval or recommendation of the Merger or Merger Agreement or
approves or recommends any Acquisition Proposal by a company other than American
Eco or any of its affiliates; (d) Chempower or any of its Subsidiaries enters
into a definitive agreement for any Acquisition Proposal or the Board of
Directors of Chempower resolves to take such action; or (e) any person or group
other than American Eco or a group approved by American Eco acquires a number of
Shares entitling such person or group to exercise twenty percent of the total
number of votes entitled to be cast in an election of directors of Chempower, or
the directors of Chempower currently in office cease to represent the majority
of the directors of Chempower.
Finally, the Merger Agreement may be terminated by Chempower by written
notice to American Eco if (a) American Eco has materially breached its
obligations under the Merger Agreement, which if not remedied prior to the
Effective Time would have an effect which is material and adverse to the
business, financial condition, or results of operations of American Eco, and
such breach has not been remedied or American Eco has not provided reasonable
assurance that the breach will be remedied within the time period specified in
the Merger Agreement; (b) the Board of Directors of Chempower determines to
enter into a definitive agreement for an Acquisition Proposal other than with
American Eco or its affiliates; (c) the Board
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<PAGE> 22
of Directors of American Eco withdraws or modifies in any manner adverse to
Chempower its approval or recommendation of the Merger Agreement or Merger; or
(d) the Financing pursuant to the Commitment Letter or any alternative Financing
has become unobtainable and American Eco has not given Chempower reasonable
evidence within thirty (30) days thereafter that alternative Financing has been
obtained or, in any case, the Financing is not obtained by January 15, 1997
other than as a result of a breach of any representation, warranty or covenant
by Chempower in the Merger Agreement.
If American Eco terminates the Merger Agreement for any of the reasons set
forth in the paragraph preceding the immediately preceding paragraph which would
entitle American Eco alone to terminate the Merger Agreement or if Chempower
terminates the Merger Agreement because (a) the requisite vote of the
Shareholders approving the Merger and adopting the Merger Agreement has not been
obtained or (b) the Board of Directors of Chempower determines to enter into a
definitive agreement for an Acquisition Proposal other than with American Eco or
its affiliates, then, pursuant to the Merger Agreement, Chempower must pay to
American Eco a fee of $1,000,000 plus American Eco's actual expenses, including
third party costs such as fees of attorneys and financial advisors, incurred in
connection with the Merger Agreement and the proposed Merger. If Chempower
terminates the Merger Agreement because the Financing pursuant to the Commitment
Letter or any alternative Financing has become unobtainable and American Eco has
not given reasonable evidence within thirty days that alternative Financing has
been obtained or, in any case, the Financing is not obtained by January 15, 1997
other than as a result of a breach of any representation, warranty or covenant
by Chempower in the Merger Agreement, American Eco must pay to Chempower the
actual expenses incurred by Chempower in connection with the Merger Agreement
and proposed Merger, including third party costs such as fees of attorneys and
financial advisors.
The Merger Agreement may be amended by the parties by action taken by their
respective Boards of Directors at any time before or after the approval by the
Shareholders, but after such approval, no amendment may be made which reduces
the amount or the form of the Merger Consideration or in any way adversely
affects the rights of the Shareholders without further approval of the
Shareholders.
Except as otherwise expressly provided in the Merger Agreement, all costs
and expenses incurred in connection with the Merger Agreement will be paid by
the party incurring the cost or expense.
DISSENTERS' RIGHTS
The Shareholders of Chempower will be entitled to dissenters' or appraisal
rights as a result of the matters to be voted upon at the Special Meeting. Under
Ohio Law, in the case of a merger into a domestic surviving corporation, the
shareholders of that corporation who are entitled to vote on adoption of the
merger agreement pursuant to Ohio Law are entitled to relief as dissenting
shareholders, but only as to the shares so entitling them to vote. Shareholders
of a domestic surviving corporation in a merger are entitled to vote on adoption
of the merger agreement if (a) the articles or regulations of the surviving
corporation require that the agreement be adopted by the shareholders; (b) the
agreement conflicts with the articles or regulations of the surviving
corporation, or changes the articles or regulations, or authorizes any action
that, if it were being made or authorized apart from the merger, would otherwise
require adoption by the shareholders; (c) the merger involves the issuance or
transfer by the surviving corporation of such number of shares as will entitle
the holders of such shares immediately after consummation of the merger to
exercise one-sixth or more of the voting power of the surviving corporation in
the election of directors; or (d) the agreement of merger makes such change in
the directors of the surviving corporation as would otherwise require action by
the shareholders.
A Shareholder entitled to relief as a dissenting shareholder must comply
with certain requirements set forth in Section 1701.85 of the Ohio Law. The
following summary does not purport to be a complete statement of the method of
compliance with Section 1701.85 and is qualified in its entirety by reference to
that section, which is attached to this Proxy Statement as Appendix B and is
incorporated herein by reference.
A Shareholder who wishes to perfect his rights as a dissenting shareholder
in the event the Merger Agreement is adopted must (a) have been the holder of
record of the Shares as to which he seeks relief as of the date fixed for the
determination of Shareholders entitled to notice of the Special Meeting, (b) not
have
20
<PAGE> 23
voted his Shares in favor of approving the Merger and adopting the Merger
Agreement, and (c) deliver to Chempower, not later than ten days after the
Special Meeting, a written demand for payment to him of the fair cash value of
the Shares as to which he seeks relief. This demand must state the Shareholders'
name, address, the number and class of such Shares as to which he seeks relief,
and the amount claimed by him as the fair cash value of the Shares.
A vote against adoption of the Merger Agreement will not satisfy the
requirements of a written demand for payment as described in clause (c) of the
immediately preceding paragraph. Any written demand for payment should be mailed
or delivered to Chempower, Inc., 807 East Turkeyfoot Lake Road, Akron, Ohio
44319, Attention: Ernest M. Rochester, Secretary. As the written demand must be
delivered within the ten-day period following the Special Meeting, it is
recommended, although not required, that a Shareholder using the mails use
certified or registered mail, return receipt requested, to confirm that he has
made a timely delivery.
If Chempower sends to a dissenting Shareholder, at the address specified in
his demand, a request for the certificates representing the Shares as to which
he seeks relief, the dissenting Shareholder, within fifteen days from the date
of sending such request, shall deliver to Chempower the certificates requested.
Chempower will then endorse the certificates with a legend to the effect that a
demand for the fair cash value of such Shares has been made, and promptly return
such endorsed certificates to the dissenting Shareholder. Failure on the part of
the dissenting Shareholder to deliver such certificates terminates his rights as
a dissenting Shareholder, at the option of Chempower, exercised by written
notice of such termination delivered to him within twenty days after the lapse
of the fifteen-day period, unless a court for good cause shown otherwise
directs.
Unless the dissenting Shareholder and Chempower shall agree on the fair
cash value per Share as to which relief is sought, either may, within three
months after service of the written demand by the Shareholder, file a complaint
in the court of common pleas of Summit County. If the court finds that the
Shareholder is entitled to be paid the fair cash value of any Shares, the court
may appoint one or more appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value.
Fair cash value will be determined as of the day prior to the Special
Meeting, will be the amount a willing seller and willing buyer would accept or
pay with neither being under compulsion to sell or buy, will not exceed the
amount specified in the Shareholder's written demand, and will exclude any
appreciation or depreciation in the market value resulting from the Merger. The
court will make a finding as to the fair cash value of a Share and render
judgment against Chempower for its payment with interest at such rate and from
such date as the court considers equitable. The cost of proceedings, including
reasonable compensation to the appraisers to be fixed by the court, shall be
assessed or apportioned as the court considers equitable.
The rights of any dissenting Shareholder will terminate if (a) he has not
complied with Section 1701.85 of the Ohio Law, unless Chempower by action of its
Board of Directors waives such failure; (b) Chempower abandons or is finally
enjoined or prevented from carrying out or the Shareholders rescind their
approval of the Merger; (c) the Shareholder withdraws his demand, with the
consent of Chempower by action of its Board of Directors; or (d) Chempower and
the dissenting Shareholder shall not have come to an agreement as to the fair
cash value per Share, and neither the Shareholder nor Chempower shall have
timely filed or joined in a complaint in an appropriate court for a
determination of the fair cash value of the Shares. For a discussion of the tax
consequences to a Shareholder exercising dissenters' rights, see "THE
MERGER -- Certain Federal Income Tax Consequences of the Merger."
It is a condition to the obligations of American Eco and Sub to consummate
the Merger that dissenters' rights under Ohio Law shall not have been perfected
by more than five percent (5%) of the Shareholders.
BECAUSE A PROXY FORM WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL,
UNLESS REVOKED, BE VOTED FOR APPROVAL OF THE MERGER AND ADOPTION OF THE MERGER
AGREEMENT, A SHAREHOLDER WHO WISHES TO EXERCISE HIS DISSENTERS' RIGHTS MUST
EITHER NOT SIGN AND RETURN HIS PROXY FORM OR, IF HE SIGNS AND RETURNS HIS PROXY
FORM, VOTE AGAINST OR ABSTAIN FROM VOTING ON APPROVAL OF THE MERGER AND ADOPTION
OF THE MERGER AGREEMENT.
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<PAGE> 24
INDEPENDENT AUDITORS
It is expected that a representative of McGladrey & Pullen, LLP will be
present at the Special Meeting and will have an opportunity to make a statement
if he desires to do so. It is also expected that the representative will respond
to appropriate questions.
ACCOUNTING FOR THE MERGER
The Merger will be accounted for using the purchase method of accounting in
accordance with Generally Accepted Accounting Principles. In the application of
the purchase method of accounting, all assets and liabilities of Chempower will
be recorded at their fair value at the acquisition date of the Shares by Sub
with a resulting adjustment to goodwill in an amount equal to the difference
between the price paid by American Eco and the fair value of Chempower's assets
minus its liabilities.
COMMON STOCK PRICES AND DIVIDENDS
Chempower Shares are traded through and quoted on the NASDAQ National
Market System under the symbol CHEM. The following table lists the high and low
sales prices of the Shares for the periods indicated as reported on the
NASDAQ/NMS Monthly Statistical Report:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
--------------------------------------------------------------- ------ ------
<S> <C> <C>
March 31, 1994................................................. $4.875 $3.375
June 30, 1994.................................................. $4.125 $3.250
September 30, 1994............................................. $4.250 $3.250
December 31, 1994.............................................. $4.250 $3.750
March 31, 1995................................................. $4.250 $3.000
June 30, 1995.................................................. $4.000 $3.000
September 30, 1995............................................. $4.000 $3.250
December 31, 1995.............................................. $4.000 $3.500
March 31, 1996................................................. $4.000 $3.750
June 30, 1996.................................................. $4.500 $3.750
</TABLE>
As of September 10, 1996, the last full trading day prior to the execution
of the Merger Agreement and the last full trading day prior to the public
announcement of the proposed Merger, the closing bid price per Share as quoted
on NASDAQ was $4.19. As of October 7, 1996, the closing bid price per Share as
quoted on NASDAQ was $ . . SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR CHEMPOWER SHARES.
Additionally, set forth in the following table is certain historical per
Share data for the most recent fiscal year and interim periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
----------------- ----------------
<S> <C> <C>
Earnings per Share.................................. $ .30 $ .08
Book Value per Share................................ $4.89 $ 4.97
</TABLE>
Chempower has not paid dividends in the past and has maintained a policy of
retaining earnings for use in its business.
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<PAGE> 25
SECURITY OWNERSHIP
The following table sets forth as of October 7, 1996 information furnished
to Chempower with respect to persons known by Chempower to be the beneficial
owners of more than five percent of the Shares (other than directors and
officers of Chempower). The information is based on the most recent Schedule 13D
or 13G filed with the Commission on behalf of each such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- - - ------------------------------------------------------------- ------------------ ----------------
<S> <C> <C>
Mark L. Rochester (1)........................................ 2,066,064 27.3%
3511 Greensburg Road
North Canton, OH 44720
FMR Corp. (2)................................................ 677,700 9%
82 Devonshire Street
Boston, Massachusetts 02109
Ryback Management Corp. (2).................................. 650,000 8.6%
7711 Carondelet Avenue
St. Louis, Missouri
</TABLE>
- - - ---------------
(1) Mr. Rochester is the son of Ernest M. Rochester, a director and executive
officer of Chempower.
(2) This information was obtained by Chempower from Schedules 13G as filed with
the Commission in January 1996 and February 1996.
The following table sets forth, as of October 7, 1996, information
furnished to Chempower with respect to the beneficial ownership by Chempower's
Chief Executive Officer, each of Chempower's four other most highly compensated
executive officers, each Director, and all Directors and executive officers as a
group, of the Shares.
<TABLE>
<CAPTION>
DIRECTOR, NAMED NUMBER OF SHARES
EXECUTIVE OFFICER, OR GROUP BENEFICIALLY OWNED (1) PERCENT OF CLASS
- - - ---------------------------------------------------------- ---------------------- ----------------
<S> <C> <C>
EXECUTIVE OFFICERS (+ also serves as a Director):
Toomas J. Kukk + (2).................................... 1,766,213(3) 23.1%
Robert E. Rohr +........................................ 107,000(3) 1.4%
Dale C. Crumley......................................... 165,691(3) 2.2%
Scott R. Lowrie......................................... 42,000(3) *
Patrick F. Byrne........................................ 42,000(3) *
Ernest M. Rochester (4)................................. 67,000(3) *
DIRECTORS:
Norman E. Jackson....................................... 80,350 1.1%
Edward G. Kemp.......................................... -- --
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (8 PERSONS) 2,270,254(5) 28.8%
</TABLE>
- - - ---------------
* Less than 1%.
(1) All Shares are held with sole voting and sole investment power.
(2) Excludes 366,850 Shares held by Mr. Kukk's immediate family, as to which he
disclaims beneficial ownership.
(3) Ownership totals for Messrs. Kukk, Rochester, Rohr, Crumley, Lowrie, and
Byrne include 67,000, 67,000, 52,000, 37,000, 42,000, and 42,000 exercisable
options, respectively.
(4) Excludes 11,000 Shares held by Mr. Rochester's spouse, and 2,066,064 Shares
held by his son, Mark Rochester, as to which he disclaims beneficial
ownership.
(5) Includes 307,000 Shares as to which six executive officers hold currently
exercisable options.
23
<PAGE> 26
Under the terms of the Merger Agreement, at the Effective Time, each then
outstanding option to purchase Shares, whether or not exercisable, will be
cancelled in consideration of the payment by Chempower (out of funds provided by
American Eco, if necessary) to each Shareholder of an amount in cash equal to
the excess of $6.20 per Share over the exercise price per Share of the option,
multiplied by the number of Shares subject to such option.
INTERESTS OF CERTAIN PERSONS
This section describes certain contracts, agreements, arrangements and
understandings, and interests between Chempower and its affiliates and certain
of its executive officers, directors, and affiliates.
EMPLOYMENT AGREEMENTS WITH MESSRS. KUKK AND ROCHESTER
Toomas J. Kukk, Chairman, President and Chief Executive Officer of
Chempower, and Ernest M. Rochester, Vice Chairman and Secretary of Chempower,
each entered into an Employment Agreement, dated September 10, 1996, with
American Eco and Chempower (the "Employment Agreements"). Pursuant to the
Employment Agreements, Chempower agreed to employ and Messrs. Kukk and Rochester
agreed to serve as Chempower's President and Chief Executive Officer and Vice
Chairman, respectively, or in such other senior executive officer capacity as
the Board of Directors may designate, for a term of three (3) years commencing
at the Effective Time of the Merger (the "Term"). The Employment Agreements
provide for an annual salary of not less than $280,000 payable to Mr. Kukk and
$150,000 payable to Mr. Rochester. During the Term of the Employment Agreements,
Messrs. Kukk and Rochester will be entitled to participate in any bonus, profit-
sharing, stock purchase, and stock option plans which Chempower or American Eco
presently has in effect or which either Chempower or American Eco may hereafter
establish, provided that each of them satisfies any eligibility requirements
thereof.
With respect to employee benefits, the Employment Agreements provide that
Messrs. Kukk and Rochester will be entitled to such vacation privileges,
hospitalization, medical and life insurance, disability, retirement and pension
benefits, and such other employment privileges and benefits as are presently
provided to senior executive personnel of Chempower. The Employment Agreements
further provide that in the event that either Mr. Kukk or Mr. Rochester becomes
permanently disabled during the Term thereof, such that he is unable to perform
his duties thereunder, Chempower will nevertheless continue to pay his salary
for the remainder of the Term, reduced by any amounts payable to him under a
disability insurance policy for which Chempower paid the premiums. In the event
that either Mr. Kukk or Mr. Rochester dies during the Term of his Employment
Agreement, Chempower has agreed to pay to his designated beneficiary a death
benefit in an amount equal to the product obtained by multiplying $100,000 by
the number of years or fractions thereof remaining in the Term of the Employment
Agreement.
Chempower has the right to terminate either of the Employment Agreements
prior to the expiration of the Term thereof with or without cause. If either of
the Employment Agreements is terminated without cause prior to the expiration of
the Term, Mr. Kukk or Mr. Rochester, as applicable, will be entitled to
severance pay at the rate of $100,000 per year for the remainder of the Term
thereof.
In the event that the Merger is not consummated, the Employment Agreements
shall each be rendered null and void.
NON-COMPETITION AGREEMENTS WITH MESSRS. KUKK AND ROCHESTER
Messrs. Kukk and Rochester have also each entered into a Non-Competition
Agreement with American Eco, dated as of September 10, 1996 (the
"Non-Competition Agreements"). Pursuant to the terms of the Non-Competition
Agreements, Messrs. Kukk and Rochester have each agreed, for a period of five
(5) years from the Effective Time of the Merger, that he will not, directly or
indirectly, own, manage, operate, join, control, or participate in the
ownership, management, operation, or control of, or be connected with, any
business enterprise which is engaged, directly or through a parent, subsidiary,
or affiliate, anywhere in the United States in any line of business in which
Chempower and its Subsidiaries are engaged during the period
24
<PAGE> 27
from the Effective Time through the day that his employment with Chempower is
terminated. Messrs. Kukk and Rochester have each further agreed that he will
keep confidential any trade secrets or confidential or proprietary information
now known to him or which may become known to him as a result of his employment
or other association with Chempower and that he will not, at any time, directly
or indirectly, disclose any such information to any person, firm, or corporation
or use such information in any way other than in connection with the business of
Chempower. Moreover, upon termination of employment with Chempower, Messrs. Kukk
and Rochester have each agreed to return any such confidential and proprietary
information which he may have in his possession to Chempower. In consideration
for such agreements, Messrs. Kukk and Rochester will each receive $75,000 at the
Effective Time of the Merger and on each anniversary thereof for the four years
following the Effective Time. In the event that the Merger is not consummated,
the Non-Competition Agreements shall each be rendered null and void.
REAL PROPERTY PURCHASE AGREEMENT
Holiday Properties, an Ohio general partnership, the partnership interests
of which are owned by Messrs. Kukk and Rochester, currently owns three parcels
of property which it leases to Chempower, including Chempower's executive
offices in Akron, Ohio and two other properties located in Cincinnati, Ohio and
Winfield, West Virginia (the "Properties"). Pursuant to a Real Property Purchase
Agreement, dated as of September 10, 1996, by and between Holiday Properties and
American Eco (the "Real Property Purchase Agreement"), Holiday Properties has
agreed to sell and American Eco has agreed to buy the Properties for a purchase
price of Four Million Five Hundred Thousand Dollars ($4,500,000). The
obligations of the parties under the Real Property Purchase Agreement are
subject to the condition precedent that the Merger has been consummated and
other ordinary and customary real estate purchase closing conditions. A copy of
the Real Property Purchase Agreement is attached hereto as Appendix F.
SHAREHOLDER PROPOSALS
Any Shareholder who wishes to submit a proposal for presentation to the
1997 Annual Meeting of Shareholders, if the Merger has not been consummated
prior to the date the meeting is to be held and if such meeting is to be held,
must submit the proposal to Chempower at its principal executive offices not
later than November 30, 1996, for inclusion, if appropriate, in Chempower's
proxy statement and the form of proxy relating to the 1997 Annual Meeting.
CERTAIN INFORMATION CONCERNING AMERICAN ECO
American Eco, a corporation organized under the laws of Ontario, Canada, is
an integrated industrial services company which acts as a single-source
environmental remediation and industrial maintenance provider to the
petrochemical, petroleum refining, utility, and pulp and paper industries in the
United States and Canada. Its business can be divided into three major segments:
environmental services, industrial maintenance services, and construction
services. The environmental services consist of providing hazardous waste
removal, encapsulation, treatment, and disposal services, and, through a recent
acquisition, manufacture and sale of specialized filtration and separation
systems used in the petroleum refining industry. Industrial maintenance
services, consisting of construction, maintenance, demolition, and industrial
support, are provided primarily to the petroleum and petrochemical industries.
Construction management services consist of providing project management and
construction planning.
For the fiscal year ended November 30, 1995 and the six months ended May
31, 1996, American Eco had total consolidated revenues of approximately $46.7
million and $65.0 million, respectively, and a net profit of $2.9 million and
$3.9 million, respectively.
The common stock of American Eco is listed on the Toronto Stock Exchange
and also trades on the Nasdaq National Market System. The principal offices of
American Eco are located at Suite 2000, 415 Yonge Street, Toronto, Ontario,
Canada, M5B 2E7, and its telephone number is (416) 340-2727. Sub Acquisition
Corp., an Ohio corporation, is a wholly-owned subsidiary of American Eco and was
created for the sole purpose of effecting the Merger.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion of Results of Operations are grouped as follows:
CONSOLIDATED -- Represents consolidated data of Chempower, Inc. and
subsidiaries.
CONSTRUCTION SERVICES -- This category consists of Chempower, Inc., Hunter
Insulation, Inc., Global Power Company and its Global Erectors division,
excluding Manufacturing Services.
MANUFACTURING SERVICES -- This category consists of Controlled Power
Limited Partnership ("CPC") and Chempower's three divisions: Houston Products,
Owens Precision Fabricators, and Advanced Coil Industries.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated
Revenues for 1995 were at an all-time high of $78,684,000, an increase of
$14,355,000 or 22.3% from 1994. This increase was primarily due to the inclusion
of revenues from CPC, acquired by Chempower in May, 1995 as discussed in Part I
of Chempower's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, which is incorporated herein by reference.
Selling, general, and administrative expenses increased $1,845,000 during
1995 versus 1994. This increase was the result of the added operations of CPC
and, to a lesser extent, the full year of operations of Owens Precision
Fabricators and Global Power Company, both acquired in the first half of 1994.
Interest income increased to $538,000 in 1995 from $432,000 in 1994 as a
result of higher interest rates available on investments.
Net income for 1995 was $2,247,000 or $.30 per share compared to $782,000
or $.11 per share in 1994. Net income increased to 2.9% of revenues compared to
1.2% in 1994.
Construction Services
Construction Services revenues were $51,572,000 as compared to $53,718,000
in 1994. This decrease was attributable to the decline in the total number of
projects available in the marketplace. Construction Services revenues
represented 65.5% of total revenues in 1995 as compared to 83.5% of total
revenues in 1994, primarily as a result of the increase in Manufacturing
Services revenues.
Cost of revenues represented 89.4% of revenues versus 92.5% in 1994. In
1994 Chempower's cost of revenues included $3,314,000 relating to a cost overrun
on one major contract.
Operating income increased $766,000, rising to $1,640,000 in 1995. In 1994,
Chempower's operating income was impacted by a cost overrun on one major
project. Chempower experienced no such major cost overruns in 1995. However,
Chempower did experience lower margins in Construction Services during the year
due to strong competition for a reduced number of jobs available in the
marketplace. In addition, Chempower incurred additional costs with the start-up
of the Global Erectors division.
Manufacturing Services
Manufacturing Services revenues more than doubled in 1995 to $27,112,000 as
compared to $10,611,000 from 1994. This increase was primarily the result of the
inclusion of operations from CPC and a full year of operations of Owens
Precision Fabricators.
Cost of revenues represented 76.0% of revenues versus 65.0% in 1994. This
was due to the inclusion of CPC operations during the year. A majority of the
products manufactured by CPC (i.e. electrical metal-clad
26
<PAGE> 29
switchgear and power distribution systems) offer a lower rate of margin as
compared to Chempower's other manufacturing operations.
Operating income increased to $4,049,000 from $2,434,000 in 1994 as a
result of the inclusion of CPC and the full year of Owens Precision Fabricators
division.
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated
Revenues for 1994 were $64,329,000, a decrease of 7.5% from $69,553,000 in
1993. This reduction was the result of a decrease in the Construction Services
segment of the business.
Selling, general, and administrative costs increased $821,000 to $7,080,000
in 1994. These expenses increased relative to 1993 due to the acquisition of
Owens Precision Fabricators and Global Power Company.
Interest income increased to $432,000 in 1994 from $328,000 in 1993 as a
result of higher interest rates available on investments.
Net income for 1994 was $782,000 or $.11 per share compared to $1,802,000
or $.25 per share in 1993. Net income declined to 1.2% of revenues compared to
2.6% in 1993, primarily due to an increase in costs of Construction Services
revenues.
Construction Services
Construction Services revenues were $53,718,000, which is a 15.2% decrease
from record revenues of $63,349,000 achieved in 1993. This decrease was
primarily due to the absence of a major firm price project as compared to 1993.
Construction Services revenues represented 83.5% of total revenues in 1994 as
compared to 91.1% in 1993.
Cost of revenues represented 92.5% of revenues versus 89.4% in 1994. This
increase was the effect of a pretax loss of $3,314,000 resulting from a cost
overrun on one major contract.
Operating income decreased 75.3% from $3,537,000 in 1993 to $874,000 in
1994. This decrease was substantially the result of the cost overrun on the one
major project.
Manufacturing Services
Revenues from Manufacturing Services increased 71.0% to $10,611,000 from
$6,204,000 in 1993. This rise was the result of an increased demand for
pre-insulated panel systems manufactured by our Houston Products division and
the addition of revenues earned by the Owens Precision Fabricators division.
Manufacturing Services represented 16.5% of total revenues in 1994 as compared
to 8.9% in 1993.
Cost of revenues represented 65.0% of revenues in 1994 versus 61.8% in
1993. This increase was primarily the result of lower margins experienced by the
Houston Products and Owens Precision Fabricators division in 1994.
Operating income increased 34.4% to $2,434,000 in 1994 from $1,811,000 in
1993 as the result of the increase in Manufacturing Services revenues.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Consolidated
Revenues for the thirteen week period ended June 30, 1996 were $16,488,000,
a decrease of 18.5% from $20,227,000 in 1995. This decrease was attributable to
the decline in the number of projects available in the Construction Services
marketplace.
Selling, general, and administrative expenses decreased 4.4% to $2,556,000
for the second quarter of 1996 as compared to $2,674,000 during the same period
of 1995. This decrease was due to the cost containment efforts in the
Construction Services segment.
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<PAGE> 30
Operating income decreased in 1996 to $361,000 from $1,601,000 in 1995.
This decrease was due to lower Construction Services revenues.
Interest income increased to $178,000 in 1996 from $118,000 in 1995 due to
higher rates of return.
Net income for the second quarter of 1996 was $386,000 or $.05 per share
compared to $1,034,000 or $.14 per share in the same period of 1995. Net income
as a percent of revenues decreased to 2.3% in 1996 as compared to 5.1% in 1995.
Construction Services
Construction Services revenues were $8,146,000 for the second quarter as
compared to $12,734,000 for the same period 1995. This decrease was attributable
to the decline in the number of projects available in the marketplace.
Construction Services revenues represented 49.4% of total revenues in 1996 as
compared to 63.0% of total revenues in 1995.
Cost of Construction Services revenues represented 85.6% of Construction
Services revenues in 1996 versus 82.8% in 1995.
Operating income in Construction Services decreased from $1,281,000 during
the second quarter of 1995 to $167,000 for the same period in 1996. This
decrease is due to the loss of Construction Services revenues and lower gross
margins on the work performed during the second quarter.
Manufacturing Services
Manufacturing Services revenues increased 11.3% during the second quarter
of 1996 to $8,342,000 as compared to $7,493,000 from the same period of 1995.
This increase was primarily the result of the inclusion of operations from CPC.
Cost of Manufacturing Services revenues represented 79.1% of Manufacturing
Services revenues versus 72.1% in 1995. This increase was due to the inclusion
of CPC operations during the year. A majority of the products manufactured by
CPC (i.e. electrical metal-clad switchgear and power distribution systems) offer
a lower rate of margin as compared to other products manufactured in this
segment. In addition, increased competition in the marketplace resulted in lower
sales pricing by the Houston Products division.
Operating income decreased to $798,000 in 1996 from $1,430,000 in 1995 due
to the lower rates of margin as a result of the competitive and economic factors
discussed above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Consolidated
Revenues for the twenty-six week period ended June 30, 1996 were
$33,478,000, a decrease of 14.7% from $39,266,000 in 1995. This decrease was
attributable to the decline in the number of projects available in the
Construction Services marketplace.
Selling, general, and administrative expenses remained constant at
$4,742,000 for the first six months of 1996 as compared to $4,758,000 during the
same period of 1995.
Operating income decreased in 1996 to $430,000 compared to $1,868,000 in
1995. This decrease was due to lower Construction Services revenues and lower
margins on Manufacturing Services revenues.
Interest income increased to $306,000 in 1996 from $254,000 in 1995. This
increase was mainly due to higher rates of return and greater amount of capital.
Net income for the first six months of 1996 was $584,000 or $.08 per share
compared to $1,296,000 or $.18 per share in the same period of 1995. Net income
as a percent of revenues decreased to 1.7% in 1996 as compared to 3.3% in 1995.
28
<PAGE> 31
Construction Services
Construction Services revenues were $18,455,000 for the first six months as
compared to $28,474,000 for the same period in 1995. This decrease was
attributable to the decline in the number of projects available in the
marketplace. Construction Services revenues represented 55.1% of total revenues
in 1996 as compared to 72.5% of total revenues in 1995.
Cost of Construction Services revenues represented 88.4% of Construction
Services revenues in 1996 versus 88.1% in 1995.
Operating income in Construction Services decreased from $1,467,000 during
the first six months of 1995 to $137,000 in 1996. This decrease is due to the
loss of Construction Services revenues and lower gross margins on the work
performed during the first six months.
Manufacturing Services
Manufacturing Services revenues increased 39.2% for the first six months of
1996 to $15,023,000 as compared to $10,792,000 from the same period of 1995.
Manufacturing Services revenues represented 44.9% of total revenues in 1996 as
compared to 27.5% of total revenues in 1995. This increase was primarily the
result of the inclusion of operations from CPC.
Cost of Manufacturing Services revenues represented 79.8% of Manufacturing
Services revenues versus 69.9% in 1995. This increase was due to the inclusion
of CPC operations during the year. A majority of the products manufactured by
CPC (i.e. electrical metal-clad switchgear and power distribution systems) offer
a lower rate of margin as compared to other products manufactured in this
segment. In addition, increased competition in the marketplace resulted in lower
sales pricing by the Houston Products division.
Operating income decreased to $1,501,000 in 1996 from $2,165,000 in 1995
due to the lower rates of margin as a result of the competitive and economic
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, Chempower financed its working capital needs and acquisition of
CPC with cash from operations. Also, gross capital expenditures during the year
totaled $1,573,000 compared to $914,000 in 1994.
Working capital (current assets less current liabilities) at December 31,
1995 increased to $27,141,000 from $25,432,000 at December 31, 1994. The ratio
of current assets to current liabilities was 2.6 at the end of 1995 compared to
3.4 at the end of 1994. Chempower currently has a $10,000,000 line of credit
with First Merit First National Bank of Ohio. As of December 31, 1995, there
were no outstanding amounts against Chempower's credit facilities.
Working capital (current assets less current liabilities) at June 30, 1996
increased to $27,899,000 from $27,141,000 at December 31, 1995. The ratio of
current assets to current liabilities was 3.2 at the end of the second quarter
of 1996 compared to 2.6 at the end of 1995. As of June 30, 1996, there was no
borrowing against credit facilities available to Chempower.
Chempower's current cash, funds available under its credit facility, and
future cash flow from operations should be sufficient to meet capital
requirements and short-term working capital needs in 1996.
ACCOUNTING STANDARDS
Chempower follows the guidelines established by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employees' stock options. In October 1995,
the Financial Accounting Standards Board issued SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation," which established an alternative method
of expense recognition for stock-based compensation awards to employees based on
fair values. Chempower is currently
29
<PAGE> 32
evaluating the provisions of SFAS No. 123 and has not yet determined whether it
will adopt the statement for expense recognition purposes.
EVENTS, TRANSACTIONS, AND TRENDS
Chempower is experiencing a slow-down in Construction Services. This is
primarily the result of the electric utilities delaying maintenance outages as
the result of the impending deregulation in the electric power industry. The
limited number of projects available in the marketplace has caused strong
competition for lower profit margin work. Chempower expects this slow-down to
continue through the 1996 fiscal year and could have an adverse impact on
Construction Services.
Chempower continues to experience increased workers' compensation costs in
a number of the states in which Chempower operates its Construction Services.
Chempower closely monitors these costs and adjusts its pricing accordingly.
However, an inability to pass these increases on could have an adverse affect on
Chempower's Construction Services.
30
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Chempower, Inc.
Akron, Ohio
We have audited the accompanying consolidated balance sheets of Chempower,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chempower,
Inc. and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
March 1, 1996
<PAGE> 34
CONSOLIDATED FINANCIAL STATEMENTS
CHEMPOWER, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................ $ 78,684 $ 64,329 $ 69,553
Cost of revenues.................................... 66,740 56,569 60,531
---------- ---------- ----------
Gross profit........................................ 11,944 7,760 9,022
Selling, general and administrative expenses........ 8,925 7,080 6,259
---------- ---------- ----------
Operating income.................................... 3,019 680 2,763
Interest income..................................... 538 432 328
---------- ---------- ----------
Income before income taxes.......................... 3,557 1,112 3,091
Income taxes........................................ 1,310 330 1,289
---------- ---------- ----------
Net income.......................................... $ 2,247 $ 782 $ 1,802
========= ========= =========
Earnings per common and common equivalent share:.... $ .30 $ .11 $ .25
========= ========= =========
Weighted-average number of common and common
equivalent shares outstanding..................... 7,402,502 7,425,998 7,309,002
========= ========= =========
</TABLE>
See Notes To Financial Statements
32
<PAGE> 35
CHEMPOWER, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................................... $11,603 $11,864
Marketable securities......................................... 1,084 --
Trade receivables............................................. 22,022 18,895
Contracts in progress......................................... 4,608 925
Inventories................................................... 4,058 3,867
Other current assets.......................................... 385 471
------- -------
Total current assets..................................... 43,760 36,022
PROPERTY and EQUIPMENT, at depreciated cost..................... 6,865 6,527
INTANGIBLE ASSETS............................................... 623 596
OTHER ASSETS.................................................... 3,322 1,037
------- -------
$54,570 $44,182
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables................................................ $ 4,688 $ 3,125
Contracts in progress......................................... 1,465 1,120
Payroll related accruals...................................... 7,740 5,310
Income taxes payable.......................................... 330 243
Other current liabilities..................................... 2,396 792
------- -------
Total current liabilities................................ 16,619 10,590
DEFERRED CREDIT, EXCESS OF ACQUIRED INTEREST OVER COST.......... 986 --
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock -- par value $.10 per share;
Authorized -- 15,000,000 shares
Issued -- 7,756,121 shares in 1995 and 7,412,571 shares in
1994..................................................... 776 741
Additional paid-in capital.................................... 20,334 19,463
Retained earnings............................................. 16,465 14,218
Treasury stock, at cost, 191,008 shares in 1995 and 103,317
shares in 1994............................................. (610) (410)
Common stock subject to repurchase............................ -- (420)
------- -------
Total shareholders' equity............................... 36,965 33,592
------- -------
$54,570 $44,182
======= =======
</TABLE>
See Notes To Financial Statements
33
<PAGE> 36
CHEMPOWER, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
ADDITIONAL STOCK
COMMON PAID-IN RETAINED TREASURY SUBJECT TO
STOCK CAPITAL EARNINGS STOCK REPURCHASE
------ ---------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992........... $723 $ 18,904 $11,634 $ 79 $ --
Net Income........................... -- -- 1,802 -- --
Options exercised for 23,200 shares
of common stock.................... 3 49 -- -- --
Agreement to repurchase common stock
and options........................ -- -- -- -- 820
Purchase of 50,000 shares of common
stock for the treasury............. -- -- -- 200 (200)
Transfer of 11,852 shares from
treasury to the Employee Stock
Ownership Plan..................... -- -- -- (40) --
------ ---------- --------- -------- ----------
BALANCE, December 31, 1993........... 726 18,953 13,436 239 620
Net Income........................... -- -- 782 -- --
Options exercised for 56,250 shares
of common stock.................... 5 134 -- -- --
Common stock issued in connection
with purchase of new division...... 10 365 -- -- --
Purchase of 50,000 shares of common
stock for the treasury............. -- -- -- 200 (200)
Transfer of 11,035 shares from
treasury to the Employee Stock
Ownership Plan..................... -- 11 -- (29) --
------ ---------- --------- -------- ----------
BALANCE, December 31, 1994........... 741 19,463 14,218 410 420
Net Income........................... -- -- 2,247 -- --
Options exercised for 343,550 shares
of common stock.................... 35 871 -- -- --
Purchase of 87,691 shares of common
stock for the treasury............. -- -- -- 200 (420)
------ ---------- --------- -------- ----------
BALANCE, December 31, 1995........... $776 $ 20,334 $16,465 $610 $ --
======== ========= ======== ======== ==========
</TABLE>
See Notes To Financial Statements
34
<PAGE> 37
CHEMPOWER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 2,247 $ 782 $ 1,802
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,007 1,168 1,056
Other.................................................. -- (178) (42)
Change in assets and liabilities net of effects of
business acquisitions:
Decrease (increase):
Trade receivables................................. 2,053 (676) (1,379)
Contracts in progress............................. 1,815 (925) 978
Inventories and other............................. 1,353 (979) 150
Increase (decrease):
Trade payables.................................... (2,019) 941 (120)
Contracts in progress............................. (1,801) 412 708
Accrued expenses and other........................ 2,339 1,227 1,637
------- ------- -------
Net cash provided by operating activities......... 6,994 1,772 4,790
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities...................... (1,084) -- --
Proceeds from sale of short-term investments........... -- -- 3,267
Purchase of property and equipment..................... (1,573) (914) (809)
Business acquisitions.................................. (4,796) (2,376) --
Other.................................................. (508) 326 (10)
------- ------- -------
Net cash provided by (required for) investing
activities..................................... (7,961) (2,964) 2,448
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock................. 906 139 52
Purchase of treasury stock............................. (200) (200) (200)
------- ------- -------
Net cash provided by (required for) financing
activities..................................... 706 (61) (148)
------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................... (261) (1,253) 7,090
CASH AND CASH EQUIVALENTS at beginning of year........... 11,864 13,117 6,027
------- ------- -------
CASH AND CASH EQUIVALENTS at end of year................. $11,603 $11,864 $13,117
======= ======= =======
</TABLE>
See Notes To Financial Statements
35
<PAGE> 38
CHEMPOWER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, USE OF ESTIMATES AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of business:
Chempower's Construction Services segment provides contracting and material
distribution primarily to industrial customers. The Manufacturing Services
segment manufactures and fabricates products for a variety of industrial
customers. Chempower provides its services and products to customers throughout
the United States, generally on terms of 30 days.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of Chempower and
its wholly-owned subsidiaries, Hunter Insulation, Inc., Global Power Company,
Southwick Corp. and Brookfield Corp. In 1995 Southwick Corp. and Brookfield
Corp. were formed for the purpose of acquiring all the partnership interests of
Controlled Power Limited Partnership. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents:
Chempower has cash on deposit with financial institutions which, at times,
may be in excess of FDIC insurance limits. Chempower considers all highly liquid
investments with an original maturity of ninety days or less when purchased to
be cash equivalents. Cash equivalents consist primarily of money market funds.
Marketable securities:
Chempower has classified all investment securities as available-for-sale.
At December 31, 1995, the fair market value of marketable securities
approximated their carrying cost.
Revenue and cost recognition:
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of contract costs
incurred to date to estimated total contract costs for each contract. This
method is used because management considers expended costs to be the best
available measure of progress on these contracts. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and estimated
profitability are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenue when realization is probable and the amount can be reliably
estimated. A portion of contract revenue relates to time and material contracts.
These contracts are generally billed weekly for work performed and are treated
as completed contracts at each billing.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of asbestos abatement supplies, specialized
products, and insulation materials purchased for resale.
36
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and Amortization:
Depreciation of property and equipment is computed by the straight-line
method over the estimated useful lives. Generally, useful lives are 20-39 years
for buildings and leasehold improvements, 3-10 years for machinery and equipment
and 5-7 years for transportation equipment and furniture and fixtures.
Amortization of intangible assets is being computed by the straight-line
method using periods of 30-40 years. Amortization of the fair value of the
partnership over the purchase price (negative goodwill) is amortized over a
period of 3 years.
Earnings per Common and Common Equivalent Share:
Earnings per common and common equivalent share have been computed based on
the weighted-average number of shares and common equivalent shares outstanding.
For purposes of this computation, stock options are common equivalent shares.
NOTE 2. CONTRACTS IN PROGRESS AND TRADE RECEIVABLES
Comparative information with respect to fixed-price contracts in progress
at December 31, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Costs incurred on uncompleted contracts......................... $68,335 $19,559
Estimated earnings.............................................. 5,906 2,092
Estimated losses................................................ -- (3,314)
------- -------
74,241 18,337
Less billings to date........................................... 71,098 18,532
------- -------
$ 3,143 $ (195)
======= =======
Included in the accompanying balance sheets under Contracts in
Progress:
Costs and estimated earnings in excess of related billings on
uncompleted contracts...................................... $ 4,608 $ 925
Billings in excess of related costs and estimated earnings on
uncompleted contracts and provision for estimated losses on
contracts.................................................. $(1,465) $(1,120)
------- -------
$ 3,143 $ (195)
======= =======
</TABLE>
As part of Chempower's percentage-of-completion method, Chempower evaluates
the completion of its contracts in progress and projects the estimated costs to
complete each contract. It is common in the industry to experience differences
between estimated costs and actual costs incurred upon completion of the
contracts and to be reimbursed for additional costs incurred.
Trade receivables include amounts aggregating $1,344,000 and $920,000 at
December 31, 1995 and 1994, respectively, billed under the retainage provisions
of construction contracts. Based on Chempower's experience with similar
contracts, the balances are expected to be collected in the subsequent fiscal
year. Included in other assets at December 31, 1995 is a retainage of $1,881,000
which Chempower does not expect to be collected within the year. Trade
receivables in the accompanying balance sheets at December 31, 1995 and 1994 are
stated net of an allowance for doubtful accounts of $529,000 and $79,000
respectively.
37
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. PROPERTY AND EQUIPMENT
The composition of property and equipment, stated at cost, at December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land............................................................ $ 263 $ 259
Buildings....................................................... 2,115 1,911
Leasehold improvements.......................................... 553 473
Machinery....................................................... 7,940 7,034
Transportation equipment........................................ 1,876 1,788
Furniture and fixtures.......................................... 891 952
------- -------
13,638 12,417
Less accumulated depreciation................................... 6,773 5,890
------- -------
$ 6,865 $ 6,527
======= =======
</TABLE>
NOTE 4. BORROWING CAPACITY
The terms of an unsecured line of credit agreement with a bank permit
Chempower to borrow a maximum of $10,000,000, none of which was outstanding at
December 31, 1995. Any borrowings under this agreement, which expires in May
1996, bear interest at the Eurodollar rate (5.7% at December 31, 1995) plus 1%.
NOTE 5. INCOME TAX MATTERS
Deferred taxes are provided on a liability method whereby deferred income
tax assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
The composition of the deferred tax assets and liabilities, which are
included in income taxes payable, at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Bad debt allowance............................................ 217 32
Accrued expenses.............................................. 1,148 157
Other......................................................... 11 20
------- -------
1,376 209
------- -------
Gross deferred tax liabilities:
Depreciation.................................................. $ (518) $ (452)
Partnership basis differences................................. (669) --
------- -------
(1,187) (452)
------- -------
Net deferred tax assets (liabilities)........................... $ 189 $ (243)
======= =======
</TABLE>
38
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax expense for the years ended December 31, 1995,
1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $1,442 $ 409 $ 933
State............................................. 300 98 311
------ ------ ------
1,742 507 1,244
------ ------ ------
Deferred:
Federal........................................... (357) (147) 34
State............................................. (75) (30) 11
------ ------ ------
(432) (177) 45
------ ------ ------
$1,310 $ 330 $1,289
====== ====== ======
</TABLE>
A reconciliation of the effective income tax rate with the statutory
federal income tax rate for the years ended December 31, 1995, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate............................... 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit...... 7.0 8.5 8.5
Non-taxable interest income......................... (4.2) (12.8) (2.7)
Other............................................... -- -- 1.9
---- ---- ----
36.8% 29.7% 41.7%
==== ==== ====
</TABLE>
NOTE 6. EMPLOYEE BENEFIT PLANS
Chempower makes contributions along with many other employers to
defined-contribution union-sponsored pension plans. At December 31, 1995,
approximately 65% of Chempower's employees were covered by these plans. The
Employee Retirement Income Security Act of 1974, as amended in 1980, imposes
certain liabilities upon employers who are contributors to a multi-employer
pension plan in the event of such employers' withdrawal from, or upon a
termination of such a plan. The share of the plans' unfunded vested liabilities
allocable to Chempower, and for which it may be contingently liable, is not
ascertainable at this time.
Chempower's contributions to union-sponsored employee benefit plans which
are based on varying rates for the hours worked by the employees, including the
pension plans mentioned above, totaled approximately $7,098,000, $6,448,000, and
$8,112,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Chempower has a qualified Employee Stock Ownership Plan for non-union
employees under which shares of common stock are allocated to participant
employees on an annual basis, based on a determination of the Board of
Directors. The total expense for contributions to the plan for each of the years
ended December 31, 1994 and 1993 was $40,000. No contribution was made for the
year ended December 31, 1995.
During the year ended December 31, 1994, Chempower adopted a qualified
profit-sharing plan, more commonly known as a 401(k) plan, for non-union
employees. The plan provides for matching contributions by Chempower as defined
in the agreement and in addition, provides for discretionary contributions
annually as determined by the Board of Directors.
Prior to the acquisition of Controlled Power Limited Partnership, the
partnership had an active defined-benefit pension plan which covered
substantially all of its employees. In connection with the acquisition,
Chempower curtailed the benefits of the plan and accrued a termination liability
for the unfunded amount of
39
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the plan. In 1996, Chempower intends to complete the termination of the plan by
allowing employees to transfer benefits to existing retirement plans or
purchasing annuities to completely settle the obligations.
NOTE 7. COMPENSATION PLANS AND AGREEMENTS
Chempower maintains a 1991 Incentive/Non-qualified Stock Option Plan.
Chempower has reserved a total of 600,000 shares for issuance to the plan. All
options are granted at the fair market value of the stock on the date of grant.
Through December 31, 1995, 596,000 options had been granted at prices of $2.88
to $3.88 per share and become exercisable at various dates through December
1997. Chempower also maintained a 1989 Stock Option Plan which expired during
the year ended December 31, 1995.
A summary of the stock option plans are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year...................... 820,550 855,800 752,000
Granted............................................. 163,000 31,000 127,000
Cancelled during the year........................... (60,000) (10,000) --
Exercised during the year........................... (343,550) (56,250) (23,200)
-------- ------- -------
Outstanding, end of year............................ 580,000 820,550 855,800
======== ======= =======
</TABLE>
At December 31, 1995, there were 285,000 exercisable options outstanding,
and 4,000 shares available for future grants.
Chempower follows the guidelines established by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employees' stock options. In October 1995,
the Financial Accounting Standards Board issued SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation," which established an alternative method
of expense recognition for stock-based compensation awards to employees based on
fair values. Chempower is currently evaluating the provisions of SFAS No. 123
and has not yet determined whether it will adopt the statement for expense
recognition purposes.
NOTE 8. BUSINESS ACQUISITIONS
In May, 1995, Chempower acquired all the partnership units of Controlled
Power Limited Partnership, an Illinois partnership, specializing in designing,
manufacturing, and selling electrical metal-clad switchgear, power distribution
systems, and bus duct systems. The total purchase price was $5,400,000. The
excess of the fair value of net assets over acquisition cost (negative goodwill)
is being amortized over 3 years by the straight-line method.
In April, 1994, certain assets of Global Power Company were purchased.
Pursuant to the terms of the acquisition agreement, Chempower made a cash
payment of $1,718,000 to the seller at closing. The assets purchased consisted
primarily of real estate, inventories, and equipment used in the insulation
contracting services and products fabrication businesses.
In March, 1994, Chempower acquired for cash and common stock, the assets of
Owens Precision Fabricators, a Nevada corporation, specializing in the
fabrication of metal products and components. The total acquisition cost of this
division was $1,097,000. The excess of the total acquisition cost over the fair
value of the net assets acquired of approximately $250,000 is being amortized
over 40 years by the straight-line method.
These acquisitions have been accounted for as purchases. Results of
operations since the acquisition dates are included in the consolidated
financial statements.
40
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma consolidated results of operations for the years ended
December 31, 1995 and 1994 as though Controlled Power Limited Partnership had
been acquired as of January 1, 1994 are as follows: (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Sales........................................................... $86,026 $104,829
Net income (loss)............................................... 2,155 (3,797)
Earnings (loss) per common and common equivalent share.......... 0.29 (0.51)
</TABLE>
The above amounts reflect adjustments to eliminate historical depreciation
and amortization expense on long-term assets acquired, for interest expense on
the prior partnership units which were converted to equity, and to provide an
income tax benefit for the pro forma loss.
NOTE 9. CASH FLOWS INFORMATION
Cash payments for income taxes, net of refunds, for the years ended
December 31, 1995, 1994, and 1993 were $1,163,000, $1,812,000, and $442,000,
respectively.
The changes in assets and liabilities are stated net of the effects of the
business acquisitions and the business acquisitions are stated net of cash
acquired.
Supplemental disclosures of non-cash investing and financing activities
during the year ended December 31, 1993 was the agreement to repurchase common
stock and options for $820,000. During 1995, Chempower entered into a mutual
release and settlement agreement relating to this prior agreement, resulting in
a $220,000 forgiveness of debt.
NOTE 10. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Chempower self-insures for workman's compensation in certain states.
Provisions for losses under these programs are recorded based upon Chempower's
estimates of the aggregate liability for claims incurred. Chempower was required
in one state to fund an interest bearing deposit of $1.4 million, which has been
included in other assets.
Chempower leases certain of its facilities from affiliated parties under
agreements which expire on December 31, 1997 and leases a warehouse and
manufacturing facility under a noncancellable agreement which expires on August
31, 1998. These leases require annual rentals of $480,000 plus the payment of
operating expenses. The total minimum rental commitment at December 31, 1995
under the leases is $1,069,000, which is due as follows: 1996 $483,000; 1997
$480,000; and 1998 $106,000.
The total rental expense for the years ended December 31, 1995, 1994 and
1993 was $475,000, $453,000 and $304,000, respectively, of which $321,000,
$299,000 and $304,000 respectively, was paid to affiliates.
41
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
Chempower operates in two segments: (1) Construction Services, and (2)
Manufacturing Services. During the year ended December 31, 1995, Chempower
changed the definition of its business segments to reflect its recent
acquisitions and future focus towards Manufacturing Services. Amounts for 1994
and 1993 have been restated to be consistent with those reported in 1995. The
following is a summary of selected data for these business segments: (Dollars in
thousands)
CONSTRUCTION MANUFACTURING
<TABLE>
<CAPTION>
SERVICES SERVICES CORPORATE ELIMINATIONS TOTAL
------- ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
1995 --
Revenues from unaffiliated
entities........................... $51,572 $27,112 $ -- $ -- $78,684
Inter-segment revenues............... 1,279 1,526 -- (2,805) --
------- ------- --------- ------------ -------
Total revenues....................... $52,851 $28,638 $ -- $ (2,805) $78,684
======= ======= ========= =========== =======
Operating income (loss).............. $ 1,640 $ 4,049 $(2,670) $ -- $ 3,019
Total assets......................... 21,206 18,752 14,612 -- 54,570
Capital expenditures................. 331 1,180 62 -- 1,573
Depreciation and amortization........ 900 90 17 -- 1,007
1994 --
Revenues from unaffiliated
entities........................... $53,718 $10,611 $ -- $ -- $64,329
Inter-segment revenues............... 14 1,628 -- (1,642) --
------- ------- --------- ------------ -------
Total revenues....................... $53,732 $12,239 $ -- $ (1,642) $64,329
======= ======= ========= =========== =======
Operating income (loss).............. $ 874 $ 2,434 $(2,628) $ -- $ 680
Total assets......................... 22,014 8,318 13,850 -- 44,182
Capital expenditures................. 711 152 51 -- 914
Depreciation and amortization........ 913 224 31 -- 1,168
1993 --
Revenues from unaffiliated
entities........................... $63,349 $ 6,204 $ -- $ -- $69,553
Inter-segment revenues............... 77 664 -- (741) --
------- ------- --------- ------------ -------
Total revenues....................... $63,426 $ 6,868 $ -- $ (741) $69,553
======= ======= ========= =========== =======
Operating income (loss).............. $ 3,537 $ 1,811 $(2,585) $ -- $ 2,763
Total assets......................... 20,780 4,511 15,205 -- 40,496
Capital expenditures................. 312 404 93 -- 809
Depreciation and amortization........ 822 208 26 -- 1,056
</TABLE>
Major Customers:
Chempower had no major customers (those that account for more than 10% of
revenues) during 1995. During 1994, Chempower had two major customers. One of
these customers accounted for 16.3% of Chempower's 1994 revenues, while the
other accounted for 13.7% of 1994 revenues. For 1993, four customers accounted
for 20.5%, 15.6%, 13.2% and 12.2% of total revenues for that year.
The trade receivable balance associated with the major customers mentioned
above, as of December 31, 1994 and 1993, totaled approximately $4,300,000 and
$9,800,000, respectively.
42
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. SELECTED UNAUDITED QUARTERLY INFORMATION
Presented below is certain selected unaudited quarterly financial
information for 1995, 1994 and 1993: (Dollars in thousands, except per share
data)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
SEPT.
MARCH 31 JUNE 30 30 DEC. 31
--------- ------- ------- -------
<S> <C> <C> <C> <C>
1995 --
Revenues....................................... $19,039 $20,227 $16,430 $22,988
Gross Profit................................... 2,351 4,275 2,532 2,786
Net income..................................... 262 1,034 308 643
Earnings per share............................. $ .04 $ .14 $ .04 $ .08
1994 --
Revenues....................................... $ 9,279 $18,572 $13,331 $23,147
Gross Profit................................... 1,485 3,262 2,068 945
Net income..................................... 49 877 237 (382)
Earnings per share............................. $ .01 $ .12 $ .03 $ (.05)*
</TABLE>
- - - ---------------
* Includes a loss, net of tax, of $1.9 million ($.26 per share) resulting from a
cost overrun on a major contract.
43
<PAGE> 46
CHEMPOWER, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
--------- -----------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $12,351 $11,603
Marketable securities..................................... 4,241 1,084
Trade receivables, less allowances........................ 14,075 22,022
Contracts in progress..................................... 4,022 4,608
Inventories............................................... 4,096 4,058
Other current assets...................................... 2,003 385
--------- -----------
TOTAL CURRENT ASSETS................................. 40,788 43,760
PROPERTY, PLANT & EQUIPMENT, at cost........................ 13,058 13,638
Less: accumulated depreciation............................ 6,469 6,773
--------- -----------
NET PROPERTY, PLANT & EQUIPMENT............................. 6,589 6,865
INTANGIBLE ASSETS........................................... 616 623
OTHER ASSETS................................................ 3,281 3,322
--------- -----------
$51,274 $54,570
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables............................................ $ 3,954 $ 4,688
Contracts in progress..................................... 695 1,465
Payroll related accruals.................................. 6,223 7,740
Other current liabilities................................. 2,017 2,726
--------- -----------
TOTAL CURRENT LIABILITIES............................ 12,889 16,619
DEFERRED CREDIT, EXCESS OF ACQUIRED INTEREST OVER COST...... 751 986
SHAREHOLDERS' EQUITY
Common stock -- par value $.10 per share:
Authorized -- 15,000,000 shares
Issued -- 7,756,121 shares at June 30 and December 31.. 776 776
Additional paid-in capital................................ 20,334 20,334
Unrealized gains (losses) on marketable securities........ 85 --
Retained earnings......................................... 17,049 16,465
Treasury stock, at cost, 191,008 shares at June 30 and
December 31............................................ (610) (610)
--------- -----------
TOTAL SHAREHOLDERS' EQUITY........................... 37,634 36,965
--------- -----------
$51,274 $54,570
========= ============
</TABLE>
See Notes To Condensed Financial Statements
44
<PAGE> 47
CHEMPOWER, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues..................................... $ 16,488 $ 20,227 $ 33,478 $ 39,266
Cost of revenues............................. 13,571 15,952 28,306 32,640
--------- --------- --------- ---------
Gross profit.......................... 2,917 4,275 5,172 6,626
Selling, general and administrative
expenses................................... 2,556 2,674 4,742 4,758
--------- --------- --------- ---------
Operating income...................... 361 1,601 430 1,868
Financial income............................. 178 118 306 254
--------- --------- --------- ---------
Income before taxes................... 539 1,719 736 2,122
Income taxes................................. 153 685 152 826
--------- --------- --------- ---------
Net income............................ $ 386 $ 1,034 $ 584 $ 1,296
======== ======== ======== ========
Net income per Common Share.................. $ .05 $ .14 $ .08 $ .18
======== ======== ======== ========
Weighted average number of shares
outstanding................................ 7,686,920 7,314,021 7,665,036 7,346,458
======== ======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements
45
<PAGE> 48
CHEMPOWER, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------
1996 1995
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES............................ $ 3,999 $ 5,727
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment........... 455 9
Purchase of property, plant and equipment..................... (732) (970)
Purchase of marketable securities............................. (3,527) --
Sale of marketable securities................................. 553 --
Acquisition of businesses, net of working capital acquired.... -- (4,543)
------- -------
Net cash used for investing activities..................... (3,251) (5,504)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........................ -- 12
Purchase of treasury stock.................................... -- (200)
------- -------
Net cash used for financing activities..................... -- (188)
------- -------
Net increase in cash and cash equivalents.................. 748 35
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ 11,603 11,864
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $12,351 $11,899
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE
Income taxes paid (net of refunds)............................ $ 888 $ 250
======= =======
</TABLE>
See Notes To Condensed Financial Statements
46
<PAGE> 49
CHEMPOWER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial statements
reflect all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation. Operating results for the six month period
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year of 1996. For further information, refer to the
financial statements and footnotes thereto included in Chempower's Annual Report
and Form 10-K as of December 31, 1995.
NOTE B -- ACQUISITION
On May 3, 1995, Chempower through its wholly-owned subsidiaries, Southwick
Corp. and Brookfield Corp., purchased all of the issued and outstanding
partnership units of Controlled Power Limited Partnership ("CPC").
Pro forma consolidated information assuming ownership of CPC as of January
1, 1995 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
SIX MONTHS ENDED ENDED
JUNE 30 JUNE 30
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................................ $33,478 $47,198 $16,488 $21,763
Net Income (Loss)....................................... 584 (16) 386 660
Net Income (Loss)
per Common Share...................................... $ .08 $ (.00) $ .05 $ .09
</TABLE>
The pro forma information does not purport to be indicative of results
which would actually have been obtained if the combination had been in effect
for the periods indicated or which may be obtained in the future.
47
<PAGE> 50
NOTE C -- CONTRACTS IN PROGRESS
Comparative information for fixed-price contracts in progress at June 30,
1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Costs incurred on uncompleted contracts........................... $66,027 $68,335
Estimated earnings................................................ 4,995 5,906
------- -----------
$71,022 74,241
Less billings to date............................................. 67,695 71,098
------- -----------
$ 3,327 $ 3,143
======= ============
Included in the accompanying balance sheets under contracts in
progress:
Costs and estimated earnings in excess of related billings on
uncompleted contracts........................................... $ 4,022 $ 4,608
Billings in excess of related costs and estimated earnings on
uncompleted contracts and provision for estimated losses on
contracts....................................................... (695) (1,465)
------- -----------
$ 3,327 $ 3,143
======= ============
</TABLE>
June 30, 1996 amounts include the operations of CPC. Costs incurred on
uncompleted contracts, estimated earnings, and billings to date for CPC at June
30, 1996 were $64,762,000, $4,716,000 and $66,289,000, respectively.
NOTE D -- CASH AND CASH EQUIVALENTS
Chempower considers all highly liquid investments with an original maturity
of 90 days or less when purchased to be cash equivalents. Cash equivalents
consist primarily of money market funds.
NOTE E -- MARKETABLE SECURITIES
Chempower has designated its investments in marketable securities as
available-for-sale. Those securities are reported at fair value, with net
unrealized gains and losses included in equity, net of applicable taxes.
Unrealized losses that are other than temporary are recognized in earnings. The
following is a summary of marketable securities held at June 30, 1996 (Dollars
in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------ ---------- ---------- ----------
<S><C> <C> <C> <C>
$4,099 $236 $ 94 $4,241
</TABLE>
Realized gains and losses on sales of marketable securities for the quarter
totaled $61,000 and $0 respectively.
NOTE F -- NET INCOME PER COMMON SHARE
The net income per common share amounts have been computed by dividing net
income by the weighted average number of shares (common and common equivalent)
outstanding. For purposes of this computation, stock options are common
equivalent shares.
48
<PAGE> 51
APPENDIX A
September 3, 1996
Board of Directors
Chempower, Inc.
807 East Turkeyfoot Lake Road
Akron, Ohio 44319
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Common Stock, $.10 par value
(the "Common Stock"), of Chempower, Inc., a Delaware corporation (the
"Company"), of the cash consideration to be received by such holders pursuant to
the Agreement of Merger (the "Merger Agreement"), between American Eco, Inc., a
Delaware corporation ("Eco"), and the Company. The Merger Agreement provides
that each holder of Common Stock would receive an amount equal to $6.20 in cash
for each share of Common Stock.
McDonald & Company Securities, Inc. ("McDonald"), as part of its investment
banking business, is customarily engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, tender offers,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
In connection with rendering this opinion, McDonald has reviewed and analyzed,
among other things, the following: (i) the Merger Agreement; (ii) the Annual
Reports to shareholders and Annual Reports on Form 10-K of Chempower for the
five fiscal years ended December 31, 1995; (iii) certain interim reports to
shareholders and Quarterly Reports on Form 10-Q; (iv) certain other
communications from the Company to its shareholders; and (v) certain internal
financial analyses and forecasts for the Company prepared by its management.
McDonald also held discussions with members of the senior management regarding
its past and current business operations, financial condition and future
prospects. In addition, McDonald reviewed the reported price and trading
activity for the shares of the Common Stock, compared certain financial and
stock market information for the Company with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the construction and
engineering services industries specifically and in other industries generally.
McDonald also performed such other studies and analyses as it considered
appropriate. McDonald was not requested to and did not solicit interest from
other parties in a potential business combination with the Company.
Our opinion does not address, and we express no opinion with respect to, any
consideration or other value that may be exchanged, paid or transferred to the
Company or certain of its stockholders by Eco in connection with the Merger
Agreement other than the $6.20 cash per share. Our opinion also does not address
the relative merits of the transaction described in the Merger Agreement as
compared to any other alternative business transaction that might be available
to the Company.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the statements of Eco and the Company in the Merger Agreement and the documents
relating thereto, and were not engaged to, nor have we independently attempted
to, verify any of such information. We have also relied upon the management of
the Company as to the reasonableness and achievability of the financial and
operating projections (and the assumptions and bases therefor) provided to us
and, with your consent, we have assumed that such projections reflect the best
currently available estimates and judgments of such management of the Company.
We express no view as to such projections or the assumptions on which they are
based. In addition, we were not engaged to, nor have we conducted, a physical
inspection or appraisal of any of the assets, properties or facilities of the
Company nor have we been furnished with any such evaluation or appraisal. It
should be noted that this opinion is based on economic and market conditions and
other circumstances existing on, and information made available as of, the date
hereof and does not address any matters subsequent to such date.
<PAGE> 52
This opinion has been prepared solely for the use of the Board of Directors of
the Company and shall not be reproduced, summarized, described or referred to or
given to any other person or otherwise made public without the prior written
consent of McDonald & Company Securities, Inc.; provided, however, that this
letter may be included as an exhibit to any proxy statement distributed in
connection with the merger as contemplated by the Merger Agreement.
In the ordinary course of our business, we may actively trade securities of both
the Company and Eco for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing and such other matters as we consider
relevant, it is our opinion that as of the date hereof, the cash consideration
to be received by the holders of the Common Stock pursuant to the Merger
Agreement is fair, from a financial point of view, to such holders.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
A-2
<PAGE> 53
APPENDIX B
SEC. 1701.85. PROCEDURE IN CASE OF DISSENTS.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not
<PAGE> 54
required to be submitted to the shareholders, was approved by the directors.
Other dissenting shareholders, within that three-month period, may join as
plaintiffs or may be joined as defendants in any such proceeding, and any two or
more such proceedings may be consolidated. The complaint shall contain a brief
statement of the facts, including the vote and the facts entitling the
dissenting shareholder to the relief demanded. No answer to such a complaint is
required. Upon the filing of such a complaint, the court, on motion of the
petitioner, shall enter an order fixing a date for a hearing on the complaint
and requiring that a copy of the complaint and a notice of the filing and of the
date for hearing be given to the respondent or defendant in the manner in which
summons is required to be served or substituted service is required to be made
in other cases. On the day fixed for hearing on the complaint or any adjournment
of it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505. of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or as fixed under this section
shall be paid within thirty days after the date of final determination of such
value under this division, the effective date of the amendment to the articles,
or the consummation of the other action involved, whichever occurs last. Upon
the occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only upon
and simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken, and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief [ ](73) and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them [terminate](74) if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
- - - ---------------
(73)Act contains a comma
(74)Act reads "terminates"
B-2
<PAGE> 55
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of [a]75 corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If[,]76 during the suspension, any dividend or distribution is paid
in money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
[that]77, except for the suspension, would have been payable upon such shares or
securities [ ]78 shall be paid to the holder of record as a credit upon the
fair cash value of the shares. If the right to receive fair cash value is
terminated other than by the purchase of the shares by the corporation, all
rights of the holder shall be restored and all distributions [that]79, except
for the suspension, would have been made shall be made to the holder of record
of the shares at the time of termination.
- - - ---------------
75Act reads "the"
76Omitted from Act
77Act reads "which"
78Act contains a comma
79Act reads "which"
B-3
<PAGE> 56
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
APPENDIX C
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AMERICAN ECO CORPORATION
SUB ACQUISITION CORP.
AND
CHEMPOWER, INC.
Dated as of September 10, 1996
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I
THE MERGER
Section 1.01. The Merger.............................................................. 1
Section 1.02. Effective Time.......................................................... 1
Section 1.03. Effect of the Merger.................................................... 1
Section 1.04. Articles of Incorporation; Code of Regulations.......................... 1
Section 1.05. Directors and Officers.................................................. 1
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. Conversion of Securities; Adjustment.................................... 1
Section 2.02. Conversion of Sub Common Stock.......................................... 2
Section 2.03. Exchange of Company Certificates and Cash............................... 2
Section 2.04. Stock Transfer Books.................................................... 3
Section 2.05. Company Options......................................................... 3
Section 2.06. Dissenting Shares....................................................... 3
Section 2.07. Closing................................................................. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Organization and Qualification.......................................... 4
Section 3.02. Capitalization.......................................................... 4
Section 3.03. Subsidiaries............................................................ 4
Section 3.04. Authorization........................................................... 4
Section 3.05. SEC Filings............................................................. 5
Section 3.06. No Conflicts............................................................ 5
Section 3.07. Consents and Approvals.................................................. 5
Section 3.08. Financial Statements.................................................... 6
Section 3.09. Absence of Certain Changes or Events.................................... 6
Section 3.10. No Undisclosed Material Liabilities..................................... 7
Section 3.11. Proxy Statement......................................................... 7
Section 3.12. Fairness Opinion........................................................ 7
Section 3.13. Brokers and Finders..................................................... 7
Section 3.14. Environmental Matters................................................... 7
Section 3.15. Litigation.............................................................. 8
Section 3.16. ERISA Compliance........................................................ 8
Section 3.17. Tax Matters............................................................. 9
Section 3.18. Change in Control Payments.............................................. 9
Section 3.19. Properties.............................................................. 10
Section 3.20. Intellectual Property................................................... 10
Section 3.21. Insurance Coverage...................................................... 10
Section 3.22. Inventory............................................................... 10
Section 3.23. Related Party Transactions.............................................. 11
Section 3.24. Contracts............................................................... 12
Section 3.25. Personnel............................................................... 12
Section 3.26. Compliance with Laws.................................................... 12
Section 3.27. Accounts Receivable..................................................... 12
Section 3.28. Books and Records....................................................... 12
Section 3.29. Board Recommendation.................................................... 12
Section 3.30. General Representation and Warranty..................................... 13
</TABLE>
(i)
<PAGE> 58
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 4.01. Organization and Power.................................................. 13
Section 4.02. Authorization........................................................... 13
Section 4.03. No Conflicts............................................................ 13
Section 4.04. Consents and Approvals.................................................. 13
Section 4.05. Proxy Statement......................................................... 13
Section 4.06. Financing............................................................... 14
Section 4.07. Brokers and Finders..................................................... 14
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.01. Conduct of Business Between Execution of this Agreement and the
Effective Time.......................................................... 14
Section 5.02. Mutual Covenants........................................................ 15
Section 5.03. Access to Information; Confidentiality.................................. 15
Section 5.04. Meeting of Shareholders................................................. 16
Section 5.05. Proxy Statement......................................................... 16
Section 5.06. Public or Shareholder Communications.................................... 16
Section 5.07. Additional Agreements................................................... 16
Section 5.08. Closing Conditions...................................................... 16
Section 5.09. Parent Shareholder Approval............................................. 16
Section 5.10. Director and Officer Liability.......................................... 17
Section 5.11. No Solicitation......................................................... 17
Section 5.12. Periodic Reports........................................................ 18
Section 5.13. Financing............................................................... 18
Section 5.14. Hart-Scott-Rodino Filing................................................ 18
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.01. Conditions to Each Party's Obligation to Effect the Merger.............. 18
Section 6.02. Additional Conditions to the Obligations of the Company................. 19
Section 6.03. Additional Conditions to the Obligations of Parent and Sub.............. 19
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination............................................................. 20
Section 7.02. Effect of Termination and Abandonment................................... 21
Section 7.03. Termination Payment..................................................... 21
Section 7.04. Amendment............................................................... 22
Section 7.05. Waiver.................................................................. 22
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Fees and Expenses....................................................... 22
Section 8.02. Survival of Representations and Warranties.............................. 22
Section 8.03. Notices................................................................. 22
Section 8.04. Construction............................................................ 23
Section 8.05. Exhibits, Schedules and Annexes......................................... 23
Section 8.06. Counterparts............................................................ 23
Section 8.07. Governing Law........................................................... 23
Section 8.08. Pronouns................................................................ 24
Section 8.09. Time Periods............................................................ 24
</TABLE>
(ii)
<PAGE> 59
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
Section 8.10. No Third Party Beneficiaries............................................ 24
Section 8.11. Enforcement of the Agreement............................................ 24
Section 8.12. Waiver of the Jury Trial................................................ 24
Section 8.13. Entire Agreement........................................................ 24
Section 8.14. Severability............................................................ 24
Section 8.15. Successors and Assigns.................................................. 24
</TABLE>
LIST OF SCHEDULES AND ANNEXES
<TABLE>
<S> <C>
SCHEDULES
3.01 Jurisdictions in Which Qualified
3.02 Capitalization
3.03 Subsidiaries
3.05 SEC Filings
3.06 No Conflicts
3.07 Consents and Approvals
3.09 Certain Changes or Events
3.14 Environmental Matters
3.15 Litigation
3.16 ERISA Compliance
3.17 Tax Matters
3.18 Change in Control Payments
3.19 Properties
3.20 Intellectual Property Matters
3.21 Insurance Policies
3.23 Certain Transactions
3.24 Contracts
3.25 Personnel
3.26 Permits
3.27 Accounts Receivable
5.01 Conduct of Business between Execution of Agreement and Effective Time
ANNEXES
Annex A Form of Opinion of Counsel to Parent and Sub
Annex B Employment Agreement with Toomas J. Kukk
Annex C Employment Agreement with Ernest M. Rochester
Annex D Form of Opinion of Counsel to the Company
Annex E Financing Commitment Letter
</TABLE>
(iii)
<PAGE> 60
AGREEMENT AND PLAN OF MERGER, dated as of September 10, 1996 ("Agreement"),
by and among AMERICAN ECO CORPORATION, an Ontario, Canada corporation
("Parent"), SUB ACQUISITION CORP., an Ohio corporation and a wholly owned
subsidiary of Parent ("Sub"), and CHEMPOWER, INC., an Ohio corporation (the
"Company").
WHEREAS, the parties hereto desire to merge Sub with and into the Company
(the "Merger"), whereupon the Company will become a wholly owned subsidiary of
Parent; and
WHEREAS, the Board of Directors of each of Parent, Sub and the Company
deems the Merger to be in the best interests of each of Parent, Sub, the Company
and their respective shareholders;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. At the Effective Time (as defined in Section
1.02), upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Ohio General Corporation Law (the "Ohio Act"), Sub
shall be merged with and into the Company, whereupon the Company will become a
wholly owned subsidiary of Parent. As a result of the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation"). The name of
the Surviving Corporation shall, by virtue of the Merger, remain "Chempower,
Inc."
Section 1.02. Effective Time. As promptly as reasonably practicable after
the satisfaction or, if permissible hereunder, waiver of all conditions set
forth in Article VI, the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Ohio, in such form as required by, and
executed in accordance with the relevant provisions of the Ohio Act (the time of
such filing being the "Effective Time").
Section 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the Ohio Act.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all of the property,
rights, privileges, powers and franchises of Sub and the Company shall vest in
the Surviving Corporation, and all of the debts, liabilities and duties of Sub
and the Company shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.04. Articles of Incorporation; Code of Regulations. The Articles
of Incorporation and Code of Regulations of the Company as in effect immediately
prior to the Effective Time shall be the Articles of Incorporation and Code of
Regulations of the Surviving Corporation, unless and until duly amended, altered
or repealed.
Section 1.05. Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall become the directors and officers
of the Surviving Corporation at the Effective Time, each to hold office in
accordance with the Articles of Incorporation and Code of Regulations of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. Conversion of Securities; Adjustment.
(a) Each share of common stock, $0.10 par value, of the Company (the
"Shares") issued and outstanding immediately prior to the Effective Time, other
than Shares owned by Parent, Sub or any other wholly owned subsidiary of Parent
or held in the treasury of the Company, all of which shall be canceled
1
<PAGE> 61
(collectively, the "Canceled Shares"), and Shares held by Dissenting
Shareholders (as defined in Section 2.06 hereof) (collectively, the "Dissenting
Shares"), shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive $6.20 net to the
holder in cash (the "Merger Consideration"), payable to the holder thereof,
without interest thereon, upon the surrender of the certificate representing
such Share.
(b) If between the date of this Agreement and the Effective Time the
outstanding Shares shall have been changed into a different number of Shares or
a different class by reason of a stock dividend, subdivision, reclassification,
recapitalization, split-up or combination, the Merger Consideration shall be
appropriately adjusted.
Section 2.02. Conversion of Sub Common Stock. Each share of common stock,
par value $0.10 per share, of Sub issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchangeable for one (1) share
of common stock of the Surviving Corporation and each certificate evidencing
ownership of any shares of capital stock of Sub shall evidence ownership of the
same number of shares of common stock of the Surviving Corporation.
Section 2.03. Exchange of Company Certificates and Cash.
(a) Deposit of Merger Consideration. As of the Effective Time, Parent or
Sub shall deposit, or cause to be deposited, with or for the account of an
exchange agent (the "Exchange Agent") selected by Parent prior to the Effective
Time, for the benefit of the holders of the Shares (other than Canceled Shares
and Dissenting Shares), for exchange in accordance with this Article II, through
the Exchange Agent, cash in the aggregate amount required to be exchanged for
the Shares (other than Canceled Shares and Dissenting Shares) pursuant to
Section 2.01 (the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the Exchange Fund to holders of the Shares
(other than Canceled Shares and Dissenting Shares) in accordance with Section
2.01 hereof. The Exchange Fund shall not be used for any other purpose. Any
interest, dividends or other income earned on the investment of the Exchange
Fund while held by the Exchange Agent shall be for the account of Parent.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates"), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment in cash therefor. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor cash in an amount equal to the product of the number of
Shares represented by such Certificate multiplied by the Merger Consideration,
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of Shares which is not registered in the transfer
records of the Company, cash may be paid in accordance with this Article II to a
transferee if the Certificate evidencing such Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by all amounts required to pay applicable stock transfer taxes
or evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.03, each Certificate shall
represent for all purposes after the Effective Time only the right to receive
upon such surrender the Merger Consideration in cash multiplied by the number of
Shares evidenced by such Certificate, without any interest thereon or, in the
case of Dissenting Shares, such consideration as may be determined to be due
under the Ohio Act; and all other rights of such holder as a shareholder of the
Company shall cease at the Effective Time, except as otherwise required by the
Ohio Act.
(c) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Shares for 180 days after the Effective
Time shall be delivered to Parent, upon demand, and any holders of Shares who
have not theretofore complied with this Article II shall thereafter look only to
Parent
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for payment of their claim for the Merger Consideration to which they are
entitled pursuant to this Agreement. Neither Parent nor the Company shall be
liable to any holder of the Shares for any cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(d) Withholding Rights. Parent shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement to
any holder of Shares such amounts as Parent is required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding was made
by Parent.
(e) Lost Certificates. If any Certificate is lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen, or destroyed and, if required by the Surviving
Corporation the posting by such person of a bond in such reasonable amount as
Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will pay the cash payable
in respect of such Certificate pursuant to this Agreement.
Section 2.04. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of the Company. On
or after the Effective Time, any Certificates presented to the Exchange Agent,
the Surviving Corporation or Parent for any reason, other than Dissenting Shares
presented for endorsement in accordance with the Ohio Act, shall be canceled and
converted into the right to receive the Merger Consideration in cash multiplied
by the number of Shares evidenced by such Certificate.
Section 2.05. Company Options. At the Effective Time (and subject to the
effectiveness of the Merger), each option to purchase Shares, whether or not
exercisable, shall be canceled in consideration of the payment by the Company
out of funds provided by Parent, if necessary, to each holder thereof of an
amount in cash equal to the extent (if any) by which the Merger Consideration
exceeds the exercise price per share payable under such option, multiplied by
the number of Shares subject to such option. All incentive stock option plans
and non-qualified stock option plans maintained by the Company, and each option
issued under any of such plans, shall be amended, to the extent necessary, to
incorporate the terms of the preceding sentence and to delete any inconsistent
provisions thereof regarding the treatment of such options as a consequence of
the Merger. Parent shall be entitled to cause the Company to withhold from
amounts otherwise payable pursuant to this Section 2.05 any amount required to
be withheld under applicable tax laws.
Section 2.06. Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, any issued and outstanding Shares held by a person (a
"Dissenting Shareholder") who objects to the Merger and complies with all the
provisions of the Ohio Act concerning the right of shareholders of the Company
to dissent from the Merger and require the fair cash value of their Shares shall
not be converted as described in Section 2.01 hereof but shall become the right
to receive such consideration as may be determined to be due to such Dissenting
Shareholder pursuant to the Ohio Act. If after the Effective Time, such
Dissenting Shareholder withdraws his demand for the fair cash value of his
Shares or fails to perfect or otherwise loses his right to the fair cash value
of his Shares, in any case pursuant to the Ohio Act, his Shares shall be deemed
to be converted as of the Effective Time into the right to receive the Merger
Consideration, without interest. The Company shall give Parent (i) prompt notice
of any demands for the fair cash value of Shares received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate any such demands.
Section 2.07. Closing. The closing of the Merger will take place at 10:00
a.m. not later than the second business day after the day on which there shall
have been satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Thompson Hine & Flory P.L.L., 3900 Key Center, 127 Public Square,
Cleveland, Ohio, unless another date or place is agreed to in writing by the
parties hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.01. Organization and Qualification.
(a) Organization and Power. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio. The
Company has all requisite corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate its assets.
(b) Qualification. The Company is duly qualified or licensed to do business
as a foreign corporation in good standing in every jurisdiction where the
character of its properties, owned or leased, or the nature of its activities
make such qualification necessary, except where the failure to be so qualified
will not have an effect which is material and adverse to the business, financial
condition or results of operations of the Company and its Subsidiaries (as
hereinafter defined) taken as a whole other than an effect resulting from this
Agreement or the transactions contemplated hereby (a "Company Material Adverse
Effect"). Each of such jurisdictions is listed in Schedule 3.01 hereto.
(c) Articles of Incorporation and Code of Regulations. The Company has
heretofore delivered to Parent complete and correct copies of the Company's
Articles of Incorporation and Code of Regulations, each as currently in effect.
Section 3.02. Capitalization. The authorized capital stock of the Company,
together with a description of treasury securities and a description of all
securities issued and outstanding as of the date hereof is as set forth on
Schedule 3.02 attached hereto. All securities identified on Schedule 3.02 as
being issued and outstanding securities are validly issued, fully paid and
nonassessable. Except as set forth on Schedule 3.02, there is no outstanding
option, warrant, right, call, subscription or other agreement or commitment to
which the Company is a party which (a) obligates the Company to sell, pledge or
otherwise dispose of any shares of capital stock of the Company or any
securities convertible or exchangeable into, or other rights to acquire, any
shares of capital stock of the Company, (b) obligates the Company to make any
payments with respect to appreciation in shares of its capital stock, (c)
obligates the Company to grant, offer or enter into any of the foregoing, or (d)
relates to the voting, transfer or control of such capital stock, securities or
rights. Schedule 3.02 sets forth the exercise price of each stock option
currently outstanding.
Section 3.03. Subsidiaries. Each Subsidiary of the Company is listed on
Schedule 3.03 hereto. Except as set forth in Schedule 3.03, each such Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the corporate power to carry
on its business substantially as it is now being conducted. Each Subsidiary is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not have a Company Material Adverse Effect.
All of the outstanding shares of capital stock of each Subsidiary are validly
issued, fully paid and nonassessable and owned directly or indirectly by the
Company free and clear of all liens, claims or encumbrances and were not issued
in violation of any preemptive right. There are no existing options, calls or
commitments of any character relating to the issued or unissued capital stock of
any Subsidiary, or any securities convertible into, or exchangeable or
exercisable for, or otherwise evidencing the right to acquire, any shares of
capital stock of any Subsidiary. For purposes of this Agreement, the term
"Subsidiary" of the Company shall mean any corporation, limited partnership or
other entity a majority of whose outstanding voting stock or ownership interests
entitled to vote for the election of directors or other governing body is at the
time owned by the Company and/or one or more other Subsidiaries. Except for the
Subsidiaries listed on Schedule 3.03 hereto, the Company does not have any
direct or indirect record or beneficial ownership, voting or management interest
in any corporation, limited partnership or other entity.
Section 3.04. Authorization. The Company has all requisite corporate power
to enter into this Agreement, and all other documents and instruments to be
executed and delivered by it in connection herewith, and to carry out its
obligations hereunder and thereunder. Except with respect to the approval by the
shareholders
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of the Company of this Agreement and the Merger (a) the execution and delivery
of this Agreement and the due consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company and (b) this Agreement constitutes
(and each document and instrument contemplated by this Agreement, when executed
and delivered in accordance with the provisions hereof, will constitute) a valid
and legally binding agreement of the Company enforceable in accordance with its
terms assuming the due authorization, execution and delivery hereof by Parent,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, or other similar laws affecting the rights of creditors generally,
general principles of equity, and public policy. The affirmative vote of the
holders of a majority of the Shares is the only vote of any class or series of
capital stock of the Company necessary to approve the Merger.
Section 3.05. SEC Filings.
(a) Except as set forth on Schedule 3.05 attached hereto, the Company has
filed with the Securities and Exchange Commission (the "SEC") all required
reports, schedules, forms, statements and other documents from January 1, 1993
through the date hereof, including (i) the annual reports on Form 10-K for all
fiscal years ended during such period, (ii) the quarterly reports on Form 10-Q
required for all fiscal quarters during such period, (iii) all proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the shareholders of the Company held during such period, and (iv)
all other reports, statements, schedules and registration statements required to
be filed with the SEC during such period (the "SEC Documents") except where the
failure to file any such SEC Document referred to in Subparagraph 3.05(a)(iv) is
not likely to have, individually or in the aggregate, a Company Material Adverse
Effect.
(b) As of its filing date or, if amended, as of the date of its amendment,
as the case may be, each such report, proxy or information statement (as amended
or supplemented, if applicable), filed pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(c) Each such registration statement (as amended or supplemented, if
applicable) filed pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), on the date such statement, amendment or supplement became
effective did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 3.06. No Conflicts. Except as set forth on Schedule 3.06 attached
hereto, the execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby:
(a) will not constitute a conflict with, breach or violation of or default
(or an event which with notice or lapse of time or both would become a default)
under: (i) the Company's Articles of Incorporation or Code of Regulations, as
amended to date, (ii) any material agreement, instrument, license, franchise or
permit to which the Company or any of its Subsidiaries is subject or by which
any of them is bound, (iii) any order, writ, injunction or decree to which the
Company or any of its Subsidiaries are subject or by which any of them is bound,
or (iv) assuming that the consents and approvals referenced in Section 3.07
hereof are obtained, any statute, law, rule or regulation to which the Company
or any of its Subsidiaries is subject or by which any of them is bound, the
violation of which would have a Company Material Adverse Effect; and
(b) will not result in the creation of any lien, charge or encumbrance on
the properties or assets of the Company, except those created or imposed by or
through Parent or Sub and except for such liens, charges, or encumbrances which
would not have a Company Material Adverse Effect.
Section 3.07. Consents and Approvals. Except: (a) for filings and approvals
required by: (i) the Secretary of State of the State of Ohio, (ii) the Exchange
Act, (iii) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations promulgated thereunder (the "Hart-Scott-Rodino Act"), and
(iv) such other statutes, rules or regulations which may require registrations,
authorizations, consents or approvals relating to matters that, in the
aggregate, are not material to the Company and its Subsidiaries taken as a
whole; (b) for the approval by the shareholders of the Company of this Agreement
and
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the transactions contemplated hereby; and (c) as set forth on Schedule 3.07
attached hereto, neither the Company nor any of its Subsidiaries is required to
submit any notice, report or other filing with or obtain any consent or approval
from any governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") or third party in connection with the execution and
delivery by the Company of this Agreement or the consummation of the
transactions contemplated hereby. The consents set forth on Schedule 3.07 that
are marked with an asterisk (*) are referred to herein as the "Material
Consents."
Section 3.08. Financial Statements. The consolidated financial statements
of the Company included in the annual reports on Form 10-K filed by the Company
with respect to the three most recently completed fiscal years of the Company
and the quarterly reports on Form 10-Q filed by the Company with the SEC with
respect to the quarters ended March 31 and June 30, 1996, comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with generally accepted accounting principles, consistently applied (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC), and fairly present (subject,
in the case of the unaudited statements, to normal, recurring adjustments, none
of which are anticipated to have a Company Material Adverse Effect) the
financial position, results of operations, shareholders' equity and cash flow of
the Company and its Subsidiaries as at the dates and for the periods indicated.
Section 3.09. Absence of Certain Changes or Events. Except as set forth on
Schedule 3.09 attached hereto, since January 1, 1996, there has been no Company
Material Adverse Effect (whether or not covered by insurance), and there has not
been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably could be expected to have a Company Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
Subsidiary or any repurchase, redemption or other acquisition by the Company or
any Subsidiary of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any Subsidiary;
(c) any amendment of any material term of any outstanding security of the
Company or any Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices,
but in no event in the amount of more than $100,000 in the aggregate;
(e) any creation or assumption by the Company or any Subsidiary of any
lien, pledge, mortgage or other restriction on any material asset other than in
the ordinary course of business consistent with past practices, but in no event
in respect of any obligation of more than $100,000 in the aggregate;
(f) any making of any loan, advance or capital contributions to, or
investment in any person other than investments in cash equivalents made by the
Company or any Subsidiary except those made in the ordinary course of business
consistent with past practices;
(g) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any Subsidiary of any contract or other right,
in either case, involving an amount in excess of $100,000 other than
transactions and commitments in the ordinary course of business consistent with
past practice and those contemplated by this Agreement;
(h) any forgiveness or cancellation of any debt or claim, or any waiver of
any right, in either case, involving an amount in excess of $100,000;
(i) any change in any method of accounting or accounting practice by the
Company or any Subsidiary, except for any such change required by reason of a
concurrent change in generally accepted accounting principles;
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(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, officer or employee of the
Company or any Subsidiary, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements of the Company or
any Subsidiary, (iv) adoption or implementation of an employee benefit plan or
any amendment modification or termination of any plan in effect at December 31,
1995, or (v) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any Subsidiary, other than in
the ordinary course of business consistent with past practice; or
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any Subsidiary, which employees were not subject
to a collective bargaining agreement at December 31, 1995, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to such
employees.
Section 3.10. No Undisclosed Material Liabilities. There are no liabilities
of the Company or its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than: (a)
liabilities disclosed in the Company's Form 10-Q for the fiscal quarter ended
June 30, 1996 (the "June 1996 Form 10-Q) included in the SEC Documents; and (b)
liabilities incurred in the ordinary course of business consistent with past
practice since June 30, 1996, which individually or in the aggregate, would not
have a Company Material Adverse Effect.
Section 3.11. Proxy Statement. None of the information to be supplied by
the Company or any of its accountants, counsel or other authorized
representatives for inclusion in the Proxy Statement (as defined in Section 5.05
hereof) to be distributed in connection with the Shareholders Meeting (as
defined in Section 5.04 hereof) will, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, contain any untrue
statement of a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, or, at the time of the Shareholders Meeting, omit to
state any material fact necessary to correct any statement that has become false
or misleading, it being understood and agreed that no representation or warranty
is made by the Company with respect to any information supplied by Parent or Sub
or their accountants, counsel or other authorized representatives. If at any
time prior to the Effective Time any event with respect to the Company, its
officers and directors or any of its subsidiaries shall occur which is or should
be described in an amendment of, or a supplement to, the Proxy Statement, such
event shall be so described and the presentation in such amendment or supplement
of such information will not contain any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading in any
material respect or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not false or misleading. The Proxy
Statement will comply as to form in all material respects with all applicable
laws, including the provisions of the Exchange Act and the rules and regulations
promulgated thereunder.
Section 3.12. Fairness Opinion. The Company has received the written
opinion of McDonald & Company Securities, Inc., financial advisor to the
Company, that, as of the date of the opinion, the Merger Consideration to be
received by the holders of Shares is fair, from a financial point of view, to
such holders, and such opinion has not been withdrawn as of the date hereof. The
Company has delivered a copy of such opinion to Parent.
Section 3.13. Brokers and Finders. No broker, finder or investment banker
is entitled to any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of the Company.
Section 3.14. Environmental Matters. The operations of the Company and its
Subsidiaries, including the transportation, treatment, storage, handling,
transfer, disposition, recycling or receipt of materials are, and, to the
knowledge of the Company, at all times in the past have been, in compliance with
all applicable legal requirements, laws, rules, orders and regulations related
to environmental, natural resource, health or safety matters ("Environmental
Laws"), including but not limited to those promulgated, adopted or enforced by
the United States Environmental Protection Agency and by similar agencies in
states in which the Company or its
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Subsidiaries conduct their business. Except as set forth on Schedule 3.14
attached hereto, neither the Company nor any of its Subsidiaries is a party to
any suit, action, claim or proceeding now pending before any court, governmental
agency or board or other forum or, to the knowledge of the Company, threatened
by any person which (i) alleges noncompliance with any Environmental Law, (ii)
relates to the discharge or release into the environment of any hazardous
material, pollutant, or waste at or on a site presently or formerly owned,
leased or operated by the Company or any Subsidiary, or (iii) involves the
transportation, treatment, storage, handling, transfer, disposition, recycling
or receipt of hazardous materials. There are no facts or circumstances, to the
actual knowledge of the officers of the Company or any Subsidiary of the
Company, upon which such a suit, action, claim or proceeding reasonably could be
based.
Section 3.15. Litigation. Except as set forth in the SEC Documents or as
set forth on Schedule 3.15 attached hereto, there is no suit, action, claim,
arbitration, governmental investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any of their respective officers or directors in their capacity
as such, or any of their respective properties or businesses, which, if
adversely determined, individually or in the aggregate with other such suits,
actions, claims, arbitrations, governmental investigations or proceedings, would
(i) have a Company Material Adverse Effect, (ii) materially and adversely affect
the Company's ability to perform its obligations under this Agreement, or (iii)
prevent the consummation of any of the transactions contemplated by this
Agreement. The Company has provided to Parent all pleadings and discovery
materials possessed by the Company or its counsel regarding the facts and
circumstances that are the subject of the litigation and claims listed on
Schedule 3.15 (the "Company Litigation"). Neither the Company nor any of its
Subsidiaries is subject to any order, judgment, decree, infraction, stipulation
or consent order of any court or Governmental Entity, other than orders of
general applicability.
Section 3.16. ERISA Compliance.
(a) The Company has delivered to Parent correct and complete copies of all
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and all other bonus,
deferred compensation, pension, profit-sharing, retirement, medical, group life,
disability income, stock purchase, stock option, incentive or other
employee-related plans, programs, contracts, agreements and arrangements
(sometimes referred to herein collectively as "Benefit Plans") currently
maintained, or contributed to, or required to be maintained or contributed to,
by the Company or any other person or entity that, together with the Company, is
treated as a single employer under Sections 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") for the benefit of any current or former
employees, officers or directors of the Company or any Subsidiary. Except as
disclosed on Schedule 3.16 attached hereto, the Company also has delivered to
Parent complete and correct copies of (x) the most recent annual report on Form
5500 filed with the Internal Revenue Service with respect to each Benefit Plan
(if any such report was required) including all schedules thereto, (y) the most
recent summary plan description for each Benefit Plan for which such summary
plan description is required and (z) each currently effective trust agreement
and group annuity contract relating to any Benefit Plan. Except as disclosed on
Schedule 3.16 attached hereto, the Company has no obligation or liability with
respect to any employee benefit plan (as defined under Section 3(3) of ERISA) or
any other bonus, deferred compensation, pension, profit sharing, retirement,
medical, group life, disability income, stock purchase, stock option, incentive
or other employee related plans, programs, contracts, agreements or
arrangements, other than such Benefit Plans currently maintained, contributed to
or required to be maintained or contributed to by the Company or any Company
Controlled Entity.
(b) Each Benefit Plan has been administered in accordance with its terms in
all material respects except where the failure to do so either singly or in the
aggregate would not have a Company Material Adverse Effect. Except as disclosed
on Schedule 3.16 attached hereto, the Company and each Benefit Plan are in
compliance with applicable provisions of ERISA and the Code, except for any
noncompliance that singly or in the aggregate would not have a Company Material
Adverse Effect. Except as provided in Section 2.05 or pursuant to the plans or
agreements disclosed on Schedule 3.18 attached hereto, the consummation of the
transactions contemplated herein will not directly or indirectly cause the
payment, or the acceleration of any payment, under any Benefit Plan of any
amount to any person.
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(c) All Benefit Plans intended to be qualified under Section 401(a) of the
Code have been the subjects of determination letters from the Internal Revenue
Service to the effect that such Benefit Plans are qualified and exempt from
Federal income taxes under Section 401(a) and 501(a), respectively, of the Code
and no such determination letter has been revoked nor, to the knowledge of the
Company, has revocation been threatened. Except as set forth on Schedule 3.16
attached hereto, no such Benefit Plan has been amended since the date of its
most recent determination letter or application therefor in any respect that, to
the knowledge of the Company, would have a Company Material Adverse Effect.
(d) Except as disclosed on Schedule 3.16, neither the Company nor any
Commonly Controlled Entity maintains, contributes to, or at any time maintained,
contributed to or was obligated to contribute to, any Benefit Plan which is
subject to Title IV of ERISA or Section 412 of the Code.
(e) None of the Company, any Subsidiary, any officer of the Company, or any
Subsidiary or any other person or persons, has engaged in a non-exempt
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) or any other breach of fiduciary responsibility that
could subject the Company or any officer of the Company to direct or indirect
tax, penalty or liability under ERISA, the Code or other applicable law which
would have a Company Material Adverse Effect.
(f) With respect to any Benefit Plan that is an employee welfare benefit
plan, (x) no such Benefit Plan is funded through a "welfare benefit fund", as
such term is defined in Section 419(a) of the Code, and (y) each such Benefit
Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code and Part 6 of Title I of ERISA
except where the failure to do so would not individually or in the aggregate
have a Company Material Adverse Effect.
Section 3.17. Tax Matters.
(a) The Company, and if applicable each Subsidiary, has filed all Federal
income tax returns and all other tax returns and reports required to be filed by
them. All such returns are complete and correct in all material respects and
were timely filed. The Company, and if applicable each Subsidiary, has paid or
has made provisions for payment for all taxes and all material taxes for which
no return was required to be filed, the nonpayment of which would have a Company
Material Adverse Effect, and the most recent consolidated financial statements
of the Company contained in the SEC Reports reflect an adequate reserve for all
taxes payable for all taxable periods and portions thereof through the date of
such financial statements, except where the failure to maintain such reserve
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(b) Except as set forth on Schedule 3.17 attached hereto, no audits
concerning taxes of the Company and, if applicable, any Subsidiary are currently
being conducted and no notice regarding commencement of such an audit has been
received.
(c) Except as set forth on Schedule 3.17 attached hereto, no proposed or
assessed deficiencies for any taxes are currently pending against the Company,
or if applicable any Subsidiary, and no requests for waivers of the time to
assess any such taxes are pending, in either case which, individually or in the
aggregate, would have a Company Material Adverse Effect.
(d) Except as set forth in Schedule 3.17, the Company is not aware of any
basis for the assertion of any deficiency against the Company or, if applicable,
any Subsidiaries for taxes which, if adversely determined, either individually
or in the aggregate, would have a Company Material Adverse Effect with respect
to the tax return of the Company and its Subsidiaries for the taxable years as
to which the statute of limitations has not expired.
(e) As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, sales, excise, employment, payroll, custom
duty and any other governmental fee or assessment, and penalties, in addition to
any liability to a third party for such amounts, and interest of any nature
whatsoever.
Section 3.18. Change in Control Payments. Except as set forth on Schedule
3.18 attached hereto, neither the Company nor its Subsidiaries have any plans or
agreements to which they are parties, or to which they are
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bound, pursuant to which payments or acceleration of benefits may be required
upon a "change of control" of the Company.
Section 3.19. Properties. Set forth on Schedule 3.19 attached hereto is a
correct and complete list of all real property and all personal property of the
Company and its Subsidiaries (other than inventory) having a book value
exceeding $10,000. Except as set forth on Schedule 3.19 attached hereto, the
Company and its Subsidiaries have good and marketable title to, and are the
lawful owners of, all of the tangible and intangible assets, properties and
rights used in connection with their respective businesses and individually or
in the aggregate material in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, including such tangible assets and properties
reflected in the consolidated balance sheet included in the June 1996 Form 10-Q
(the "June 1996 Balance Sheet") (other than leased assets and assets disposed of
in the ordinary course of business since such date). Schedule 3.19 sets forth a
correct and complete list of all material leased assets. Except as otherwise
identified in Schedule 3.19, the material tangible assets of the Company and its
Subsidiaries taken as a whole, are in all material respects in good condition
and repair, reasonable wear and tear excepted, and have been well maintained.
Section 3.20. Intellectual Property. Set forth on Schedule 3.20 attached
hereto is a correct and complete list of each patent, trademark, tradename,
service mark, copyright and other trade secret or proprietary intellectual
property, whether registered or unregistered (collectively, the "Intellectual
Property"), owned or used by the Company and its Subsidiaries, and to the
knowledge of the Company, the Company and each Subsidiary has exclusive
ownership of or rights to use such Intellectual Property. To the knowledge of
the Company, the current use by the Company and each Subsidiary of such
Intellectual Property does not infringe the rights of any other person. Except
set forth on Schedule 3.20 attached hereto, to the knowledge of the Company, no
other person is infringing the rights of the Company or any Subsidiary in any
such Intellectual Property, except for any such infringements, that do not,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.21. Insurance Coverage.
(a) Set forth on Schedule 3.21 attached hereto is a correct and complete
list of all insurance policies currently owned by the Company (the "Company
Insurance Policies"), setting forth, for each such policy, the policy number,
the date of inception of the policy and the period of coverage, the insurer, and
a general description of the risks insured against under such policy. The
Company has heretofore delivered to Parent a correct and complete copy of each
of the Company Insurance Policies, including all endorsements, amendments or
supplements thereto. Each of the Company Insurance Policies has been validly
obtained, all premiums required to be paid with respect thereto have been paid
in full, and each of the Company Insurance Policies is in full force and effect.
The Company Insurance Policies are in amounts and coverage sufficient for
compliance by the Company with all requirements of law and all agreements to
which the Company and any of its Subsidiaries is a party, and customary in its
industry.
(b) Set forth on Schedule 3.21 attached hereto is a correct and complete
list of each and every claim made since January 1, 1995 with respect to the
Company Insurance Policies where the amount of damage or potential liability
exceeded $10,000. The Company has given due and timely notice of any claim and
of any occurrence known to it which may be covered by any such policies. To the
Company's knowledge, no insurance company has disclaimed coverage as to any
claim made by the Company.
Section 3.22. Inventory.
(a) The values at which all inventories are carried on the books of the
Company and its Subsidiaries (copies of which books previously have been
provided by the Company to Parent), including without limitation the reserves
with respect thereto, have been calculated in accordance with generally accepted
accounting principles consistent with past practices.
(b) Consistent with past practices, taking into account the reserves for
inventory, the inventories reflected on the books of the Company and its
Subsidiaries are: (i) in all material respects in good and merchantable
condition; (ii) generally usable for the purposes for which they are intended,
or salable in the ordinary course of business; and (iii) not excessive in
material respects in kind or amount in the context of the
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Company's business taken as a whole. The inventories reflected on the books of
the Company and its Subsidiaries include any and all inventory held on
consignment by third parties.
Section 3.23. Related Party Transactions. Except as set forth in the SEC
Documents or as set forth on Schedule 3.23 attached hereto, none of the
officers, directors or principal shareholders of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and directors),
including without limitation any contract, agreement or other arrangement (i)
providing for the furnishing of services to or by, (ii) providing for rental of
real or personal property to or from, or (iii) otherwise requiring payments to
or from, any officer or director, any member of the family of any officer or
director or any corporation, partnership, trust or other entity in which any
officer or director has a substantial interest or is an officer, director,
trustee or partner. All related party transactions described in the SEC
Documents or on Schedule 3.23 were on terms to the Company or its Subsidiaries
no less favorable than what the Company or its Subsidiaries would have had with
third parties.
Section 3.24. Contracts.
(a) Except for the contracts, agreements, commitments, instruments, bids
and proposals to which the Company or any of its Subsidiaries is a party listed
on Schedule 3.24, neither the Company nor any of its Subsidiaries is a party to
or otherwise bound by any written or oral (i) mortgage, indenture, note,
installment obligation or other instrument relating to the borrowing of money,
(ii) guarantee of any obligation (excluding endorsements of instruments for
collection in the ordinary course of business of the Company or any Subsidiary),
(iii) letter of credit, bond or other indemnity, (iv) joint venture, partnership
or other agreement involving the sharing of profits and losses, (v) agreement
requiring the performance of services or delivery of goods in an amount
exceeding $50,000 or which would not be completed within six (6) months, (vi)
agreement for the sale or lease to any person of any material amount of assets
other than the retirement or other disposition of assets no longer useful to the
Company or any of its Subsidiaries or the sale of assets in the ordinary course
of business, (vii) agreement requiring the payment of more than $50,000 in any
6-month period for the purchase or lease of any machinery, equipment or other
capital assets, (viii) agreement providing for the lease or sublease (as lessor,
sublessor, lessees or sublessee) of any real property, (ix) distributor, sales
representative, broker or agent agreement, (x) collective bargaining agreement,
employment or consulting agreement or agreement providing for severance payments
or other additional rights or benefits (whether or not optional) in the event of
the sale of the Company or any of its Subsidiaries, (xi) agreement requiring the
payment to any person of more than $50,000 in any 6-month period for the
purchase of goods or services, (xii) material warranties relating to products
sold or distributed or services performed or provided by the Company or any of
its Subsidiaries in the last six (6) years, (xiii) license or sublicense
agreement (whether as licensor, licensee, sublicensor or sublicensee) with
respect to any material item of Intellectual Property owned or licensed by the
Company or any of its Subsidiaries, or (xiv) agreement imposing non-competition,
confidentiality or exclusive dealing obligations on the Company or any of its
Subsidiaries, except for confidentiality agreements entered into with respect to
this transaction.
(b) The Company has delivered or made available to Parent complete and
correct copies of each written agreement listed on Schedule 3.24, each as
amended to date, and a summary of the terms of each oral agreement listed on
Schedule 3.24. Each agreement listed on Schedule 3.24 is a valid, binding and
enforceable obligation of the Company or any of its Subsidiaries and, to the
Company's knowledge, the other party or parties thereto and is in full force and
effect. Except as set forth on Schedule 3.24 (i) neither the Company or any of
its Subsidiaries nor, to the Company's knowledge, any other party thereto is in
material breach of any material term of any such agreement or has repudiated any
material term of any such agreement, (ii) no event, occurrence or condition
exists (including the transactions contemplated under this Agreement) which,
with the lapse of time or the giving of notice or both, would become a default
under any such agreement by the Company or any of its Subsidiaries or, to the
Company's knowledge, any other party thereto, and (iii) the Company or any of
its Subsidiaries has not released or waived any material right under any
contract. Except as disclosed on Schedule 3.07, the Company is not required to
give notice to any other person who is a party to an agreement listed on
Schedule 3.24 regarding this Agreement or the Merger.
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(c) Schedule 3.24 sets forth a correct and complete list of the ten largest
customers of the Company and its Subsidiaries in terms of net revenues during
each of the 1994 and 1995 fiscal years and the first six months of fiscal 1996,
showing the total net revenue received in each such period from each such
customer. Except to the extent set forth on Schedule 3.24, since June 30, 1996,
there has not been any adverse change in the business relationship between the
Company or any of its Subsidiaries and any customer listed on such Schedule.
Section 3.25. Personnel. Set forth on Schedule 3.25 attached hereto is a
correct and complete list of: (i) all full time and part time employees
including their respective positions, dates of hire and salary; (ii) all
employment, severance, bonus, profit sharing, percentage compensation and
pension or retirement plans; stock purchase and stock option plans; contracts or
agreements with present or former directors, officers or employees that are not
terminable on 60 days' or less notice without penalty to the Company; and all
consulting agreements, to which the Company or any of its Subsidiaries is a
party or to which they are bound as of the date of this Agreement; (iii) all
group insurance programs in effect for employees of the Company and its
Subsidiaries; and (iv) all accrued but unused vacation, holiday and sick-time on
the account of each employee of the Company and its Subsidiaries. Neither the
Company nor any of its Subsidiaries is in default with respect to any of its
obligations listed above.
Section 3.26. Compliance with Laws. Except as disclosed in this Agreement
or in the Schedules hereto, the operations of the business of the Company and
its Subsidiaries as currently conducted are not, and as heretofore conducted, to
the knowledge of the Company, were not in violation of, nor is the Company or
any of its Subsidiaries in default under, or violation of, any federal, state,
local or foreign law, statute or regulation or any order, judgment or decree of
any federal, state, local or foreign governmental authority, regulatory or
administrative agency, commission, court or tribunal to which the Company or any
of its Subsidiaries are bound, except for such violations or defaults as have
not had a Company Material Adverse Effect. The Company and its Subsidiaries have
been duly granted all permits, licenses, variances, exemptions, orders,
approvals and authorizations ("Permits") necessary for the conduct of their
businesses as currently conducted and are in compliance with the terms of each
such Permit, except where the failure to obtain such Permits or to comply with
such Permits would not have a Company Material Adverse Effect. Set forth on
Schedule 3.26 attached hereto is a correct and complete list of all such
Permits. Except as set forth on Schedule 3.26, the entry into this Agreement and
the consummation of the Merger will not require any modification, reapplication,
approval or other consent as to any Permit.
Section 3.27. Accounts Receivable. Set forth on Schedule 3.27 attached
hereto is a correct and complete list of the work-in-process and accounts
receivable of the Company and its Subsidiaries as set forth on the June 1996
Balance Sheet, including the degree of completion for each project and the
amounts expended thereon as of June 30, 1996. All accounts receivable which have
arisen subsequent to the June 1996 Balance Sheet represent sales made or work
performed in the ordinary course of business, are current and collectable and,
to the Company's knowledge, the same will be collected in full (net of reserve
for bad debts) in the ordinary course of business and are not subject to any
claims, offsets, allowances or adjustments.
Section 3.28. Books and Records. The Company has maintained and preserved
complete and accurate books and records for its material transactions. The
minute books of the Company and its Subsidiaries include complete and correct
minutes of all meetings of their respective directors committees and
stockholders.
Section 3.29. Board Recommendation. The Board of Directors of the Company
has duly adopted, at a special meeting of such Board duly held on September 3,
1996, resolutions approving this Agreement, the Merger and the other
transactions contemplated hereby on the terms and conditions set forth herein,
has taken all actions so that the restrictions of Chapter 1704 of the Ohio Act
applicable to a "Chapter 1704 transaction" (as defined in said Chapter 1704)
will not apply to the execution, delivery or performance of this Agreement or
the consummation of the Merger or the other transactions contemplated by this
Agreement, and has determined to recommend that the stockholders of the Company
approve this Agreement and the Merger (subject to the fiduciary duty of the
Board of Directors under applicable law). The Board of Directors of the Company
has been advised by Toomas J. Kukk and Mark L. Rochester, the principal
shareholders of the Company, that they intend to vote their Shares in favor of
this Agreement and the Merger.
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Section 3.30. General Representation and Warranty. Neither this Agreement
nor any schedule attached hereto or other documents and written information
furnished by or on behalf of the Company, its attorneys, auditors or insurance
agents to Parent in connection with this Agreement contains any untrue statement
of material fact or omits to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, hereby represent and warrant to the
Company as follows:
Section 4.01. Organization and Power.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of Ontario, Canada. Parent has all requisite corporate
power to enter into this Agreement, and all other documents and instruments to
be executed and delivered by it in connection herewith, and to carry out its
obligations hereunder and thereunder.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio. Sub has all requisite corporate
power to enter into this Agreement, and all other documents and instruments to
be executed and delivered by it in connection herewith, and to carry out its
obligations hereunder and thereunder. Sub is a wholly-owned subsidiary of
Parent, has been organized solely for the purpose of consummating the Merger and
has conducted no business or operations of any nature.
Section 4.02. Authorization. The execution and delivery of this Agreement
and the due consummation by Parent and Sub of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement constitutes (and each document and
instrument contemplated by this Agreement, when executed and delivered in
accordance with the provisions hereof, will constitute) a valid and legally
binding agreement of each of Parent and Sub, enforceable against them in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium, or other similar laws affecting
the rights of creditors generally, general principles of equity, and public
policy.
Section 4.03. No Conflicts. The execution, delivery and performance of this
Agreement by Parent and Sub and the consummation of the transactions
contemplated hereby will not constitute a conflict with, breach or violation of
or default (or an event which with notice or lapse of time or both would become
a default) under (a) Parent's Charter or By-Laws, as amended to date; (b) Sub's
Articles of Incorporation or Code of Regulations, as amended to date; (c) any
material agreement, instrument, license, franchise or permit to which Parent or
Sub is subject or by which Parent or Sub is bound; (e) any order, writ,
injunction or decree to which Parent or Sub is subject or by which Parent or Sub
is bound; or (f) any law, rule or regulation to which Parent or Sub is subject
or to which it is bound.
Section 4.04. Consents and Approvals. Except for filings, approvals or
consents required by (a) the Secretary of State of the State of Ohio; (b) the
Hart-Scott-Rodino Act; and (c) such other statutes, rules or regulations which
may require registrations, authorizations, consents or approvals relating to
matters that, in the aggregate, are not material to Parent, neither Parent nor
Sub is required to submit any notice, report or other filing with or obtain any
consent or approval from any governmental authority or third party in connection
with the execution and delivery by Parent or Sub of this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.05. Proxy Statement. None of the information to be supplied by
Parent or Sub or any of their accountants, counsel or other authorized
representatives for inclusion in the Proxy Statement will, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the Shareholders Meeting contain any untrue statement of a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent or Sub, or their
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officers and directors or any of the subsidiaries of Parent shall occur which is
or should be described in an amendment of, or a supplement to, the Proxy
Statement, Parent will notify the Company in writing of such event.
Section 4.06. Financing. The Company has received the commitment of
Canaccord Capital Corporation (the "Commitment Letter") for such funds as will
be sufficient to pay the Merger Consideration and all related fees and expenses
of Parent. A true and complete copy of the Commitment Letter is attached hereto
as Annex E. The financing required to effect the Merger and pay related fees and
expenses is hereinafter referred to as the "Financing."
Section 4.07. Brokers and Finders. No broker, finder or investment banker
is entitled to any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby based upon arrangements made by Parent
or Sub.
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.01. Conduct of Business Between Execution of this Agreement and
the Effective Time. During the period commencing on the date of this Agreement
and continuing until the Effective Time, the Company covenants and agrees that
the business of the Company and the Company's Subsidiaries shall be conducted
only in the regular and ordinary course of business, consistent with past
practice; and that it shall use all reasonable efforts to (i) preserve intact
its business, (ii) keep available the services of its current officers and
employees, and (iii) preserve its relationships with desirable customers,
suppliers, licensors, licensees, distributors and others having business
dealings with it. Without limiting the generality of the foregoing, except as
set forth on Schedule 5.01 attached hereto, neither the Company nor any of its
Subsidiaries shall, without the prior written consent of Parent:
(a) adjust, split, combine or reclassify any shares of capital stock;
(b) make, declare, set aside or pay any dividend or make any other
distribution on, or directly or indirectly issue, sell, pledge, grant, redeem,
repurchase or otherwise acquire, any shares of its or any Subsidiary's capital
stock, any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or any options, warrants or other rights to acquire
any shares of its capital stock except the issuance of stock pursuant to the
exercise of employee stock options outstanding on the date hereof;
(c) grant any stock option or appreciation rights or other rights to share
in the equity value of the Company or any Subsidiary;
(d) make any changes in the Articles of Incorporation, Code of Regulations
or By-laws, as amended to date, of the Company or any Subsidiary;
(e) acquire, sell, lease, encumber, transfer or dispose of any assets, or
make any capital expenditures, in either case, in excess of $10,000 individually
or $100,000 in the aggregate, outside the ordinary course of business, except
pursuant to obligations in effect on the date hereof;
(f) incur any indebtedness for borrowed money or guarantee any indebtedness
or issue or sell securities or warrants or rights to acquire any debt securities
or guarantee (or become liable for) any debt of others or make any loans,
advances or capital contributions or mortgage, pledge or otherwise encumber any
assets or create or suffer any material lien thereupon, except pursuant to
obligations or any guarantees thereof which in the aggregate do not exceed
$100,000;
(g) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
any payment, discharge or satisfaction (i) in the ordinary course of business
consistent with past practice, or (ii) in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of the Company.
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(h) notwithstanding any provision of clause (g) of this Section 5.01, pay,
discharge or satisfy any claims, liabilities or obligations in connection with
the Company Litigation, other than attorneys' fees and other expenses of
defending such actions, it being understood and agreed that the Company shall
keep Parent fully informed of all material developments in connection with the
Company Litigation, and that Parent shall have the right to participate in all
decisions with respect to the management, defense and settlement of the Company
Litigation;
(i) change any of the accounting principles or practices used by it (except
as required by generally accepted accounting principles);
(j) except as required by law or contemplated by this Agreement (i) enter
into, adopt, amend or terminate any employee benefit plan or any agreement,
arrangement, plan or policy between the Company and one or more of its directors
or executive officers, (ii) increase in any manner the compensation or fringe
benefits of any director, officer or employee or (iii) grant any bonus to any of
its executive officers or pay any termination, severance or other benefit not
required by any plan and arrangement as in effect on the date hereof;
(k) make or enter into any agreement, commitment or contract, except those
in the ordinary course of business, for the purchase or sale of products in
amounts not exceeding $50,000 in any instance and not giving rise to obligations
extending beyond 90 days from the date hereof, or modify, amend or terminate any
material contract (other than as required by the terms thereof), or pay any
amount not required by law or by any contract in an amount exceeding $50,000;
(l) make or enter into any lease of real property or extend or amend any
existing lease of real property;
(m) intentionally take, or enter into an agreement to take, any action that
would result in any of the conditions to the Merger set forth in Article VI not
being satisfied;
(n) make any material Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability, or waive or extend the
statute of limitations in respect of any such Taxes; or
(o) agree to, or make any commitment to take any of the actions prohibited
by this Section 5.01; or take any action, or agree or commit to take any action
that would make any representation or warranty of the Company hereunder
inaccurate in any material respect at, or as of any time prior to the Effective
Time, or omit or agree or commit to omit to take any action necessary to prevent
any such representation or warranty from being inaccurate in any material
respect at any such time.
Section 5.02. Mutual Covenants.
(a) Compliance with Laws. Each party covenants and agrees to use its
reasonable best efforts to comply promptly with (and furnish information to the
other parties in connection with) any and all requirements that federal or state
law may impose on it or them, as the case may be, with respect to the Merger.
(b) Cooperation in Connection with Proceedings. Each party covenants and
agrees that if any action, suit, proceeding or investigation of the nature
specified in Section 6.01(c) hereof is commenced, it shall cooperate with the
others and shall use its reasonable best efforts to defend against the same and
respond thereto.
(c) Notification of Certain Events. Each party covenants and agrees to give
prompt written notice to the others of (i) the occurrence (or non-occurrence) of
any event the occurrence (or non-occurrence) of which would be likely to cause
(A) any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (B) any covenant, agreement or condition
in this Agreement not to be complied with or satisfied in any material respect;
and (ii) any failure by such first party to comply with or satisfy any covenant,
agreement or condition contained in this Agreement in any material respect.
Section 5.03. Access to Information; Confidentiality.
(a) Information of the Company. The Company covenants and agrees to afford
Parent and Parent's accountants, counsel and other representatives, full access,
during normal business hours during the period
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prior to the Effective Time or the earlier termination of this Agreement, to all
of the properties, books, contracts, commitments and records of the Company and
its Subsidiaries, and, during such period, shall furnish promptly to Parent a
copy of each report, schedule and other document filed or received thereby
during such period pursuant to the requirements of federal and state securities
laws.
(b) Confidentiality Covenants of Parent. Parent covenants and agrees that
until the Effective Time, it shall continue to be bound by the terms of the
Confidentiality Agreement, dated August 21, 1996.
Section 5.04. Meeting of Shareholders. The Company shall, promptly after
the date of this Agreement, take all action necessary in accordance with the
Ohio Act and its Articles of Incorporation and Code of Regulations to convene a
meeting of the Company's shareholders to act on this Agreement and the Merger
(the "Shareholders Meeting"), and the Company shall consult with Parent in
connection therewith. The Company shall use its reasonable best efforts to
solicit from shareholders of the Company proxies in favor of the approval and
adoption of the Merger Agreement and to secure the vote or consent of
shareholders required by the Ohio Act to approve and adopt the Merger Agreement,
unless otherwise required by the applicable fiduciary duties of the directors of
Company, as determined by such directors in good faith after consultation with
independent legal counsel (which may include the Company's regularly engaged
legal counsel).
Section 5.05. Proxy Statement. As promptly as practicable after the
execution of this Agreement, the Company shall prepare and file with the SEC a
proxy statement and a form of proxy, in connection with the vote of the
Company's shareholders at the Shareholders Meeting with respect to the Merger
(such proxy statement, together with any amendments thereof or supplements
thereto, in each case in the form or forms mailed to the Company's shareholders,
being the "Proxy Statement"), and use all reasonable efforts to obtain SEC
clearance of the Proxy Statement. Each of Parent and the Company shall furnish
all information concerning it and the holders of its capital stock as may be
required by the Exchange Act or the regulations promulgated thereunder, or as
the other may reasonably request in connection with such actions. As promptly as
practicable after clearance of the Proxy Statement, the Company shall mail the
Proxy Statement to its shareholders. The Proxy Statement shall include the
recommendation of the Company's Board of Directors in favor of the Merger unless
otherwise required by the applicable fiduciary duties of the Board of Directors
of the Company, as determined by such directors in good faith after consultation
with legal counsel.
Section 5.06. Public or Shareholder Communications. From and after the date
of this Agreement, except as required by law, the Company, Parent and Sub will
not, with respect to the transactions contemplated hereby, issue any press
release or make any public statements or, in the case of the Company, mail any
communications or letters to its shareholders generally, except with the prior
written approval of the other party or as required by law. With respect to any
communication required by law, the party making such communication agrees to use
its best efforts to provide a copy of the text of such communication to the
other party prior to its release together with an explanation as to the legal
necessity for the communication.
Section 5.07. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by the Merger and this Agreement, including, but
not limited to, using its best efforts to obtain all necessary waivers,
consents, authorizations and approvals of or exemptions by any governmental
authority or third party, and effecting all necessary registrations and filings.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party shall take all such necessary action.
Section 5.08. Closing Conditions. Each of the Company and Parent will use
its reasonable best efforts to cause the conditions set forth in Article VI to
be satisfied; provided, however, this provision shall not require any party to
waive any condition.
Section 5.09. Parent Shareholder Approval. Parent covenants and agrees to
vote the shares of capital stock of Sub held by Parent to approve and adopt this
Agreement and the transactions contemplated hereby, and (i) cause Sub to take
any and all actions as may be necessary or appropriate to consummate the Merger
in accordance with the terms of this Agreement.
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Section 5.10. Director and Officer Liability.
(a) The Regulations of the Surviving Corporation with respect to
indemnification of directors and officers shall not be amended, repealed, or
otherwise modified in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors and officers
of the Company for a period of five (5) years after the Effective Time, unless
such modification is required by law.
(b) Assuming consummation of the Merger, from and after the Effective Time,
Parent shall cause the Surviving Corporation to indemnify, defend and hold
harmless the present and former directors and officers of the Company and its
Subsidiaries against all losses, claims, damages and liability and amounts paid
in settlement (with the approval of Parent, which approval shall not be
unreasonably withheld) in connection with any claim, action, suit, proceeding,
or investigation, whether civil, criminal, administrative, or investigative, (x)
in respect of acts or omissions occurring at or prior to the Effective Time to
the fullest extent that the Company or such Subsidiary would have been permitted
to indemnify such person under applicable law and the Articles of Incorporation
and Code of Regulations of the Company or such Subsidiary in effect on the date
hereof or (y) except for a claim arising or based upon the gross negligence or
willful misconduct of the indemnified party, in any event arising out of or
pertaining to the transactions contemplated by this Agreement. Any person
wishing to claim indemnification under this Section 5.10, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify the
Surviving Corporation (but the failure to so notify the Surviving Corporation
shall not relieve the Surviving Corporation from any liability which it may have
under this Section 5.10, except to the extent such failure prejudices the
Surviving Corporation), and shall, to the extent required by the Ohio Act,
deliver to the Surviving corporation any undertaking required prior to payment
of expenses in advance of final disposition. For at least five (5) years after
the Effective Time, Parent will use its best efforts to cause the Surviving
Corporation, without any lapse in coverage, to provide officers' and directors'
liability insurance in respect of acts or omissions occurring prior to the
Effective Time covering each such person currently covered by the Company's
officers' and directors' liability policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date hereof.
Section 5.11. No Solicitation.
(a) The Company agrees that it will not, after the date hereof and prior to
the Effective Time, seek, directly or through its agents, representatives,
Subsidiaries or affiliates, or permit any of its officers or directors to seek
(whether in their capacities as officers or directors or in their individual
capacities) or otherwise solicit or encourage the initiation of inquiries or
proposals from any person or persons (other than Parent), to acquire or purchase
all or a substantial part of its assets or all or a substantial part of its
capital stock or the capital stock of any of its Subsidiaries, or for the
Company or its Subsidiaries to acquire or purchase in one or more related
transactions the capital stock or assets of persons (other than Parent) whereby
the Company would issue (or commit to issue) shares of its capital stock
constituting more than a majority of its outstanding voting securities, or to
effect a consolidation or merger (other than the Merger) or other business
combination or recapitalization (an "Acquisition Proposal"). The Company shall
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted heretofore with respect to any
Acquisition Proposal (other than Parent). Nothing contained in this Section 5.11
shall prevent the Board of Directors of the Company from considering,
negotiating, approving and recommending to the shareholders of the Company, a
bona fide Acquisition Proposal not solicited, directly or indirectly, in
violation of this Agreement, provided the Board of Directors of the Company
determines in good faith (upon advice of counsel) that it is required to do so
in order to discharge properly its fiduciary duties.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal (whether written or oral), or any modification of or
amendment to any Acquisition Proposal, or any request for nonpublic information
relating to the Company or any Subsidiary in connection with an Acquisition
Proposal or for access to the properties, books or records of the Company or any
Subsidiary by any person or entity that informs the Board of Directors of the
Company or such Subsidiary that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing,
and shall indicate whether the Company is providing or intends to provide the
person making the Acquisition Proposal with access to
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information concerning the Company as provided in Section 5.11(c), the identity
of the party making the Acquisition Proposal and the terms and conditions of the
transaction constituting the Acquisition Proposal.
(c) If the Board of the Company receives a request for commercial nonpublic
information by a person who makes a bona fide Acquisition Proposal, and the
Board of Directors determines in good faith and upon the advice of counsel that
it is required to cause the Company to act as provided in this Section 5.11(c)
in order to discharge properly its fiduciary duties, then, provided the person
making the Acquisition Proposal has executed a confidentiality agreement
substantially similar to the one then in effect between the Company and Parent,
the Company may provide such person with access to information regarding the
Company.
Section 5.12. Periodic Reports. Until the Effective Time, the Company and
Parent each will, subject to the requirements of applicable laws, furnish to the
other all filings to be made with the SEC and all materials to be mailed to
their respective stockholders and will solicit comments with respect thereto
from the other, in each case at least 48 hours (or as soon thereafter as is
practicable) prior to the time of such filings and the time of such mailings.
Section 5.13. Financing. Parent covenants and agrees to use its best
efforts to obtain the Financing pursuant to the Commitment Letter. If the
Financing pursuant to the Commitment Letter, or any alternative Financing
obtained in lieu thereof pursuant to this Section 5.13, is not obtainable, then
Parent covenants and agrees to use its best efforts to obtain, within thirty
(30) days after being notified that the Financing pursuant to the Commitment
Letter is not obtainable, alternative Financing on terms which in the aggregate
are no less advantageous to Parent than the terms provided for in the Commitment
Letter. Parent shall give the Company prompt notice when any Financing becomes
unobtainable and when any such alternative Financing is obtained, including a
full description of the terms thereof.
Section 5.14. Hart-Scott-Rodino Filing. To the extent required by law, the
Company and Parent shall file Notification and Report Forms under the
Hart-Scott-Rodino Act with the Federal Trade Commission and the Antitrust
Division of the Department of Justice. The parties shall cooperate and consult
with each other with respect to the preparation of the Notification and Report
Forms and any other submissions, including, but not limited to, responses to
written or oral comments or requests for additional information or documenting
material by the Federal Trade Commission or the Antitrust Division of the
Department of Justice, required to be made pursuant to the Hart-Scott-Rodino Act
in connection with the transactions contemplated hereby. The filing fee
associated with such filings shall be borne equally by Parent and the Company.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.01. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the shareholders of the Company
required by applicable law or by the Company's Articles of Incorporation or Code
of Regulations;
(b) The waiting period, and any extensions thereof, applicable to the
consummation of the Merger under the Hart-Scott-Rodino Act shall have expired;
(c) No preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall be in
effect, which would prevent the consummation of the Merger;
(d) All actions by or in respect of or filing with any governmental
regulatory or administrative agency or commission required to consummate the
Merger shall have been obtained or made;
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(e) The fairness opinion delivered in accordance with Section 3.12 hereof
shall not have been modified or withdrawn and the Company shall have received a
fairness opinion, substantially in the form of the fairness opinion delivered in
accordance with Section 3.12 hereof, to be included in the Proxy Statement
mailed to the Company's shareholders, and such fairness opinion shall not have
been withdrawn or modified; and
(f) By not later than immediately prior to the Effective Time, Toomas J.
Kukk and Ernest M. Rochester shall each have entered into Employment Agreements
with the Company and Parent, substantially in the forms of Annexes B and C
hereto;
Section 6.02. Additional Conditions to the Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to each of the
following conditions:
(a) Each of Parent and Sub shall have performed in all material respects
each obligation and covenant to be performed by it hereunder at or prior to the
Effective Time;
(b) The representations and warranties of Parent and Sub set forth in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
in all material respects as of such date;
(c) Parent shall have delivered to the Company certificates issued by
appropriate governmental authorities evidencing the good standing of Parent in
the Province of Ontario and of Sub in the State of Ohio;
(d) Parent and Sub shall have delivered to the Company copies, certified by
the Secretary or an Assistant Secretary, of the resolutions adopted by the
Boards of Directors of Parent and Sub, authorizing the execution, delivery and
performance of this Agreement and the transactions contemplated hereby, and by
Parent as the sole shareholder of Sub, approving this Agreement and the Merger;
(e) Parent shall have delivered to the Company a certificate of its Chief
Executive and Chief Financial Officers, certifying as to the fulfillment of the
conditions to the obligations of the Company set forth in this Article VI; and
(f) The Company shall have received the opinion of counsel to Parent and
Sub, substantially in the form of Annex A hereto.
Section 6.03. Additional Conditions to the Obligations of Parent and
Sub. The obligations of Parent and Sub to effect the Merger are also subject to
each of the following conditions:
(a) The Company shall have performed in all material respects each
obligation and covenant to be performed by it hereunder at or prior to the
Effective Time;
(b) The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any of such representation or warranty is made as of a specified
date, in which case such representation or warranty shall have been true and
correct in all material respects as of such date;
(c) The Material Consents set forth on Schedule 3.07 attached hereto,
required to consummate the transactions contemplated hereby, shall have been
obtained;
(d) The Company shall have delivered to Parent certificates issued by
appropriate governmental authorities (i) evidencing the good standing of the
Company in the State of Ohio and as a foreign corporation in each jurisdiction
in which it has qualified to do business as a foreign corporation, and (ii)
evidencing the good standing of each Subsidiary of the Company in its
jurisdiction of organization or incorporation and as a foreign corporation in
which it has qualified to do business as a foreign corporation;
(e) The Company shall have delivered to Parent copies, certified by the
Secretary or Assistant Secretary, of the resolutions adopted by the Board of
Directors of the Company authorizing the execution, delivery and
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performance of this Agreement and the transactions contemplated hereby, and by
the shareholders of the Company approving this Agreement and the Merger;
(f) Parent shall have received sufficient funding pursuant to the
Commitment Letter to enable Sub to consummate the Merger and to pay related fees
and expenses;
(g) No Company Material Adverse Effect shall have occurred;
(h) All incentive stock option and non-qualified stock option plans of the
Company, and each option issued under any of such plans, shall have been
amended, to the extent necessary in accordance with Section 2.05 hereof;
(i) Appraisal rights under the Ohio Act shall have been perfected by the
holders of not more than five percent (5%) of the outstanding shares;
(j) The Company shall have delivered to Parent and Sub the certificate of
its Chief Executive and Chief Financial Officers, certifying as to the
fulfillment of the conditions to the obligations of Parent and Sub set forth in
this Article VI;
(k) Parent and Sub shall have received the opinion of Thompson Hine & Flory
P.L.L., counsel to the Company, substantially in the form of Annex D hereto; and
(l) The officers and directors of the Company and its Subsidiaries
specified by Parent shall have resigned their respective positions as of the
Effective Time.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval by the shareholders of the Company:
(a) by mutual written consent of the Board of Directors of the Company and
the Board of Directors of Parent;
(b) by either the Company or Parent, by written notice to the other, if (i)
the Effective Time shall not have occurred on or before January 31, 1997, (ii)
the requisite vote of the shareholders of the Company to approve this Agreement
and the transactions contemplated hereby shall not be obtained at the
Shareholders Meeting, or any adjournments thereof, called therefor, or (iii) any
court of competent jurisdiction in the United States or any state or in Canada
or any province shall have issued an order, judgement or decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
Merger and such order, judgement or decree shall have become final and
non-appealable; provided, however, that the right to terminate this Agreement
(x) under clause (i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date or (y)
under clause (iii) shall not be available to any party unless such party shall
have used all reasonable efforts to remove such order, judgement or decree;
(c) by Parent, by written notice to the Company, if:
(i) there shall have been any breach of any representation, warranty,
covenant or agreement of the Company hereunder which, if not remedied prior
to the Effective Time, would have a Company Material Adverse Effect and
such breach shall not have been remedied, or the Company shall not have
provided Parent with reasonable assurance that such breach will be remedied
prior to the Effective Time, within ten (10) days after receipt by the
Company of notice in writing from Parent specifying the nature of such
breach and requesting that it be remedied; or
(ii) the Board of Directors of the Company or any committee thereof
shall withdraw or modify in any manner adverse to Parent its approval or
recommendation of this Agreement or the Merger contemplated hereby; or
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(iii) the Board of Directors of the Company or any committee thereof
(A) at any time after the Company or any of its Subsidiaries has become
aware of any event which would require that notice be given to Parent
pursuant to Section 5.11 hereof, shall withdraw or modify in any manner
adverse to Parent its approval or recommendation of this Agreement or the
Merger contemplated hereby, or (B) shall approve or recommend any
Acquisition Proposal (including approving of, expressing no opinion or
remaining neutral as to a third party tender offer for Shares when
expressing the position of the Company to any such tender offer in
complying with Rule 14e-2 promulgated under the Exchange Act) involving the
Company or any of its Subsidiaries, in each case by a party other than
Parent or any of its affiliates, or (C) shall resolve to take any of the
actions specified in clauses (A) or (B); or
(iv) The Company or any of its Subsidiaries shall enter into a
definitive agreement (or a letter of intent) for an Acquisition Proposal
(other than with Parent or any of its affiliates) or the Board of Directors
of the Company or any committee thereof shall resolve to take such action;
or
(v) any person or group (within the meaning of Section 13(d)(3) of the
Exchange Act) other than Parent or a person or group approved by Parent
shall acquire a number of shares of capital stock of the Company entitled
to cast twenty (20%) percent of the total number of votes entitled to be
cast in an election of directors of the Company, or the directors of the
Company currently in office shall cease to represent a majority of the
directors of the Company.
(d) by the Company, by written notice to Parent, if:
(i) there shall have been any breach of any representation, warranty,
covenant or agreement of Parent hereunder which, if not remedied prior to
the Effective Time, would have an effect which is material and adverse to
the business, financial condition or results of operations of Parent and
such breach shall not have been remedied or Parent shall not have provided
the Company with reasonable assurance that such breach will be remedied
prior to the Effective Time, within ten (10) days after receipt by Parent
of notice in writing from the Company, specifying the nature of such breach
and requesting that it be remedied; or
(ii) the Board of Directors of the Company or any committee thereof
determines to enter into a definitive agreement (or a letter of intent) for
an Acquisition Proposal (other than with Parent or any of its affiliates);
or
(iii) the Board of Directors of Parent or any committee thereof shall
withdraw or modify in any manner adverse to the Company its approval or
recommendation of this Agreement or the Merger contemplated hereby; or
(iv) the Financing pursuant to the Commitment Letter, or any
alternative Financing as contemplated by Section 5.13 obtained in lieu
thereof, shall have become unobtainable and Parent shall not have given the
Company reasonable evidence within thirty (30) days thereafter that
alternative Financing as contemplated by Section 5.13 hereof has been
obtained, or, in any case, the Financing is not obtained by January 15,
1997 other than as a result of a breach of any representation, warranty or
covenant by the Company in this Agreement.
Section 7.02. Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article VII, this Agreement shall forthwith become void and no party hereto (or
any of its directors or officers) shall have any liability or further obligation
to any other party to this Agreement, except for termination payments provided
in Section 7.03 hereof and except that nothing herein will relieve any party
from liability for any breach of its representations, warranties or covenants in
this Agreement.
Section 7.03. Termination Payment. If Parent shall terminate this Agreement
pursuant to Section 7.01(b)(ii) hereof or pursuant to Section 7.01(c)(ii),
(iii), (iv) or (v) hereof, or if the Company shall terminate this Agreement
pursuant to Section 7.01(b)(ii) hereof, or pursuant to Section 7.01(d)(ii)
hereof, the Company shall pay $1,000,000 plus an amount equal to Parent's actual
expenses, including third party costs, such as attorneys and financial advisors,
incurred in connection with this Agreement and the proposed
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transaction to Parent not later than ten (10) days after notice of termination
from Parent or the Company, as the case may be. If the Company shall terminate
this Agreement pursuant to Section 7.01(d)(iv) hereof, Parent shall pay the
Company's actual expenses incurred in connection with this Agreement and the
proposed transaction to the Company, including third party costs, such as
attorneys and financial advisors, not later than ten (10) days after termination
of the Agreement. Each party agrees that if it fails to pay timely the
termination payment due by it pursuant to this Section, the amount not timely
paid shall bear interest at the rate of 12% per annum accruing from the
termination date and continuing until the termination payment is paid in full.
In the event that it is necessary for a party to institute proceedings to seek
collection of the termination payment due to it and it is entitled to receive
any of the amounts sought in the collection proceeding, in addition to paying
such amount the party failing to make such termination payment shall reimburse
the other party for the attorneys' fees and other reasonable costs and expenses
incurred in connection with such collection.
Section 7.04. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time before or after approval hereof by the shareholders of the Company,
but, after such approval, no amendment shall be made which reduces the amount or
changes the form of the Merger Consideration or in any way adversely affects the
rights of holders of the Shares without the further approval of such holders.
This Agreement may not be amended except by an instrument in writing signed by
or on behalf of each of the parties hereto.
Section 7.05. Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken by their respective Boards of Directors, may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties of the other parties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
satisfaction of any of the conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. No waiver
in any one or more instances shall be deemed to be a further or continuing
waiver of any such condition or breach in other instances or a waiver of any
other condition or breach of any other term, covenant, representation or
warranty. Notwithstanding anything to the contrary set forth herein, the
following conditions precedent to the consummation of the Merger may not be
waived by either party hereto: (i) the approval of the Merger and this Agreement
by the shareholders of the Company pursuant to the Ohio Act; (ii) the expiration
or earlier termination of all applicable waiting periods under the Hart-Scott
Rodino Act, with no outstanding requests for additional information or
clarification or notices indicating that further action will be taken by the
Federal Trade Commission or the Antitrust Division of the Department of Justice
with respect to the Merger; and (iii) the execution by all necessary parties of
the Certificate of Merger to be filed with the Ohio Secretary of State.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Fees and Expenses. Except as otherwise expressly provided in
this Agreement, all costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
Section 8.02. Survival of Representations and Warranties. Except as set
forth in the last sentence of this Section 8.02, the representations and
warranties made by each party contained in this Agreement or in any exhibit,
disclosure schedule, certificate or other instrument delivered pursuant to this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the other party, whether prior to or after
the execution of this Agreement. No representations and warranties contained in
this Agreement or in any exhibit, disclosure schedule, certificate or other
instrument delivered pursuant to this Agreement shall survive the consummation
of the Merger at the Effective Time.
Section 8.03. Notices. All notices and other communications required or
permitted hereunder shall be in writing and delivered as follows:
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if to Parent or Sub:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attention: Michael E. McGinnis, President
Telephone: 281-774-7000
Facsimile: 281-777-7001
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attention: Bruce A. Rich, Esq.
Telephone: (212) 603-2000
Facsimile: (212) 603-2001
if to the Company:
CHEMPOWER, INC.
807 East Turkeyfoot Lake Road
Akron, Ohio 44319
Attention: T.J. Kukk, President
Telephone: 216-896-4202
Facsimile: 216-896-1866
with a copy to:
Thompson Hine & Flory P.L.L.
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
Attention: Thomas A. Aldrich, Esq.
Telephone: 216-566-5500
Facsimile: 216-566-5800
or to such other address as may have been designated in a prior notice. Notices
sent by registered or certified mail, postage prepaid and with return receipt
requested, shall be deemed to have been given two (2) business days after being
mailed, and otherwise notices shall be deemed to have been given when received.
Section 8.04. Construction. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement. Prior drafts of this Agreement
shall not be considered in interpreting the rights and obligations of the
parties hereunder. The language used in this Agreement will be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction will be applied against any party.
Section 8.05. Exhibits, Schedules and Annexes. The Exhibits, Schedules and
Annexes referred to in this Agreement shall be deemed to be an integral part of
this Agreement as if fully rewritten herein. To the extent applicable, a
disclosure set forth on any one such document will serve as a disclosure for
purposes of all other such documents.
Section 8.06. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same document.
Section 8.07. Governing Law. This Agreement, including all matters of
construction, validity and performance, shall be governed by and construed and
enforced in accordance with the laws of the State of Ohio, as applied to
contracts made, executed and to be fully performed in such state by citizens of
such state, without regard to conflict of laws principles.
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Section 8.08. Pronouns. The use of a particular pronoun herein shall not be
restrictive as to gender or number but shall be interpreted in all cases as the
context may require.
Section 8.09. Time Periods. Unless otherwise provided herein, any action
required hereunder to be taken within a certain number of days shall be taken
within that number of calendar days; provided, however, that if the last day for
taking such action falls on a weekend or a holiday, the period during which such
action may be taken shall be automatically extended to the next business day.
Section 8.10. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and, to the extent provided herein, their
respective directors, officers, employees, agents and representatives, and no
provision of this Agreement shall be deemed to confer upon other third parties
any remedy, claim, liability, reimbursement, cause of action or other right.
Section 8.11. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would result in the event that any provision of this
Agreement is not performed in accordance with specific terms or is otherwise
breached. It is accordingly agreed that the parties hereto will be entitled to
equitable relief including an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof.
Section 8.12. Waiver of the Jury Trial. Each party hereto waives the right
to a trial by jury in any dispute in connection with the transactions
contemplated by this Agreement, and agrees to take any and all action necessary
or appropriate to effect such waiver.
Section 8.13. Entire Agreement. This Agreement and the agreements and
documents referred to in this Agreement or delivered hereunder are the exclusive
statement of the agreement between the parties concerning the subject matter
hereof. All negotiations and prior agreements between the parties are merged
into this Agreement, except that the Confidentiality Agreements, dated August
21, 1996, shall remain in full force and effect until the Effective Time, and
there are no representations, warranties, covenants, understandings, or
agreements, oral or otherwise, in relation thereto among the parties other than
those incorporated herein and to be delivered hereunder.
Section 8.14. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by, or invalid or unenforceable under, applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity or
unenforceability, without invalidating the remainder of this Agreement.
Section 8.15. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto. Except as otherwise provided in
this Agreement, nothing in this Agreement is intended or shall be construed to
confer on any person other than the parties hereto any rights or benefits
hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis
Name: Michael E. McGinnis
Title: President
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SUB ACQUISITION CORP.
By: /s/ Michael E. McGinnis
Name: Michael E. McGinnis
Title: President
CHEMPOWER, INC.
By: /s/ Toomas J. Kukk
Name: Toomas J. Kukk
Title: Chairman, President and Chief
Executive Officer
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APPENDIX D
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 10th day of September,
1996 among AMERICAN ECO CORPORATION, a Canadian corporation ("ACE"), CHEMPOWER,
INC., an Ohio corporation (the "Company"), and TOOMAS J. KUKK, (the
"Executive").
WITNESSETH THAT:
WHEREAS, ACE and the Company have entered into an Agreement and Plan of
Merger pursuant to which ACE will acquire all the outstanding capital stock of
the Company by means of the merger of its wholly-owned subsidiary, Sub
Acquisition Corp., with and into the Company which shall be the surviving
corporation ("the Merger"), and
WHEREAS, the Executive is the Chairman, President and Chief Executive
Officer of the Company and the Company and ACE desire to insure the continued
availability to the Company of the Executive's services for a period of three
years from and after the time the Merger becomes effective, upon and subject to
the terms and conditions hereinafter set forth, and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Merger and in order to induce the Executive to enter into
this Agreement, ACE is willing to guarantee the obligations of the Company
hereunder.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Employment of Executive by the Company. The Company hereby agrees to
employ the Executive, and the Executive hereby agrees to serve the Company, as
its President and Chief Executive Officer, or in such other senior executive
capacity as the Board of Directors of the Company shall hereafter from time to
time designate, during the term of this Agreement.
2. Term of Agreement. The term of this Agreement shall commence at the
time the Merger becomes effective and shall continue for a term of three (3)
years.
3. Duties. The Executive shall assume and perform such responsibilities
and duties of an executive nature of substantially the same character heretofore
assumed and performed by him and as may be assigned to him from time to time by
the Board of Directors of the Company. During his employment hereunder, the
Executive shall devote substantially all his business time, attention and
efforts to the business affairs of the Company, and will not engage in any other
activity that would interfere with the performance of such duties. Executive
will perform his services at the Company's principal executive offices in Akron,
Ohio.
4. Compensation. For all services to be rendered by the Executive under
this Agreement, the Company will pay to the Executive a salary at the rate of
not less than $280,000 per annum, payable in equal installments at regular
intervals in accordance with the Company's normal payroll practices. In
addition, the Executive shall be entitled to participate in any bonus,
profit-sharing, stock purchase and stock option plans which the Company or ACE
presently has in effect or which the Company or ACE may hereafter establish,
provided that the Executive meets the participation and eligibility requirements
thereof.
5. Employee Benefits. The Executive shall also be entitled to such
vacation privileges, hospitalization, medical and life insurance, disability,
retirement and pension benefits and such other employment privileges and
benefits as are presently afforded generally from time to time to senior
executive personnel of the Company, it being understood that the Company
reserves the right to modify such benefits from time to time in connection with
changes in plans or plan benefits generally applicable to all senior executive
personnel.
6. Reimbursement. The Company will reimburse the Executive (or provide
him with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by him in
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carrying out his duties hereunder or promoting the interests of the Company,
provided that such expenses are documented in writing by the Executive in a form
acceptable to the Company that satisfies the requirements of the Internal
Revenue Code and the regulations thereunder.
7. Disability Benefits. If the Executive becomes permanently disabled
during his employment hereunder and consequently is unable to perform his duties
under this Agreement, the Company shall nevertheless continue to pay his salary
hereunder (less any disability benefits paid to the Executive under disability
insurance policies paid for by the Company) for the remainder of the three year
term of this Agreement.
8. Death Benefits. If the Executive dies during his employment hereunder,
the Company shall pay to his designated beneficiary a death benefit in an amount
equal to the product obtained by multiplying $100,000 by the number of years or
fractions thereof remaining until the end of the three year term of this
Agreement.
9. Termination.
(a) The Company shall have the right to terminate the Executive's
employment hereunder prior to the end of the three year term of this Agreement
for cause, upon written notice to the Executive. The term "cause" as used herein
shall refer only to (i) the conviction of any felony or of any crime involving
dishonesty or moral turpitude, (ii) the intentional and continued failure of the
Executive to substantially perform the duties required to be performed by him
hereunder and such failure continues for a period of five (5) consecutive
business days after written notice thereof from the Company, or (iii) the
commission of any act by the Executive which has a material negative impact on
the business reputation of the Company. If the Company exercises its right to
terminate the Executive's employment under this paragraph 9(a), the Company
shall be under no further obligation to the Executive under this Agreement,
except to pay his salary and all other benefits provided for under this
Agreement to the date of such written notice, subject to any set-off by reason
of claims by the Company against the Executive.
(b) The Company shall have the right to terminate the Executive's
employment hereunder prior to the end of the three year term of this Agreement
without cause, upon thirty (30) days written notice to the Executive, in which
event the Executive shall be entitled to severance pay from the Company at the
rate of $100,000 per annum during the remainder of the three year term of this
Agreement, payable in equal installments at regular intervals in accordance with
the Company's normal payroll practices.
10. Payment Obligations Absolute. The Company's obligation under
paragraph 9(b) hereof shall be absolute and unconditional and shall not be
affected by any circumstances including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable under paragraph 9(b) hereof, and
the obtaining of such other employment shall in no event effect any reduction of
the Company's obligation to make the severance payments required to be made by
the Company thereunder.
11. Indemnification.
(a) The Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a directors' and officers'
liability insurance policy (the "D&O Policy") at the Company's expense, and
shall indemnify, hold harmless and defend the Executive (and his heirs,
executors and administrators) to the fullest extent permitted under Ohio law for
all deductible expenses and liabilities on the D&O Policy reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been at any time a director, officer
or employee of the Company and/or of any predecessor, successor, subsidiary or
affiliate of the Company (whether or not he continues to be a director, officer
or employee at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlement.
(b) To the extent not covered by applicable insurance, the Company shall
indemnify, hold harmless and defend the Executive (and his heirs, executors and
administrators) to the fullest extent permitted under Ohio law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been at any time a director,
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officer or employee of the Company and/or of any predecessor, successor,
subsidiary or affiliate of the Company (whether or not he continues to be such
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlement, except that no
indemnification shall be made in connection with any action, suit or proceeding
by or in the right of the Company with respect to any claim, issue or matter as
to which the Executive is adjudged to be liable to the Company for negligence or
misconduct in the performance of his duty to the Company.
(c) The Company shall indemnify, hold harmless and defend the Executive
(and his heirs, executors and administrators) from and against any and all
actions, causes of action, damages, liabilities, claims and expenses, including
reasonable attorneys' fees, arising out of or in connection with the Agreement
and Plan of Merger among ACE, Sub Acquisition Corp. and the Company and the
transactions contemplated thereby, except that no indemnification shall be made
in connection with any action, suit or proceeding by or in the right of the
Company with respect to any claim, issue or matter as to which the Executive is
adjudged to be liable to the Company for the breach of any obligation of the
Executive under the said Agreement and Plan of Merger or any contract or
agreement contemplated thereby or arising in connection therewith.
12. Guarantee. ACE unconditionally guarantees performance of the
obligations of the Company under this Agreement.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
14. Not Effective if Merger Not Consummated. In the event that for any
reason the Merger pursuant to the above-mentioned Agreement and Plan of Merger
is not consummated, this Employment Agreement shall be null and void.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
AMERICAN ECO CORPORATION
By:___________________________________
CHEMPOWER, INC.
By:___________________________________
--------------------------------------
Executive
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EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 10th day of September,
1996 among AMERICAN ECO CORPORATION, a Canadian corporation ("ACE"), CHEMPOWER,
INC., an Ohio corporation (the "Company"), and ERNEST M. ROCHESTER,(the
"Executive").
WITNESSETH THAT:
WHEREAS, ACE and the Company have entered into an Agreement and Plan of
Merger pursuant to which ACE will acquire all the outstanding capital stock of
the Company by means of the merger of its wholly-owned subsidiary, Sub
Acquisition Corp., with and into the Company which shall be the surviving
corporation ("the Merger"), and
WHEREAS, the Executive is the Vice Chairman and Secretary of the Company
and the Company and ACE desire to insure the continued availability to the
Company of the Executive's services for a period of three years from and after
the time the Merger becomes effective, upon and subject to the terms and
conditions hereinafter set forth, and
WHEREAS, the execution and delivery of this Agreement is a condition to the
consummation of the Merger and in order to induce the Executive to enter into
this Agreement, ACE is willing to guarantee the obligations of the Company
hereunder.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Employment of Executive by the Company. The Company hereby agrees to
employ the Executive, and the Executive hereby agrees to serve the Company, as
its Vice Chairman, or in such other senior executive capacity as the Board of
Directors of the Company shall hereafter from time to time designate, during the
term of this Agreement.
2. Term of Agreement. The term of this Agreement shall commence at the
time the Merger becomes effective and shall continue for a term of three (3)
years.
3. Duties. The Executive shall assume and perform such responsibilities
and duties of an executive nature of substantially the same character heretofore
assumed and performed by him and as may be assigned to him from time to time by
the Board of Directors of the Company. During his employment hereunder, the
Executive shall devote such time, attention and efforts to the business of the
Company as may be required to perform his duties hereunder, and will not engage
in any other activity that would interfere with the performance of such duties.
Executive will perform his services at the Company's principal executive offices
in Akron, Ohio.
4. Compensation. For all services to be rendered by the Executive under
this Agreement, the Company will pay to the Executive a salary at the rate of
not less than $150,000 per annum, payable in equal installments at regular
intervals in accordance with the Company's normal payroll practices. In
addition, the Executive shall be entitled to participate in any bonus,
profit-sharing, stock purchase and stock option plans which the Company or ACE
presently has in effect or which the Company or ACE may hereafter establish,
provided that the Executive meets the participation and eligibility requirements
thereof.
5. Employee Benefits. The Executive shall also be entitled to such
vacation privileges, hospitalization, medical and life insurance, disability,
retirement and pension benefits and such other employment privileges and
benefits as are presently afforded generally from time to time to senior
executive personnel of the Company, it being understood that the Company
reserves the right to modify such benefits from time to time in connection with
changes in plans or plan benefits generally applicable to all senior executive
personnel.
6. Reimbursement. The Company will reimburse the Executive (or provide
him with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by him in carrying out his duties hereunder
or promoting the interests of the Company, provided that such expenses are
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documented in writing by the Executive in a form acceptable to the Company that
satisfies the requirements of the Internal Revenue Code and the regulations
thereunder.
7. Disability Benefits. If the Executive becomes permanently disabled
during his employment hereunder and consequently is unable to perform his duties
under this Agreement, the Company shall nevertheless continue to pay his salary
hereunder (less any disability benefits paid to the Executive under disability
insurance policies paid for by the Company) for the remainder of the three year
term of this Agreement.
8. Death Benefits. If the Executive dies during his employment hereunder,
the Company shall pay to his designated beneficiary a death benefit in an amount
equal to the product obtained by multiplying $100,000 by the number of years or
fractions thereof remaining until the end of the three year term of this
Agreement.
9. Termination.
(a) The Company shall have the right to terminate the Executive's
employment hereunder prior to the end of the three year term of this Agreement
for cause, upon written notice to the Executive. The term "cause" as used herein
shall refer only to (i) the conviction of any felony or of any crime involving
dishonesty or moral turpitude, (ii) the intentional and continued failure of the
Executive to substantially perform the duties required to be performed by him
hereunder and such failure continues for a period of five (5) consecutive
business days after written notice thereof from the Company, or (iii) the
commission of any act by the Executive which has a material negative impact on
the business reputation of the Company. If the Company exercises its right to
terminate the Executive's employment under this paragraph 9(a), the Company
shall be under no further obligation to the Executive under this Agreement,
except to pay his salary and all other benefits provided for under this
Agreement to the date of such written notice, subject to any set-off by reason
of claims by the Company against the Executive.
(b) The Company shall have the right to terminate the Executive's
employment hereunder prior to the end of the three year term of this Agreement
without cause, upon thirty (30) days written notice to the Executive, in which
event the Executive shall be entitled to severance pay from the Company at the
rate of $100,000 per annum during the remainder of the three year term of this
Agreement, payable in equal installments at regular intervals in accordance with
the Company's normal payroll practices.
10. Payment Obligations Absolute. The Company's obligation under
paragraph 9(b) hereof shall be absolute and unconditional and shall not be
affected by any circumstances including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive. The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable under paragraph 9(b) hereof, and
the obtaining of such other employment shall in no event effect any reduction of
the Company's obligation to make the severance payments required to be made by
the Company thereunder.
11. Indemnification.
(a) The Company shall provide the Executive (including his heirs, executors
and administrators) with coverage under a directors' and officers' liability
insurance policy (the "D&O Policy") at the Company's expense, and shall
indemnify, hold harmless and defend the Executive (and his heirs, executors and
administrators) to the fullest extent permitted under Ohio law for all
deductible expenses and liabilities on the D&O Policy reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been at any time a director, officer or
employee of the Company and/or of any predecessor, successor, subsidiary or
affiliate of the Company (whether or not he continues to be a director, officer
or employee at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlement.
(b) To the extent not covered by applicable insurance, the Company shall
indemnify, hold harmless and defend the Executive (and his heirs, executors and
administrators) to the fullest extent permitted under Ohio law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been at any time a director, officer or employee of the
Company and/or of any predecessor, successor, subsidiary or affiliate of the
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Company (whether or not he continues to be such at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlement, except that no indemnification shall be made in
connection with any action, suit or proceeding by or in the right of the Company
with respect to any claim, issue or matter as to which the Executive is adjudged
to be liable to the Company for negligence or misconduct in the performance of
his duty to the Company.
(c) The Company shall indemnify, hold harmless and defend the Executive
(and his heirs, executors and administrators) from and against any and all
actions, causes of action, damages, liabilities, claims and expenses, including
reasonable attorneys' fees, arising out of or in connection with the Agreement
and Plan of Merger among ACE, Sub Acquisition Corp. and the Company and the
transactions contemplated thereby, except that no indemnification shall be made
in connection with any action, suit or proceeding by or in the right of the
Company with respect to any claim, issue or matter as to which the Executive is
adjudged to be liable to the Company for the breach of any obligation of the
Executive under the said Agreement and Plan of Merger or any contract or
agreement contemplated thereby or arising in connection therewith.
12. Guarantee. ACE unconditionally guarantees performance of the
obligations of the Company under this Agreement.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
14. Not Effective if Merger Not Consummated. In the event that for any
reason the Merger pursuant to the above-mentioned Agreement and Plan of Merger
is not consummated, this Employment Agreement shall be null and void.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
AMERICAN ECO CORPORATION
By:
--------------------------------------
CHEMPOWER, INC.
By:
--------------------------------------
--------------------------------------
Executive
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APPENDIX E
NON-COMPETITION AGREEMENT
This Agreement made and entered into this 10th day of September, 1996
between AMERICAN ECO CORPORATION, a Canadian corporation ("Purchaser") and
TOOMAS J. KUKK ("Kukk").
WITNESSETH THAT:
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") among Purchaser, Purchaser's wholly-owned subsidiary, Sub
Acquisition Corp., and Chempower, Inc. (the "Company"), Purchaser has agreed to
acquire all the outstanding capital stock of the Company by means of the merger
of Sub Acquisition Corp. into the Company (the "Merger");
WHEREAS, Kukk is a founder and has been a principal executive officer of
the Company for many years and, due to the nature of his employment and his
relationship with the Company, has had access to, and has acquired and assisted
in developing, confidential and proprietary information relating to the business
and operations of the Company, including information with respect to the present
and prospective plans, products, systems, processes, customers, suppliers and
the manufacturing, assembly, sales and marketing methods of the Company; and
WHEREAS, Kukk acknowledges that such information has been and will continue
to be of central importance to the business of the Company and that the use of
such information by, or its disclosure to, competitors of the Company or others
could cause substantial harm to the Company; and
WHEREAS, the obligation of Purchasers to consummate the Merger is expressly
conditioned on the execution and delivery of this Agreement by Kukk.
NOW, THEREFORE, the parties hereby agree as follows:
1. For a period of five (5) years from the date the Merger becomes
effective, Kukk agrees that he will not, directly or indirectly (whether as an
officer, director, employee, agent, representative, consultant, proprietor,
partner, joint venturer, stockholder or otherwise), own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be connected with, any business enterprise which is engaged, directly or through
a parent, subsidiary or affiliate, anywhere in the United States in any line of
business in which the Company and its subsidiaries are engaged during the period
from the effective date of the Merger through the day that Kukk's employment
with the Company is terminated, provided that nothing herein contained shall be
construed as preventing Kukk from investing his personal assets in such form or
manner as will not require any services on his part in the operation of the
business of the companies in which such investments are made.
2. Kukk will keep confidential any trade secrets or confidential or
proprietary information which are now known to him or which hereafter may become
known to him as a result of his employment or other association with the Company
and shall not at any time, directly or indirectly, disclose any such information
to any person, firm or corporation or use the same in any way other than in
connection with the business of the Company. Upon the termination of his
employment with the Company, Kukk agrees to return to the Company all copies of
any trade secrets or confidential or proprietary information of the Company that
are in his possession or under his control to the Company.
3. In consideration of the foregoing, the Purchaser agrees to pay Kukk the
sum of $75,000 on the date the Merger becomes effective, and the sum of $75,000
on the same day in each of the next succeeding four years.
4. The waiver by the Purchaser of a breach by Kukk of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by him.
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5. The rights of the Purchaser under this Agreement shall inure to the
benefit of the Company and the successors and assigns of the Purchaser and the
Company and the obligations of the Purchaser under this Agreement shall be
binding upon the successors and assigns of the Purchaser.
6. This Agreement shall be governed by and construed in accordance with the
laws of the State of Ohio.
7. In the event that for any reason the Merger pursuant to the Merger
Agreement is not consummated, this Non-Competition Agreement shall be null and
void.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
AMERICAN ECO CORPORATION
By:___________________________________
______________________________________
Toomas J. Kukk
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NON-COMPETITION AGREEMENT
This Agreement made and entered into this 10th day of September, 1996
between AMERICAN ECO CORPORATION, a Canadian corporation ("Purchaser") and
ERNEST M. ROCHESTER ("Rochester").
WITNESSETH THAT:
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") among Purchaser, Purchaser's wholly-owned subsidiary, Sub
Acquisition Corp., and Chempower, Inc. (the "Company"), Purchaser has agreed to
acquire all the outstanding capital stock of the Company by means of the merger
of Sub Acquisition Corp. into the Company (the "Merger");
WHEREAS, Rochester is a founder and has been a principal executive officer
of the Company for many years and, due to the nature of his employment and his
relationship with the Company, has had access to, and has acquired and assisted
in developing, confidential and proprietary information relating to the business
and operations of the Company, including information with respect to the present
and prospective plans, products, systems, processes, customers, suppliers and
the manufacturing, assembly, sales and marketing methods of the Company; and
WHEREAS, Rochester acknowledges that such information has been and will
continue to be of central importance to the business of the Company and that the
use of such information by, or its disclosure to, competitors of the Company or
others could cause substantial harm to the Company; and
WHEREAS, the obligation of Purchasers to consummate the Merger is expressly
conditioned on the execution and delivery of this Agreement by Rochester.
NOW, THEREFORE, the parties hereby agree as follows:
1. For a period of five (5) years from the date the Merger becomes
effective, Rochester agrees that he will not, directly or indirectly (whether as
an officer, director, employee, agent, representative, consultant, proprietor,
partner, joint venturer, stockholder or otherwise), own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be connected with, any business enterprise which is engaged, directly or through
a parent, subsidiary or affiliate, anywhere in the United States in any line of
business in which the Company and its subsidiaries are engaged during the period
from the effective date of the Merger through the day that Rochester's
employment with the Company is terminated, provided that nothing herein
contained shall be construed as preventing Rochester from investing his personal
assets in such form or manner as will not require any services on his part in
the operation of the business of the companies in which such investments are
made.
2. Rochester will keep confidential any trade secrets or confidential or
proprietary information which are now known to him or which hereafter may become
known to him as a result of his employment or other association with the Company
and shall not at any time, directly or indirectly, disclose any such information
to any person, firm or corporation or use the same in any way other than in
connection with the business of the Company. Upon the termination of his
employment with the Company, Rochester agrees to return to the Company all
copies of any trade secrets or confidential or proprietary information of the
Company that are in his possession or under his control.
3. In consideration of the foregoing, the Purchaser agrees to pay
Rochester the sum of $75,000 on the date the Merger becomes effective, and the
sum of $75,000 on the same day in each of the next succeeding four years.
4. The waiver by the Purchaser of a breach by Rochester of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by him.
5. The rights of the Purchaser under this Agreement shall inure to the
benefit of the Company and the successors and assigns of the Purchaser and the
Company and the obligations of the Purchaser under this Agreement shall be
binding upon the successors and assigns of the Purchaser.
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6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
7. In the event that for any reason the Merger pursuant to the Merger
Agreement is not consummated, this Non-Competition Agreement shall be null and
void.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
AMERICAN ECO CORPORATION
By:
--------------------------------------
--------------------------------------
Ernest M. Rochester
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APPENDIX F
REAL PROPERTY PURCHASE AGREEMENT
(COMMERCIAL REAL ESTATE)
This REAL PROPERTY PURCHASE AGREEMENT, ("Agreement"), is made and entered
into by and between HOLIDAY PROPERTIES, an Ohio general partnership, ("Seller"),
and AMERICAN ECO CORPORATION, a Canadian corporation, or its NOMINEE(S),
("Buyer").
RECITALS:
1. Seller owns the real property located at 807 East Turkeyfoot Lake Road,
Akron, Ohio, and described within Exhibit "A", which is attached hereto and is
made part hereof, ("Summit Parcel").
2. Seller owns the real property located at 3600 Cardiff Avenue,
Cincinnati, Ohio, and described within Exhibit "B", which is attached hereto and
is made part hereof, ("Hamilton Parcel").
3. Seller owns the real property located at 6050 West Virginia State Route
34, Winfield, West Virginia, and described within Exhibit "C", which is attached
hereto and is made part hereof, ("Winfield Parcel").
4. Seller wants to convey the Summit Parcel, the Hamilton Parcel and the
Winfield Parcel, (collectively the "Properties"), to Buyer and Buyer wants to
purchase the Properties from Seller in accordance with this Agreement.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, Seller and Buyer agree as follows:
1. Purchase Price and Payment: Seller will convey the Properties to
Buyer, and Buyer will purchase the Properties from Seller, for a total purchase
price equal to Four Million Five Hundred Thousand Dollars ($4,500,000.00)
("Purchase Price"). Buyer shall pay the Purchase Price to Seller at closing
(subject to any applicable credits or pro-rations) by certified check, cashier's
check and/or other readily negotiable funds.
2. Inclusions: Included in this Agreement for all purposes as part of the
"Properties" respectively are any and all: (a) improvements, structures and
fixtures located upon or about the Properties; (b) rights appurtenant to the
Properties; (c) oil, gas and/or mineral rights or entitlements (if any); and,
(d) easements and/or rights-of-way which benefit the Properties.
3. Title Evidence: Prior to closing, Seller shall at Seller's expense
furnish to Buyer an Opinion of Title for each of the Properties, ("Title
Opinions"), certified to no earlier than the effective date hereof and, after
closing an update for each of the same certified through the closing date.
Seller shall obtain the Title Opinions from American Title Associates
Agency, Inc., ("Title Company"). Buyer shall obtain and pay for any A.I.T.A.,
boundary and/or location survey(s) of the Properties which Buyer and/or Buyer's
lender may want or require.
The Title Opinions shall show in Seller a good and marketable title to the
Properties in fee simple, free and clear of all liens and encumbrances except:
(a) those which Buyer creates or expressly assumes;
(b) zoning ordinances and building regulations;
(c) real estate taxes and assessments, whether general or special, not
then due and payable;
(d) legal highways;
(e) any matters which an accurate and complete survey would disclose;
(f) leases to Chempower, Inc. and any sublessee(s) of Chempower, Inc. (as
applicable) which encumber each of the Properties, (collectively the
"Leases");
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(g) conditions, restrictions, easements, rights of way and all other
matters of record, if any, which exist on the effective date of this
Agreement; and
(h) mortgage(s) and/or grant(s) from Seller to any lender(s), governmental
bodies and/or any other person(s)/entity, if any, all of which Seller
shall satisfy at closing and for which Seller shall obtain any
necessary release(s)/satisfaction(s).
If the title to all or part of any of the Properties is defective or
unmarketable or if any part of the Properties is subject to liens, encumbrances,
easements, conditions or restrictions other than those excepted herein, or in
the event of any impermissible encroachment, Seller shall have a reasonable time
not to exceed thirty (30) days after Buyer's written notice to Seller thereof
within which to remedy or remove any such defect, lien, encumbrance, easement,
right-of-way, condition, restriction or encroachment. If Seller is unable to
timely cure, Seller shall have the option to terminate this Agreement upon
written notice of termination to Buyer.
Buyer and Seller agree that marketability shall be determined in accordance
with the Standards of Title Examination adopted by the Ohio State Bar
Association as to the Summit Parcel and the Hamilton Parcel and the Standards of
Title Examination (or the equivalent) adopted by the West Virginia Bar
Association as to the Winfield Parcel.
4. Inspection and Right of Access: Buyer and Buyer's consultant(s) or
agent(s) shall upon reasonable advance notice to Seller have the right to
inspect, examine and/or test the Properties from and after the effective date of
this Agreement. Buyer and Buyer's consultant(s) or agent(s) shall have the right
to enter upon the Properties to inspect and examine the same and to conduct any
and all surveys, studies/testing, boring(s) and/or sampling and obtain all such
tests/reports, (collectively the "Reports"), as Buyer shall deem either
necessary or desirable; provided, however, that Buyer shall:
(a) promptly provide to Seller copies of all written findings, results
and/or Reports;
(b) hold confidential all such written findings, results and/or Reports
except Buyer may disclose the same to Buyer's attorneys, lenders and
environmental consultants;
(c) satisfy any and all costs/expenses for the same and hold Seller
harmless therefrom; and,
(d) promptly restore the Property to the pre-testing/ examination status
thereof to the extent reasonably possible.
5. Deeds: At closing, Seller shall make, execute and deliver to Buyer
three (3) separate General Warranty Deeds, ("Deeds"), thereby separately
conveying the Properties to Buyer, free and clear of all liens and encumbrances
except those expressly excepted hereinabove and real estate taxes and
assessments which shall be satisfied, pro-rated and/or credited as provided
hereinbelow.
6. Taxes, Assessments and Other Charges: Prior to or at closing, Seller
shall relative to each of the Properties pay all real estate taxes and
assessment installment(s) then due and payable and any and all delinquent real
estate taxes and/or assessments, together with any applicable, penalties and/or
interest. At closing, Seller shall credit to Buyer all real estate taxes and/or
all assessments for the Properties (special, current, uncertified or otherwise)
now a lien, both current and reassessed, either assessable, due, or to become
due, for the year of closing pro-rated through the date of closing utilizing the
figures shown on the last available tax duplicates. Seller shall not otherwise
be responsible for any real estate tax liabilities and/or assessments.
Seller and Buyer will each pay one-half ( 1/2) of any and all the
conveyance fees/transfer taxes assessable upon Seller's conveyance of the
Properties to Buyer. Buyer shall pay the recording charges for the Deeds and any
loan documents (if applicable). Seller and Buyer shall share equally the closing
costs which the Title Company charges for this transaction.
7. Rentals: Any and all rentals attributable to or generated from the
Properties and payable to Seller will be prorated through the closing date. To
the extent applicable, Seller will transfer any and all security deposits to
Buyer at Closing.
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8. Condition Precedent: The duties/obligations of both Seller and Buyer
under this Agreement to close Buyer's purchase of the Properties from Seller are
contingent upon the condition precedent, ("Condition Precedent"), that Sub
Acquisition Corp. and Chempower, Inc. have successfully completed/closed a
corporate merger under Ohio law.
9. Closing and Possession: Closing shall occur not more than three (3)
calendar days after Seller and Buyer have satisfied and/or waived in writing the
Condition Precedent. Time is of the essence. The Title Company shall close this
transaction. Seller shall deliver full possession of the Properties to Buyer at
closing subject to the Leases.
10. Warranties and Representations: Buyer has examined and/or has the
right to examine the Properties and as of the Closing Date shall accept the
Properties in the condition thereof, AS IS, WHERE IS. Except as expressly
provided within this Agreement, Buyer does not rely on any representation or
warranty made by Seller, or Seller's agent(s) and/or representative(s), whether
express or implied, relating to the physical condition of the Properties or the
suitability of the Properties for any purpose(s) for which Buyer may desire to
use, occupy and/or develop the same. Buyer is relying solely upon Buyer's
examination(s) of the Properties respecting the condition, character and size(s)
thereof and any and all appurtenances/ rights benefiting the same.
11. Use of Purchase Money to Clear Title: To enable Seller to make any
conveyance as provided herein, Seller may use the purchase money or any portion
thereof to clear the title to the Properties of any or all unpermitted
mortgage(s), encumbrances or liens.
12. Severability: If any provision of this Agreement is held by a Court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the provisions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or otherwise invalidated.
13. Seller's Representations and Warranties: Seller represents and
warrants to Buyer as of the effective date of this Agreement and as of the
closing date that:
(a) This Agreement is a valid and binding obligation upon Seller
enforceable in accordance with the terms and conditions hereof.
(b) Seller is the fee simple owner of the Properties and the Properties
are not subject to any options to purchase, rights of first refusal
and/or any other agreements or contracts to use, lease or purchase the
same (excepting for the Leases and/or any applicable oil/gas leases).
(c) During the existence of this Agreement, Seller shall not enter into or
amend any contracts, options, leases, easements and/or any other
agreements affecting the Properties and/or take any action which would
adversely affect the ownership and/or condition of the Properties.
(d) While this Agreement is yet in existence, Seller shall fully and
timely make any and all payments upon or relating to any mortgage
loans applicable to the Properties.
Seller's foregoing representations and warranties will survive closing.
14. Confidentiality: Without the prior written consent of the other
party, neither Seller nor Buyer will disclose to any person, other than their
legal counsel and any proposed lender, either the fact that this Agreement has
been entered into or any of the terms, condition or other facts with respect
thereto, including the status thereof; provided, that either party hereto may
make such disclosure if compelled by court order or if such party has first
received the written opinion of counsel that such disclosure must be made in
order that such party does not commit a violation of law to comply with the
requirements of any law, governmental order or regulation.
15. Broker(s)/Realtor(s): Buyer represents and warrants to Seller that,
except as Buyer has otherwise disclosed to Seller in writing, Buyer has not
enlisted the services of a broker or a realtor relating in any manner with or to
Buyer's purchase from Seller of the Properties. Buyer does not owe any broker's
or realtor's commission or fee in connection with this Agreement or the
conveyances contemplated hereby. Buyer shall fully indemnify Seller and hold
Seller harmless from and against all claims, damages, losses or liabilities;
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including, without limitation, reasonable attorney's fees and/or expert's fees,
which Seller incurs or may incur resulting from Buyer's breach of Buyer's
foregoing representation and warranty. Seller shall at closing satisfy any
commission(s)/fee(s) owed from Seller to any broker(s)/realtor(s). This
paragraph shall survive the termination of this Agreement and shall not be
rendered null and void in any event by the closing hereof or the delivery and/or
recordation of the Deeds.
16. Notices: Any notice(s) required or permitted to be given pursuant to
this Agreement shall be deemed given when telefaxed, personally delivered or
deposited in the United States mail, by certified mail, return receipt
requested, directed to Seller or Buyer as follows:
To Seller: 807 East Turkeyfoot Lake Road
Akron, OH 44319
Telefax Number: (330) -
With Copy to: Anthony E. Efremoff, Esq.
(Seller's legal counsel)
Black, McCuskey, Souers & Arbaugh
1000 United Bank Plaza
220 Market Avenue South
Canton, OH 44702
Telefax Number: (330) 456-5756
To Buyer:
- - - ------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Either Seller or Buyer may change their foregoing notice information by
providing the other with written notice as provided hereinabove setting forth
the same.
17. Successors and Assigns: The terms, covenants and conditions of this
Agreement shall extend to and be binding upon the respective successor(s) and/or
assign(s) of both Seller and Buyer. If Buyer shall assign/delegate any of
Buyer's rights, entitlements, duties and/or obligations under this Agreement to
any nominee(s), Buyer will nonetheless remain obligated to Seller hereon and
will not be released therefrom.
18. Governing Law: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio. The Stark County, Ohio Common
Pleas Court shall have the sole jurisdiction and venue over and respecting any
claims, causes of action, liabilities and/or disputes which arise among and
between Seller and Buyer relating in any manner whatsoever to this Agreement
and/or the Properties.
19. Acceptance of Deeds: Buyer's acceptance of the Deeds from Seller
shall be deemed to be a full performance and discharge of each and every duty
and obligation of Seller and/or Buyer as contained or expressed herein except
those of which, by the terms of this Agreement, are to be performed after the
delivery of such Deeds and those which are expressly stated to survive such
delivery.
20. Acceptance: Buyer must execute and return this Agreement to Seller
within seven (7) calendar days after that date upon which Seller has signed the
same. Time is of the essence.
21. Effective Date: The effective date of this Agreement shall be the
latest date upon which Seller or Buyer executes the same hereinbelow.
22. Internal Revenue Code Section 1031 Like-Kind Exchange: Seller and
Buyer recognize that the Properties are of such nature and character as to have
a particular business significance to Seller's continuing business/investment
activities and Seller may wish to exchange one (1) or more of the same for
property and/or properties of a like kind in accordance with Internal Revenue
Code Section 1031, ("Section 1031). Seller may designate one (1) or more
exchange parcel(s) prior to closing and/or within forty five (45) days
thereafter for purposes of completing one (1) or more like-kind exchange under
Section 1031. Seller will acquire any such exchange parcel(s) for productive use
in Seller's trade or business and/or for investment purposes in the same manner
in which Seller has owned and maintained the Properties.
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<PAGE> 99
At any time subsequent to the date upon which Buyer executes this Agreement
and prior to closing, Seller may take all steps necessary to enable Seller to
qualify for and benefit from one (1) or more like-kind exchanges under Section
1031; including, without limitation, designating a qualified intermediary as
defined in Treasury Regulation 1.1031(k)-1(g)(4)(iii), (hereinafter the
"Qualified Intermediary"), for purposes of receiving and holding all net
proceeds due and payable to Seller at closing. Buyer shall assist Seller and
otherwise cooperate with Seller and/or the Qualified Intermediary to enable
Seller to qualify for and/or benefit from one (1) or more like-kind exchange
under Section 1031.
23. Entire Agreement: Buyer and Seller acknowledge that there are no
covenants, representations, warranties, agreements or conditions, either express
or implied, which in any affect, form a part of, or relate to this Agreement
except for those expressly set forth herein. Buyer and Seller agree that this
instrument, together with the attached Exhibit(s) hereto, constitutes the entire
understanding and agreement between Seller and Buyer. This Agreement cannot be
orally changed, modified or altered.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement in
duplicate original counterparts on the date(s) set forth hereinbelow.
<TABLE>
<S> <C>
HOLIDAY PROPERTIES, AMERICAN ECO CORPORATION,
an Ohio general a Canadian corporation,
partnership, ("Seller"), ("Buyer"),
By: By:
Its:
Toomas J. Kukk,
its general partner
Dated: Dated:
By: By:
Its:
Ernest M. Rochester,
its general partner
Dated: Dated:
Being all of the general partners
of Holiday Properties
</TABLE>
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<PAGE> 100
CHEMPOWER, INC.
THIS PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 1996
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
At the Special Meeting of Shareholders of Chempower, Inc. to be held
on Tuesday, November 12, 1996, at 1:00 p.m., local time, at the offices
of Thompson Hine & Flory LLP, 3900 Key Center, 127 Public Square,
Cleveland, Ohio 44114, and at any adjournment thereof, Mark A. Milhoan
and Scott R. Lowrie, and each of them, with several powers of
substitution and resubstitution, are hereby authorized to represent me
and vote my shares upon the proposal to adopt the Agreement and Plan of
Merger by and among American Eco Corporation, Sub Acquisition Corp., and
Chempower, Inc., dated September 10, 1996 (the "Merger Agreement") and
approve the merger contemplated thereby (the "Merger"), as more fully
described in Chempower's Proxy Statement dated October 10, 1996 (the
"Proxy Statement").
1. PROPOSAL TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.
/ / FOR / / AGAINST / / ABSTAIN
2. IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
(Continued, and to be signed, on the other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. UNLESS OTHERWISE SPECIFIED, THE
SHARES WILL BE VOTED FOR PROPOSAL 1.
Dated: , 1996
--------------------------------
--------------------------------
Signatures of Shareholder(s)
NOTE: Signature should agree
with name on stock certificate
as printed hereon. Executors,
administrators, trustees and
other fiduciaries should so
indicate when signing.
/ / I PLAN TO ATTEND THE MEETING IN CLEVELAND, OHIO AT 1:00 P.M. ON
NOVEMBER 12, 1996.
PLEASE DATE, SIGN AND RETURN THIS PROXY. THANK YOU.
