<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1998.
REGISTRATION NO. 333-58411
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN ECO CORPORATION
(AND ITS SUBSIDIARIES IDENTIFIED ON THE FOLLOWING PAGE)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
ONTARIO, CANADA 52-1742490
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
154 UNIVERSITY AVENUE
TORONTO, ONTARIO M5H 3Y9
(416) 340-2727
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MICHAEL E. MCGINNIS
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
AMERICAN ECO CORPORATION
11011 JONES ROAD
HOUSTON, TEXAS 77070
(281) 774-7000
(Names and addresses, including zip codes, and telephone numbers, including area
codes, of agent for service)
------------------------
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
BRUCE A. RICH, ESQ.
THELEN REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 603-2000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
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ADDRESS, INCLUDING
ZIP CODE, AND
TELEPHONE NUMBER,
STATE OR OTHER PRIMARY INCLUDING AREA CODE,
JURISDICTION OF STANDARD INDUSTRIAL OF
INCORPORATION OR CLASSIFICATION IRS EMPLOYER REGISTRANT'S PRINCIPAL
NAME ORGANIZATION CODE NO. IDENTIFICATION NO. EXECUTIVE OFFICES
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<S> <C> <C> <C> <C>
The Turner Group, Inc............ Delaware 1629 74-2765317 *
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C.A. Turner Construction
Company........................ Delaware 1629 76-0416235 *
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Action Contract Services, Inc.... Delaware 1629 76-0416234 *
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C.A. Turner Maintenance, Inc..... Delaware 1629 76-0490435 *
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H.E. Co. Services, Inc........... Texas 1731 76-0421112 *
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Cambridge Construction Service
Corp........................... Nevada 1521-00 75-2499087 *
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Lake Charles Construction
Corporation.................... Louisiana 1629 72-1189004 *
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United Eco Systems, Inc.......... Delaware 8744 56-2013594 *
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Eco Systems, Inc................. Delaware 8744 52-1974336 *
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MM Industra Limited.............. Nova Scotia, Canada 3400 896825494 *
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Separation and Recovery Systems,
Inc............................ Nevada 3569 95-2699645 *
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Industra Service Corporation..... British Columbia, 7699 100763580 *
Canada
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Separation and Recovery Systems
Limited........................ United Kingdom 3569 33-0197024 *
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Industra Engineers & Consultants,
Inc............................ British Columbia, 8911 124348822 *
Canada
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Industra Thermal Service
Corporation.................... British Columbia, 7699 100904002 *
Canada
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NUS, Inc......................... Washington 7699 91-1562577 *
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Industra Service Corp............ Washington 7699 91-1562576 *
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Industra, Inc.................... Washington 8911 91-1377547 *
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Industra Thermal Service Corp.... Washington 7699 91-1660674 *
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Chempower, Inc................... Ohio 1799-08 34-1481970 *
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Global Power Company............. Ohio 1799-08 34-1768637 *
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Brookfield Corporation........... Ohio 6719 34-1796075 *
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Southwick Corporation............ Ohio 6719 34-1796835 *
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Controlled Power Limited
Partnership.................... Illinois 3613 34-1644775 *
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Specialty Management Group,
Inc............................ Texas 1542 75-2401781 *
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</TABLE>
* 11011 Jones Road, Houston, Texas 77070; telephone (281) 774-7000
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED AUGUST 10, 1998
AMERICAN ECO CORPORATION
OFFER TO EXCHANGE ITS 9 5/8% SERIES B SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING 9 5/8% SERIES A SENIOR NOTES DUE 2008.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON SEPTEMBER 18, 1998 UNLESS EXTENDED.
American Eco Corporation, an Ontario, Canada corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange up to $120,000,000 aggregate principal amount of its 9 5/8% Series B
Senior Notes due 2008 (the "Exchange Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for up to $120,000,000 aggregate principal amount of its outstanding
9 5/8% Series A Senior Notes due 2008 (the "Original Notes" and, together with
the Exchange Notes, the "Notes"). On May 21, 1998, the Company issued
$120,000,000 aggregate principal amount of Original Notes. The Original Notes
were issued pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. See "The Exchange Offer" and "Description of the Notes."
The terms of the Exchange Notes are substantially identical in all respects
to the terms of the Original Notes except that (i) the Exchange Notes will be
freely transferable by holders thereof (other than as provided herein) and
issued free of certain transfer restrictions and registration rights relating to
the Original Notes, and (ii) holders of the Exchange Notes will not be entitled
to certain rights of holders of the Original Notes under the Registration Rights
Agreement (as defined herein), which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same debt as the
Original Notes and will be issued under and be entitled to the benefits of an
Indenture, dated as of May 21, 1998, governing the terms of the Original Notes
and the Exchange Notes (the "Indenture"). See "Description of the Notes."
Interest on the Exchange Notes will be payable semi-annually in arrears on
May 15 and November 15 of each year, commencing November 15, 1998. Interest on
the Exchange Notes will accrue from the issuance of the Original Notes, May 21,
1998. The Exchange Notes will mature on May 15, 2008 and will be redeemable at
the option of the Company, in whole or in part, at any time after May 15, 2003,
at the redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon, to the redemption date.
If the Company consummates one or more Qualified Equity Offerings (as defined
herein) on or before May 15, 2001, the Company may at its option use all or a
portion of the proceeds from such offerings to redeem up to 35% of the aggregate
principal amount of the Notes at a redemption price equal to 109.625% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the redemption date, provided that at
least 65% of the aggregate principal amount of the Notes remains outstanding
immediately after such redemption. The Notes will also be redeemable at the
option of the Company, in whole but not in part, at par plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the redemption date in the
event of certain changes in Canadian law resulting in the imposition of
withholding taxes. Upon the occurrence of a Change of Control (as defined
herein), the Company will be required to make an offer to purchase all or any
portion of each holder's Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. See "Description of the Notes."
The Notes are senior unsecured obligations of the Company which rank pari
passu in right of payment with all senior indebtedness of the Company. The Notes
will rank pari passu in right of payment with all future senior unsecured
indebtedness of the Company and senior in right of payment to any subordinated
indebtedness of the Company to be incurred in the future. The Notes are
unconditionally guaranteed ("Subsidiary Guarantees") on a senior unsecured basis
by the Company's subsidiaries (the "Guarantors"). The Subsidiary Guarantees are
general unsecured obligations of the Guarantors which rank pari passu in right
of payment with all senior indebtedness of the Guarantors. The Subsidiary
Guarantees will rank pari passu in right of payment with all future senior
indebtedness of the Guarantors and senior in right of payment to any
subordinated indebtedness of the Guarantors to be incurred in the future. At May
31, 1998, neither Company nor the Guarantors had any outstanding indebtedness
ranking pari passu in right of payment with either the Notes or the Subsidiary
Guarantees. The Indenture permits the Company and the Guarantors to incur
additional indebtedness in the future, subject to certain limitations. See
"Description of the Notes."
(continued on next page)
------------------------
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August , 1998
<PAGE> 4
(continued from previous page)
The Company will accept for exchange any and all Original Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on September 18, 1998 unless extended by the Company (the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Original Notes may be withdrawn at any time prior to the Expiration
Date. The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. However, the Exchange
Offer is subject to certain conditions that may be waived by the Company and to
the terms and provisions of the Registration Rights Agreement, dated as of May
21, 1998 (the "Registration Rights Agreement"), among the Company, the
Guarantors and Jefferies & Company, Inc. and Nesbitt Burns Securities Inc. (the
"Initial Purchasers"). See "The Exchange Offer -- Conditions to the Exchange
Offer." Original Notes may be tendered only in denominations of $1,000 principal
amount and integral multiples thereof.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantors contained in the Registration
Rights Agreement. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in certain interpretive
letters addressed to third parties in other transactions, the Company believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Original Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than any holder that is an "affiliate" of the Company
within the meaning of Rule 405 of the Securities Act (an "Affiliate") or a
broker-dealer), without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder is
not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, neither the Company nor any of the Guarantors has
sought its own interpretive letter, and there can be no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties. However,
any holder that is an Affiliate of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased Original Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the applicable interpretations of the staff of the
Commission set forth in the above-mentioned interpretive letters, (ii) will not
be entitled to tender such Original Notes in the Exchange Offer, and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Original
Notes unless such sale or transfer is made pursuant to an exemption from such
requirements. In addition, if any broker-dealer holds Exchange Notes acquired
for its own account as a result of market-making or other trading activities and
exchanges such Original Notes for Exchange Notes then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of Exchange Notes. The Letter of Transmittal states
that by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 120 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes. The Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes. The Initial Purchasers are not
obligated to do so, however, and any market-making with respect to the Exchange
Notes may be discontinued at any time without notice. The Company does not
intend to apply for listing or quotation of the Exchange Notes on any securities
exchange or stock market.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER AND, IF GIVEN OR MADE, NO SUCH
INFORMATION OR REPRESENTATIONS SHOULD BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE GUARANTORS SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files periodic reports,
proxy and other information statements with the Securities and Exchange
Commission (the "Commission" or the "SEC"). All reports, proxy and information
statements, and other information filed by the Company with the Commission may
be inspected or copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and other information statements
of the Company and other information regarding registrants that file
electronically with the Commission. The Company's common shares are traded on
the Nasdaq National Market and reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements are identified by the use of forward-looking words or phrases
including, but not limited to, "intended," "will be positioned," "expects,"
"expected," "anticipates," and "anticipated." These forward-looking statements
are based on the Company's current expectations. All statements other than
statements of historical facts included in this Prospectus, including those
regarding the Company's financial position, business strategy, projected costs,
backlog and plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Risk Factors," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," and elsewhere in
this Prospectus including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. These forward-looking
statements represent the Company's judgment as of the date of this Prospectus.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. The Company disclaims, however, any
intent or obligation to update its forward-looking statements.
<PAGE> 6
SUMMARY INFORMATION
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this Prospectus summary is qualified
in its entirety by and should he read in conjunction with, the more detailed
information contained in this Prospectus, including the financial statements and
the related notes thereto. Investors should carefully consider the information
set forth in "Risk Factors." Unless otherwise indicated, all dollar amounts
refer to United States dollars.
THE COMPANY
American Eco Corporation ("American Eco" or the "Company") is a leading
provider of industrial support and specialty fabrication services to principally
three industry groups: (i) energy, (ii) pulp and paper and (iii) power
generation. The Company offers its customers a single-source solution for an
extensive array of support services such as equipment and facility repair,
maintenance, refurbishment, retrofit and expansion. Specialty fabrication
services offered by the Company include the construction of decks, well jackets
and modules for offshore oil and gas platforms, the fabrication of piping,
pressure vessels and other equipment used in process industries, the erection of
structural steel support systems and the manufacture of electrical switch gear,
power distribution panels, bus ducts and control rooms. The Company also
manufactures, sells, installs and operates SAREX(R) oil filtration and
separation systems worldwide.
The Company has strategically positioned itself as a single-source provider
of support services, principally to process industries, which can be performed
by an outside service company with greater efficiency, safety and
cost-effectiveness. By outsourcing support services, these industries can focus
on their core manufacturing processes, reduce operating costs, improve safety,
and conserve human and capital resources.
The trend toward greater customer emphasis on outsourcing dictates that
support services companies provide an increasing breadth of services. This
market trend is the primary tenet of the Company's acquisition strategy, and has
precipitated consolidation in the support services and specialty fabrication
markets in North America. The Company has grown significantly in the past five
years through the acquisition of nine industrial support and specialty
fabrication service providers in various complementary geographic regions. The
Company had also acquired two environmental remediation companies, which were
subsequently sold in August 1997. The Company's revenue and EBITDA grew from
$7.6 million and $1.1 million, respectively, for the fiscal year ended November
30, 1993 to $236.8 million and $20.1 million, respectively, for the twelve
months ended May 31, 1998.
The Company's industrial support and specialty fabrication businesses
generated approximately 72% and 28% of its revenues, respectively, for the
twelve months ended May 31, 1998, on a pro forma basis after giving effect to
the Company's 1997 acquisition of CCG (as defined herein) and its 1997
divestitures of Eco Environmental and Environmental Evolutions (as defined
herein). Management estimates that the energy, pulp and paper and power
generation industries accounted for approximately 65%, 10% and 23% of the
Company's revenue, respectively, for the twelve months ended May 31, 1998 on the
pro forma basis described above, with the remaining 2% associated with other
industries.
The Company believes it has achieved a competitively advantaged position in
the industrial support and specialty fabrication markets it serves by
consistently providing high-quality, cost-effective service on a safe and timely
basis. The Company's key competitive strengths include: (i) long-standing
customer relationships, (ii) an outstanding safety and environmental record,
(iii) a broad array of value-added services, (iv) the ability to provide its
services throughout North America and (v) an experienced, dedicated management
in the field and at the corporate level.
A substantial portion of the Company's work is recurring in nature, either
through term contracts or long-standing customer relationships. At May 31, 1998,
the Company had project backlog of approximately $345.5 million, substantially
all of which it expects to realize within the next twelve months.
1
<PAGE> 7
THE OUTSOURCING TREND
Over the last several years, a trend toward greater use of outsourcing
services has emerged. This trend has created an opportunity for companies such
as American Eco to satisfy increasing customer demand for outsourcing industrial
support services, and has required that industrial support service providers
offer a greater breadth of services. As companies increasingly realize the
benefit and breadth of outsourcing services, the growth in outsourcing services
should accelerate.
Factors driving the increased outsourcing of industrial support services
include: (i) greater use of outside contractors to control internal labor and
insurance costs, which also eliminates the need to maintain expensive and
under-utilized equipment, (ii) the growing cost of training and maintaining a
skilled work force to perform support service functions, (iii) compliance with
ever stricter environmental and safety regulations which creates the need for
more frequent facility upgrades or modifications, and (iv) a preference by
customers to simplify vendor management through the use of large, single-source,
support service providers with broad geographic coverage, an established safety
record, a history of environmental compliance and a reputation for quality.
Outsourcing yields substantial customer benefits through lower overall
operating costs, the ability to place greater emphasis on core business
processes, the conservation of human and capital resources, the higher
probability of completing projects on schedule due to contract stipulations,
improved equipment quality and reliability, and access to technical expertise
not available internally.
According to The Outsourcing Institute, U.S. companies spent approximately
$85 billion on outsourcing services in 1997, a 26% increase over 1996.
BUSINESS STRATEGY
The Company's objectives are to continue to strengthen and broaden its
position as a leading provider of industrial support and specialty fabrication
services to the energy, pulp and paper and power generation industries in North
America, and thereby increase cash flow and profitability. To achieve these
objectives, the Company is pursuing the following business strategies:
Acquire Complementary Industrial Service Businesses. The Company evaluates,
on an ongoing basis, potential acquisitions of complementary businesses in an
effort to further strengthen and broaden its single-source service offering, and
expand its customer base and geographic presence. Management believes that the
industrial support services and specialty fabrication markets are fragmented
markets which are entering a period of consolidation due to: (i) customer demand
for greater breadth and quality of service, (ii) the need to service all
customer facilities, thus enabling the customer to reduce its vendor
relationships, and (iii) the increased importance of established safety and
environmental compliance records. These factors have increased the necessary
economies of scale and scope in the support services and specialty fabrication
markets, eroded the competitiveness of smaller industry participants, and
increased the barriers to entry for new competitors.
Strengthen Competitive Position in Growing Outsourcing Market. Management
believes that participants in the energy, pulp and paper and power generation
industries, in an effort to remain competitive, will continue to increase their
reliance on independent contractors to provide industrial support and specialty
fabrication services. Management is expanding the Company's capabilities to
provide its customers a single-source solution for their support services and
specialty fabrication needs.
Cross-Sell Services. The sales staff, operations managers and business
development personnel of each of the Company's subsidiaries are familiar with
the capabilities of all the Company's subsidiaries. The Company trains its
personnel to identify cross-selling opportunities and integrate the breadth of
the Company's services into each bid proposal. This provides the customer a more
comprehensive portfolio of services. The Company's cross-selling initiatives
have resulted in several successful projects which have involved multiple
operating subsidiaries of the Company and the performance of services internally
which were historically performed by third parties.
2
<PAGE> 8
Maintain Decentralized Operating Structure. While at the corporate level
the Company retains centralized control over certain administrative and finance
functions, its operating subsidiaries maintain a high level of autonomy.
Management believes that the Company's decentralized operating structure is
critical to its success, as many decisions to purchase its services are made by
local customers based on established relationships and a service provider's
ability to respond rapidly to the customer's needs. In addition, the Company is
instituting a program to improve subsidiary reporting procedures and eliminate
functional redundancy.
THE EXCHANGE OFFER
Purpose and Effect of the
Exchange Offer........... The Original Notes were sold by the Company on May
21, 1998 in a private transaction not subject to
the registration requirements of the Securities
Act. In connection therewith, the Company and the
Guarantors entered into a Registration Rights
Agreement providing for, among other things, the
Exchange Offer so that the Exchange Notes will be
freely transferable by the holders thereof (other
than as provided herein), and issued free of
certain transfer restrictions relating to the
Original Notes. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "Plan of
Distribution."
Terms of the Exchange
Offer...................... Upon the terms and subject to the conditions set
forth in this Prospectus and in the Letter of
Transmittal, the Company will accept any and all
Original Notes validly tendered and not withdrawn
prior to the Expiration Date. The Company will
issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Original Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original
Notes pursuant to the Exchange Offer. However,
Original Notes may be tendered only in integral
multiplies of $1,000 in principal amount. The terms
of the Exchange Notes are substantially identical
in all respects to the terms of the Original Notes
except that (i) the Exchange Notes will be freely
transferable by holders thereof (other than as
provided herein) and issued free of certain
transfer restrictions and registration rights
relating to the Original Notes, and (ii) the
holders of the Exchange Notes will not be entitled
to certain rights of holders of the Original Notes
under the Registration Rights Agreement, which
rights will terminate upon consummation of the
Exchange Offer. The Exchange Notes will evidence
the same debt as the Original Notes and will be
issued under and entitled to the benefits of the
Indenture. As of the date of this Prospectus,
$120,000,000 aggregate principal amount of the
Original Notes were outstanding.
Expiration Date............ 5:00 p.m., New York City time on September 18,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Interest on the Exchange
Notes.................... Interest on the Exchange Notes will be payable
semi-annually in arrears on May 15 and November 15
of each year, commencing November 15, 1998.
Interest on the Exchange Notes will accrue from the
date of issuance of the Original Notes, May 21,
1998. Consequently, holders who exchange their
Original Notes for Exchange Notes will receive the
3
<PAGE> 9
same interest payment on November 15, 1998 that
they would have received had they not accepted the
Exchange Offer. See "The Exchange Offer -- Interest
on the Exchange Notes."
Procedure for Tendering.... Only a registered holder of Original Notes may
tender in the Exchange Offer. To tender in the
Exchange Offer, a holder must complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, have the signature thereon guaranteed if
required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or
such facsimile, together with any other required
documents, to the Exchange Agent (as identified
below) prior to the Expiration Date. In addition,
(i) certificates for such Original Notes, or a
timely confirmation of a book-entry transfer of
such Original Notes, if such procedure is
available, into the Exchange Agent's account at The
Depository Trust Company ("DTC") pursuant to the
procedure for book-entry transfer described herein,
must be received by the Exchange Agent prior to the
Expiration Date, or (ii) the holder must comply
with the guaranteed delivery procedures described
below. See "The Exchange Offer -- Procedures for
Tendering."
Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender directly, such beneficial owner
must, prior to completing and executing the Letter
of Transmittal and delivering such beneficial
owner's Original Notes, either make appropriate
arrangements to register ownership of the Original
Notes in such owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of record ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
immediately available or who cannot deliver their
Original Notes (or complete the procedures for book
entry transfer), the Letter of Transmittal or any
other required documents to the Exchange Agent
prior to the Expiration Date may tender their
Original Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Except as otherwise provided herein, tenders of
Original Notes may be withdrawn at any time prior
to the Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
Conditions to the
Exchange Offer........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions
that may be waived by the Company and to the terms
and conditions of the Registration Rights
Agreement. The Company reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such conditions. See "The Exchange
Offer -- Conditions to the Exchange Offer."
4
<PAGE> 10
Resales of Exchange
Notes...................... The Company and the Guarantors are making the
Exchange Offer of the Exchange Notes in reliance on
the position of the staff of the Commission as set
forth in certain interpretive letters addressed to
third parties in other transactions. However,
neither the Company nor any of the Guarantors has
sought its own interpretive letter, and there can
be no assurance that the staff of the Commission
would make a similar determination with respect to
the Exchange Offer. Based on these interpretations
by the staff of the Commission, and subject to the
two immediately following sentences, the Company
and the Guarantors believe that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale,
resold and otherwise transferred by a holder
thereof (other than a holder who is an Affiliate or
a broker-dealer) without further compliance with
the registration and prospectus delivery
requirements of the Securities Act, provided that
such Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder is not participating, and has no arrangement
or understanding with any person to participate, in
a distribution (within the meaning of the
Securities Act) of such Exchange Notes. However,
any holder of Original Notes who is an Affiliate of
the Company or who intends to participate in the
Exchange Offer for the purpose of distributing
Exchange Notes, or any broker-dealer who purchased
Original Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on
the interpretations of the staff of the Commission
set forth in the above-mentioned interpretive
letters, (ii) will not be entitled to tender such
Original Notes in the Exchange Offer, and (iii)
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of such
Original Notes unless such sale or transfer is made
pursuant to an exemption from such requirements. In
addition, Participating Broker-Dealers (as defined
herein) will be required to deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of Exchange Notes as
described under "The Exchange Offer -- Resales of
Exchange Notes."
Each holder of Original Notes who wishes to
exchange Original Notes for Exchange Notes in the
Exchange Offer will be required to make certain
representations, which are contained in the Letter
of Transmittal. Each Participating Broker-Dealer
must acknowledge that it acquired the Original
Notes for its own account as a result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
Based on the position taken by the staff of the
Commission in the interpretive letters referred to
above, the Company and the Subsidiary Guarantors
believe that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with
respect to the Exchange Notes received upon
exchange of such Original Notes with this
Prospectus.
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. The address, telephone
number and facsimile number of the Exchange Agent
are set forth under "The Exchange Offer -- Exchange
Agent."
5
<PAGE> 11
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer.
THE EXCHANGE NOTES
Securities Offered......... $120,000,000 principal amount of 9 5/8% Series B
Senior Notes due 2008.
Maturity Date.............. May 15, 2008.
Interest Rate and
Payment Dates............ The Notes bear interest at a rate of 9 5/8% per
annum. Interest will be payable semi-annually in
arrears on May 15 and November 15 of each year
commencing November 15, 1998.
Ranking.................... The Notes are senior unsecured obligations of the
Company, ranking pari passu in right of payment
with all existing and future senior unsecured
indebtedness of the Company and senior in right of
payment to any subordinated indebtedness of the
Company to be incurred in the future. The indenture
pursuant to which the Notes have been issued (the
"Indenture") permits the Company and its
subsidiaries to incur additional indebtedness,
subject to certain conditions. The Notes and the
Subsidiary Guarantees will be effectively
subordinated to any secured indebtedness of the
Company and the Subsidiary Guarantors under future
credit facilities that may be secured by certain
assets of the Company and its subsidiaries. At May
31, 1998, neither the Company nor the Guarantors
had any outstanding indebtedness ranking pari passu
in right of payment with either the Notes or the
Subsidiary Guarantees. See "Description of the
Notes -- General" and "-- Certain
Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Subsidiary Guarantees...... The Notes are jointly and severally guaranteed on a
senior unsecured basis by the Guarantors. See
"Description of the Notes -- Subsidiary
Guarantees."
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after May 15, 2003, at redemption prices set forth
herein, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon, to the
redemption date. Notwithstanding the foregoing,
prior to May 15, 2001, the Company may redeem up to
35% of the aggregate principal amount of the Notes
originally issued at a redemption price of 109.625%
of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon, to the redemption date, with the net cash
proceeds of one or more Qualified Equity Offerings
(as defined herein), provided that at least 65% of
the aggregate principal amount of the Notes
originally issued remain outstanding following each
such redemption. See "Description of the Notes --
Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined herein), the Company will be required to
make an offer to purchase all or any portion of
each holder's Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon,
to the date of purchase. See "Description of the
Notes -- Put Option of Holders."
6
<PAGE> 12
Redemption for Changes in
Canadian Tax Law......... The Company is required to pay Additional Amounts
(as defined herein) to the holders of the Notes to
compensate such holders for any amounts deducted
from payments to such holders in respect of the
Notes on account of certain Canadian taxes and
other governmental charges. If the Company becomes
obligated to pay such Additional Amounts as a
result of a change in Canadian law, the Notes will
be subject to redemption, in whole but not in part,
at the option of the Company at a price equal to
100% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any,
thereon, to the redemption date. See "Description
of the Notes -- Redemption for Taxation Reasons."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and certain of its subsidiaries to incur
additional Indebtedness (as defined herein), pay
dividends or make other distributions, purchase
Equity Interests (as defined herein) or
subordinated indebtedness, create certain liens,
enter into certain transactions with affiliates,
issue or sell capital stock of subsidiaries, engage
in sale-and-leaseback transactions, sell assets or
enter into certain mergers or consolidations. See
"Description of the Notes -- Certain Covenants."
For further information regarding the Notes, see "Description of the Notes."
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with the Exchange Offer and an investment in the Exchange Notes, see "Risk
Factors."
7
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical financial data for the
Company for the three fiscal years ended November 30, 1997 and for the six month
periods ended May 31, 1997 and May 31, 1998 and pro forma financial data for the
fiscal year ended November 30, 1997 and the twelve and six months ended May 31,
1998. Management believes that the unaudited historical financial data reflects
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of such information.
The summary financial data should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Financial Information," "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the Company's consolidated financial
statements and notes thereto included elsewhere herein.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian Basis"). The
differences between Canadian Basis and U.S. Basis (accounting principles
generally accepted in the United States) are described in Note 15 to the Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30,(1) TWELVE MONTHS MAY 31,
----------------------------------------- ENDED -------------------------------
PRO FORMA MAY 31, PRO FORMA
1995 1996 1997 1997(2) 1998(2) 1997 1998 1998(2)
------- -------- -------- --------- ------------- -------- -------- ---------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue............................. $46,684 $119,529 $220,478 $251,498 $241,484 $101,599 $117,896 $117,896
Operating expenses:
Direct costs of revenue........... 39,456 87,203 162,882 193,520 184,703 78,265 94,477 94,477
Selling, general and
administrative expenses......... 2,814 20,616 31,243 37,455 36,095 12,062 16,528 16,528
Depreciation and amortization..... 1,107 2,232 5,382 5,830 5,714 1,861 2,222 2,222
------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses............ 43,377 110,051 199,507 236,805 226,512 92,188 113,227 113,227
------- -------- -------- -------- -------- -------- -------- --------
Operating income.................... 3,307 9,478 20,971 14,693 14,972 9,411 4,669 4,669
Other (income) expenses:
Interest expense, net............. 713 1,747 4,946 12,681 11,990 1,864 1,670 5,995
Foreign exchange gain............. (96) (221) (557) (557) (338) (435) (216) (216)
Loss on early extinguishment of
debt............................ -- -- 2,400 --
Gain on sale of assets and
subsidiaries.................... (370) (2) (2,682) (223) (223) -- -- (1,110)
------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes.......... 3,060 7,954 19,264 2,792 3,543 7,982 815 --
Provision for (recovery of) income
tax............................... 208 (809) 1,829 -- -- -- 285 (1,110)
------- -------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 2,852 $ 8,763 $ 17,435 $ 2,792 $ 3,543 $ 7,982 $ 530 $ 1,110
======= ======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Capital expenditures................ $ 386 $ 4,803 $ 3,134 $ 3,412 $ 4,021 683 1,570 4,021
EBITDA(3)........................... 4,414 11,710 19,752 17,598 20,686 11,273 6,891 15,370
Ratio of EBITDA to interest expense,
net............................... 6.2x 6.7x 4.0x 1.4x 1.7x 6.0x 4.1x 3.2x
Ratio of earnings to fixed
charges........................... 5.0x 5.1x 4.7x 3.9x 1.3x 4.7x 1.4x 0.8x
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1998
---------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... 37,618
Working capital............................................. 121,109
Total assets................................................ 279,701
Long-term debt, including current portion................... 121,373
Shareholders' equity........................................ 119,854
</TABLE>
- ---------------
(1) The statement of income for the year ended November 30, 1995 reflects five
months of operations for Lake Charles Construction Company, a Louisiana
corporation ("Lake Charles Construction" and, together with its wholly-owned
subsidiaries, the "Lake Charles Group"). The statement of income for the
year ended November 30, 1996 reflects eleven months of operations for
Environmental Evolutions, Inc., a Texas corporation ("Environmental
Evolutions"), six months of operations for United Eco Systems, Inc., a
Delaware corporation ("United Eco"), four months of operations for
Separation and Recovery Systems, Inc., a Nevada corporation ("SRS") and
Industra Service Corporation, a British Columbia, Canada corporation
("Industra Service") and one month of operations for MM Industra, Limited, a
Nova Scotia, Canada corporation ("MM Industra"). The statement of income for
the year ended November 30, 1997 reflects nine months of operations for
Chempower, Inc., an Ohio corporation ("Chempower"), three months of
operations for Specialty Management Group, Inc., d.b.a./CCG, a Texas
corporation ("CCG"), and nine months of operations for Eco Environmental,
Inc., a Delaware corporation ("Eco Environmental"), and Environmental
Evolutions prior to their sales.
(2) The pro forma income statement data for the year ended November 30, 1997
gives pro forma effect to (i) the issuance of the Original Notes and the
application of the net proceeds therefrom, (ii) the acquisitions of
Chempower and CCG and (iii) the sale of Eco Environmental and Environmental
Evolutions as if all such events had occurred on December 1, 1996. The pro
forma income statement data for the twelve months ended May 31, 1998 gives
pro forma effect to (i) the issuance of the Original Notes and the
application of the net proceeds therefrom, (ii) the acquisition of CCG and
(iii) the sale of Eco Environmental and Environmental Evolutions as if all
such events had occurred on June 1, 1997. The pro forma income statement
data for the six months ended May 31, 1998 gives pro forma effect to the
issuance of the Original Notes and the application of the net proceeds
therefrom as if such issuance and application of proceeds had occurred on
December 1, 1997. See "Unaudited Pro Forma Financial Information."
(3) EBITDA is defined as earnings before net interest expense, taxes,
depreciation and amortization, other income (expense), $3.7 million in
non-recurring charges (which consists of (i) the $2.7 million buyout of
employee stock options, (ii) $664,000 in acquisition costs and (iii)
$359,000 in other charges) incurred by Chempower prior to its acquisition by
the Company included in the pro forma statement of income for the fiscal
year ended November 30, 1997, and the $6.6 million of sales proceeds
received by the Company in excess of its cost of ownership in Mid-Atlantic
Recycling Technologies ("MART") as described in Note 21 to the Notes to
Consolidated Financial Statements. The MART transaction was consummated in
November 1997. Such amount related to MART has been included in operating
income in the above Statement of Income Data. EBITDA is presented because it
is a widely accepted financial indication of a company's ability to incur
and service debt. EBITDA is not a measurement presented in accordance with
GAAP and is not intended to be used in lieu of GAAP presentations of results
of operations and cash provided by (used in) operating activities. For the
periods presented, there is no difference between Canadian Basis and U.S.
Basis for the calculation of EBITDA, as defined above.
8
<PAGE> 14
RISK FACTORS
In evaluating an investment in the Notes, prospective investors should
consider carefully the following factors in addition to the other information
presented elsewhere in this Prospectus.
Substantial Leverage. The Company is highly leveraged. At May 31, 1998, the
Company's total consolidated debt was $121.4 million and its percentage of total
consolidated debt to total book capitalization was 50.3%. See "Use of Proceeds"
and "Capitalization." Subject to the restrictions in the Indenture, the Company
and its subsidiaries may incur additional indebtedness from time to time. The
Company plans to enter into a secured credit facility of up to $30.0 million to
replace, in part, credit facilities which were repaid upon issuance of the
Original Notes.
The degree to which the Company will be leveraged may have important
consequences to the holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest and principal repayment on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds, to dispose of assets and to react to changes in its business,
including possible acquisition opportunities, and (iii) the Company's ability to
obtain additional or replacement financing in the future for working capital,
capital expenditures, potential acquisitions or general corporate purposes may
be impaired. Management believes that, excluding acquisitions, future cash flow
from operations will be adequate to meet the Company's anticipated cash
requirements for working capital, capital expenditures and debt service for the
foreseeable future.
The Company's ability to pay interest and principal on the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. If the Company's cash flow from operations and capital resources are
not sufficient to fund its debt service obligations, the Company may be forced
to pursue one or more alternative strategies such as reducing or delaying
capital expenditures, curtailing expansion, selling assets, obtaining additional
equity capital or restructuring its debt. There can be no assurance that any of
these strategies could be effected on terms satisfactory to the Company, if at
all. See "Description of the Notes."
Holding Company Structure; Dependence Upon Operations of Subsidiaries. The
Company is a holding company which conducts substantially all of its operations
through subsidiaries. The holders of the Notes will have no direct claim against
the Guarantors other than the claim created by the Subsidiary Guarantees, which
may themselves be subject to legal challenge in the event of the bankruptcy of a
Guarantor. If such a challenge were upheld, the Subsidiary Guarantees would be
unenforceable. To the extent that the Subsidiary Guarantees are not enforceable,
the rights of the holders of the Notes to participate in any distribution of
assets of a Guarantor upon liquidation, bankruptcy, reorganization or otherwise
may, as is the case with other unsecured creditors of the Company, be subject to
prior claims of creditors of that Guarantor. The Company will be dependent on
the earnings and cash flow of, and dividends and distributions or advances from,
its subsidiaries to provide the funds necessary to meet its debt service
obligations, including the payment of principal of and interest on the Notes.
There can be no assurance that such subsidiaries will generate sufficient cash
flow to dividend, distribute or advance funds to the Company. The Indenture
contains covenants that restrict the ability of the subsidiaries to enter into
agreements limiting distributions and transfers, including dividends. However,
the ability of the Company's subsidiaries to pay dividends and make other
payments may be restricted by, among other things, applicable corporate laws and
regulations or by terms of agreements to which they may become party. See
"Description of the Notes."
Acquisition Strategy; Ability to Complete and Integrate Acquisitions. The
Company has pursued an aggressive acquisition strategy. Between fiscal 1993 and
fiscal 1997, the Company's annual revenues grew from $7.6 million to $220.5
million primarily as a result of acquiring nine industrial support and specialty
fabrication businesses. The Company plans to continue to pursue acquisitions and
to use a portion of the net proceeds from the issuance of the Original Notes to
pay for all, or part, of future acquisitions. The Company's
9
<PAGE> 15
acquisition strategy entails the potential risks inherent in assessing the
value, strengths, weaknesses, contingent liabilities and potential profitability
of acquisition candidates and in integrating the operations of acquired
companies. Although the Company generally has been successful in pursuing
acquisitions, there can be no assurance that acquisition opportunities will
continue to be available, that the Company will have access to the capital
required to finance potential acquisitions, that the Company will continue to
acquire businesses or that any business acquired will be integrated successfully
or prove profitable. See "Business -- Acquisition History" and "-- Recent
Developments."
The expansion of the Company's business through acquisitions will likely
divert the resources and the time of the Company's management, and will require
the integration of the acquisitions into the Company's existing operations.
There can be no assurance that any acquired business will be successfully
integrated into the Company's operations or that any such business will meet the
Company's expectations. The Company's future performance will depend, in part,
upon its ability to manage its growth effectively, which will require it to
continue to implement and improve its operating, financial and accounting
systems, to expand, train and manage its employee base and to effectively manage
the integration of acquired businesses. The Company's inability to effectively
manage its expansion could have a materially adverse effect on its business,
financial condition and results of operations.
Effective Subordination. The Notes are unsecured obligations of the
Company, and the Subsidiary Guarantees are unsecured obligations of the
Guarantors. Holders of secured indebtedness of the Company and the Guarantors
will have claims with respect to the assets constituting collateral for such
secured indebtedness that are superior to the claims of the holders of the
Notes. Accordingly, the Notes and the Subsidiary Guarantees will be effectively
subordinated to the claims of secured creditors of the Company and the
Guarantors to the extent of such collateral. At May 31, 1998, the Company and
the Guarantors had no secured indebtedness outstanding. However, the Indenture
permits the Company and the Guarantors to incur secured debt under credit
facilities in an amount up to the greater of $30.0 million or 85% of Eligible
Receivables (as defined in the Indenture). See "Description of the
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock" and "-- Liens."
Restrictions Imposed by the Terms of the Company's Indebtedness. The
Indenture contains certain covenants that, among other things, will limit the
ability of the Company and certain of its subsidiaries to incur additional
Indebtedness, pay dividends or make other distributions, purchase Equity
Interests or subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, issue or sell capital stock of subsidiaries,
engage in sale-and-leaseback transactions, sell assets or enter into certain
mergers or consolidations. A breach of any of these covenants could result in an
event of default under the Indenture.
The ability of the Company to comply with the terms of its debt instruments
can be affected by events beyond its control, including events and changes in
the competitive environment, which could impair the Company's operating
performance. There can be no assurance that the Company will be able to comply
with the terms of its debt instruments, including the Indenture. A breach of any
of these covenants or the failure to fulfill the obligations thereunder beyond
any applicable grace periods could result in an event of default pursuant to
which holders of such indebtedness could declare all amounts outstanding under
such debt instruments to be due and payable immediately. Any such declaration
under a debt instrument is likely to result in an event of default under the
other debt instruments of the Company, if any, then outstanding. There can be no
assurance that the assets or cash flows of the Company would be sufficient to
repay, in full, borrowings under its outstanding debt instruments, whether upon
maturity or in the event of acceleration upon an event of default, or that the
Company would be able to refinance or restructure the payments of such
indebtedness. The Company's ability to meet its debt obligations will depend
upon its ability to execute its business strategy, which includes successfully
integrating recently acquired businesses into its existing operations and other
factors.
Dependence on Key Customers. In fiscal 1997, Huntsman Chemical,
International Paper, Mobil Oil, American Electric Power, Ashland Oil and Brown &
Root together accounted for approximately 31.2% of the Company's total revenues.
Huntsman Chemical accounted for 6.9% of the Company's revenues in fiscal 1997.
10
<PAGE> 16
In fiscal 1996, the Company's top six continuing customers accounted for 18.0%
of total revenues. The loss of any one or more of these key customers could have
a material adverse impact on the Company's business, results of operations and
financial condition. Management believes that the Company's continued efforts to
expand and diversify its customer base and the addition of a full year of
operations from Chempower and CCG, will further reduce the Company's dependence
on any single customer. See "Business -- Customers."
Concentration of Credit Risk. At May 31, 1998, the Company had an aggregate
of $43.4 million in current and long-term notes receivable. This amount
represents a significant portion of the Company's assets. Although some of the
notes receivable are collateralized or partially collateralized, the ultimate
collectibility of these notes is dependent on the financial condition of the
various debtors.
Contract Bidding Risks. A significant portion of the Company's revenues
are, and will continue to be, generated under fixed price contracts. Under a
fixed price contract, the Company must estimate the costs of completing a
particular project, and the cost of labor and materials may vary from the costs
originally estimated by the Company. These variations and other risks inherent
in performing fixed price contracts may result in revenue and gross profits
which vary from those originally estimated. This variance could result in
reduced profitability or losses on projects. Depending on the size of a
particular project, variations from estimated contract costs could have a
significant impact on the Company's operating results for any fiscal quarter or
year.
Reliance on Key Personnel. The Company's development, operations and growth
are dependent on the continued efforts and experience of senior management,
particularly Michael E. McGinnis, the Company's Chairman of the Board and Chief
Executive Officer, who ceased also serving as the Company's President in July
1998, Frank J. Fradella, who became the Company's President and Chief Operating
Officer in July 1998, and Bruce D. Tobecksen, the Company's Senior Vice
President and Chief Financial Officer. In addition, the ability of the Company
to retain its key managers at the operating subsidiaries is important to the
continued success and growth of the Company. The loss of the services of Mr.
McGinnis, Mr. Fradella or other members of the Company's senior management team
or key operating subsidiary personnel, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management."
Recent Net Loss. Although the Company had been profitable in prior periods,
the Company reported a net loss of approximately $1.6 million for the second
quarter of fiscal 1998, which included a $2.4 million charge for early
extinguishment of debt. There can be no assurance that the Company will return
to profitability in the future. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
Unionized Workforce. Approximately 70% of the Company's employees are
covered by collective bargaining agreements. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
Strikes or work stoppages and the resultant adverse impact on the Company's
relationships with its customers could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has multiple collective bargaining agreements expiring from September 1998 to
September 2000 and the Company, historically, has successfully negotiated new
agreements. While the outcome, including the terms of the new agreements and
their impact on the future results of the Company's operations cannot be
predicted, management does not believe that the financial terms of the new
agreements will have a material adverse effect on the Company's business,
financial condition and results of operation. However, there can be no assurance
that the Company will be successful in its contract negotiations. See
"Business -- Employees."
Exposure to Liability Claims and Sufficiency of Insurance Coverage. The
nature of the Company's business exposes it to risks of liability for employee
acts (including negligence and harassment), injuries (including workers'
compensation claims) and omissions. The Company carries insurance of various
types, including workers' compensation, employment practices, vehicle and
general liability coverage. While the
11
<PAGE> 17
Company seeks to maintain appropriate levels of insurance, there can be no
assurance that the Company will avoid material claims or adverse publicity
related thereto. There can also be no assurance that the Company's insurance
will be adequate to cover the Company's liabilities, or that such insurance
coverage will remain available at acceptable costs. A successful claim brought
against the Company for which coverage is denied or which is in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition or results of operations.
Competition. Management believes that the typical provider of industrial
support services in North America is a small- to medium-sized company that
serves customers in one region, and offers a limited range of services. The
Company competes with numerous small, independent contractors which,
collectively, have a significant overall share of the market for these services.
Certain of the Company's competitors have greater financial resources or offer
specialized technologies or services not provided by the Company. The principal
competitive factors for industrial support services are price, quality, scope of
services offered, and safety.
The specialty fabrication market in North America is highly fragmented,
with few large participants. Many of the Company's competitors are local
entities. The principal competitive factors for specialty fabrication services
are price, quality, product availability, ability to meet delivery schedule, and
safety. See "Business -- Competition."
Environmental and Other Regulations. While certain of the Company's
businesses have benefitted from increased environmental regulations, the Company
and its subsidiaries are also subject to extensive and changing environmental,
zoning and other regulations by federal, state and local authorities both in the
U.S. and Canada. If existing regulatory requirements change, the Company may be
required to make significant unanticipated capital and operating expenditures.
Although the Company believes that it is presently in material compliance with
applicable laws and regulations, there is no assurance that its operations will
continue to comply with future laws and regulations. Governmental authorities
may seek to impose fines and penalties on the Company, or revoke or deny the
issuance or renewal of operating permits for failure to comply with applicable
laws and regulations. Under such circumstances, the Company might be required to
curtail or cease operations or conduct site remediation or other corrective
action, which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company cannot predict the
extent to which any legislative, regulatory or enforcement developments may
affect the operation of its businesses or its future financial condition. See
"Business -- Government Regulation and Risk Management."
Fraudulent Conveyance Risks. If the court in a lawsuit brought by an unpaid
creditor or representatives of creditors, such as a trustee in bankruptcy or the
Company as a debtor-in-possession, were to find under relevant federal and state
fraudulent conveyance statutes that the Company did not receive fair
consideration or reasonably equivalent value for incurring the indebtedness
represented by the Notes and that, at the time of such incurrence, the Company
(i) was insolvent; (ii) was rendered insolvent by reason of such incurrence;
(iii) was engaged in a business or transaction for which the assets remaining
with the Company constituted unreasonably small capital; or (iv) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured; then such court, subject to applicable statutes of
limitation, could void the Company's obligations under the Notes, subordinate
the Notes to the other indebtedness of the Company, or take other action
detrimental to the holders of the Notes. The measure of insolvency used by a
court for these purposes will vary depending upon the law of the relevant
jurisdiction. Generally, however, a company will be considered insolvent for
these purposes if, at the time it incurs the indebtedness constituting the
Notes, either (i) the fair market value (or fair salable value) of its assets is
less than the amount required to pay its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured or (ii)
it is incurring debts beyond its ability to pay such debts as they become due.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit brought by or on behalf of
creditors of any of the Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Guarantors),
the
12
<PAGE> 18
obligations of the Guarantors thereunder were incurred for less than reasonably
equivalent value or fair consideration. A court could void the Guarantors'
obligation under the Subsidiary Guarantees, recover payments made under the
Subsidiary Guarantees, subordinate the Subsidiary Guarantees to other
indebtedness of a Guarantor or take other action detrimental to the holders of
the Notes.
The Company believes that it received fair consideration and reasonably
equivalent value for the Original Notes and that at the time of, and after
giving effect to, the incurrence of the indebtedness and obligations evidenced
by the Original Notes, the Company (i) was neither insolvent nor rendered
insolvent thereby, (ii) had sufficient capital to operate its business
effectively, (iii) incurred debts within its ability to pay as the same mature
or become due and (iv) had sufficient resources to satisfy any probable money
judgment against it in any pending action. In reaching the foregoing
conclusions, the Company relied upon its analysis of internal cash flow
projections and estimated values of assets and liabilities of the Company. There
can be no assurance, however, that such analysis will prove to be correct or
that a court passing on such questions would reach the same conclusions.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings are initiated by or against the
Company within 90 days (or a longer period if the holder of the Notes was deemed
to be an "insider") after any payment by the Company with respect to the Notes
or if the Company anticipated becoming insolvent at the time of such payment,
all or a portion of such payment could be avoided as a preferential transfer and
the recipient of such payment could be required to return such payment.
Ability to Purchase Notes Upon a Change of Control. Upon the occurrence of
a Change of Control, each holder of the Notes will have the right to require the
Company to purchase its Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. A Change of Control may trigger an event of default under any future
credit agreements or other agreements relating to other indebtedness to which
the Company becomes a party. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing the Notes, the Company could seek
the consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such consent or repay such borrowings, the Company would remain
prohibited from purchasing the Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an event of default under the
Indenture, which may in turn constitute a further default under the terms of
other indebtedness that the Company may enter into from time to time. In
addition, the provisions of the Indenture may not afford holders of the Notes
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect holders of the Notes, if such transaction does not result in a
Change of Control. The Company adopted a shareholder rights plan in April 1998
which may limit the occurrence of a Change of Control. See "Description of the
Notes -- Put Option of Holders -- Change of Control."
Potential "Year 2000" Problems. It is possible that the Company's currently
installed computer systems, software products or other business systems, or
those of the Company's significant suppliers or customers, working either alone
or in conjunction with other software systems, will not accept input of, store,
manipulate and output dates for the years 1999, 2000 or thereafter without error
or interruption (commonly known as the "Year 2000" problem). The Company has
conducted a review of its business systems, including its computer systems, and
has initiated formal communications with all of its significant suppliers and
large customers as to their progress in identifying and addressing problems that
their computer systems may face in correctly interrelating and processing date
information as the year 2000 approaches. However, there can be no assurance that
the Company will identify all such Year 2000 problems in its computer systems or
those of its significant suppliers and customers in advance of their occurrence
or that the Company will be able to successfully remedy any problems that are
discovered. The expenses of the Company's efforts to identify and address such
problems, and the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Impact of the Year 2000 Problem."
13
<PAGE> 19
Absence of Public Market for Exchange Notes. The Exchange Notes constitute
a new issue of securities with no established trading market, and there can be
no assurance as to (i) the liquidity of any such market that may develop; (ii)
the ability of holders of the Exchange Notes to sell their Exchange Notes; or
(iii) the price at which the holders of the Exchange Notes would be able to sell
their Exchange Notes. If such a market were to exist, the price at which the
Exchange Notes could trade will depend on many factors, including prevailing
interest rates, the market for similar notes, and the financial performance of
the Company and its subsidiaries. The Company has been advised by the Initial
Purchasers that they presently intend to make a market in the Exchange Notes.
However, the Initial Purchasers are not obligated to do so, and any market-
making activity with respect to the Exchange Notes may be discontinued at any
time without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act. See "Description
of the Notes -- Registration Rights; Liquidated Damages." There can be no
assurance that even following registration of the Exchange Notes a trading
market will exist for the Exchange Notes or that such trading market will be
liquid.
Consequences Of A Failure To Exchange Original Notes. The Original Notes
have not been registered under the Securities Act or any state securities laws
and therefore may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act and any
other applicable securities laws, or pursuant to an exemption therefrom or in a
transaction not subject thereto, and in each case in compliance with certain
other conditions and restrictions. Original Notes that remain outstanding after
consummation of the Exchange Offer will continue to bear a legend reflecting
such restrictions on transfer. In addition, upon consummation of the Exchange
Offer, holders of Original Notes that remain outstanding will not be entitled to
any rights to have such Original Notes registered under the Securities Act or to
any similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company does not intend to register under the
Securities Act any Original Notes that remain outstanding after consummation of
the Exchange Offer (subject to such limited exceptions, if applicable).
To the extent that Original Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Original Notes could be adversely
affected. In addition, to the extent that Original Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Original
Notes that remain outstanding after the Exchange Offer could be adversely
affected. See "The Exchange Offer -- Consequences of Failure to Exchange."
14
<PAGE> 20
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Original Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Original Notes surrendered in
exchange for the Exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not result in any
change in the capitalization of the Company.
The net proceeds to the Company from the issuance of the Original Notes
were approximately $115.7 million after deducting the Initial Purchasers'
discount and certain other estimated fees and expenses relating to the issuance
of the Original Notes. The Company used the net proceeds from the issuance of
the Original Notes to repay approximately $71.3 million of the Company's
outstanding indebtedness, including full repayment of $65.1 million of
borrowings and accrued interest under the Credit and Guaranty Agreement, dated
as of August 22, 1997 (the "Credit Facilities"), among American Eco Funding
Corp., the Company, the Lenders and Issuing Banks thereunder and Union Bank of
California, N.A., as Agent.
The remaining net proceeds from the issuance of the Original Notes are
expected to be used by the Company for potential acquisitions and general
corporate purposes.
15
<PAGE> 21
CAPITALIZATION
The following table sets forth the cash, debt and equity capitalization of
the Company at May 31, 1998. The following capitalization table should be read
in conjunction with the "Unaudited Pro Forma Financial Information," "Selected
Historical Consolidated Financial Data" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 31, 1998
----------------
(IN THOUSANDS OF
U.S. DOLLARS)
<S> <C>
Cash and cash equivalents................................... $ 37,618
========
Current portion long-term debt and notes payable............ 1,373
Long-term debt, excluding current indebtedness:
9 5/8% Senior Notes due 2008.............................. 120,000
--------
Shareholders' equity:
Common shares, no par value, unlimited authorized shares;
21,200,197 shares outstanding at May 31, 1998(1)....... 87,937
Contributed surplus....................................... 2,845
Cumulative foreign exchange............................... (1,647)
Retained earnings......................................... 30,719
--------
Total shareholders' equity........................ 119,854
--------
Total capitalization.............................. $241,227
========
</TABLE>
- ---------------
(1) Exclusive of 1,119,900 options and 1,915,929 common share purchase warrants.
16
<PAGE> 22
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on May 21, 1998 (the "Issue
Date") to the Initial Purchasers in a private transaction not subject to the
registration requirements of the Securities Act. The Initial Purchasers offered
and sold the Original Notes only (i) to "Qualified Institutional Buyers" (as
defined in Rule 144A under the Securities Act) in reliance on the exemption from
the registration requirements of the Securities Act provided by Rule 144A, (ii)
to a limited number of institutional "Accredited Investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of Original Notes, executed and delivered to the Initial Purchasers a
letter containing certain representations and agreements and (iii) outside the
United States to non-U.S. persons in offshore transactions (as defined in
Regulation S under the Securities Act) in compliance with Regulation S under the
Securities Act.
In connection with the sale of the Original Notes, the Company and the
Guarantors entered into the Registration Rights Agreement, which provides that:
(i) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company and the Guarantors will file a registration
statement relating to the Exchange Offer (the "Exchange Offer Registration
Statement") with the Commission on or prior to 60 days after the Issue Date,
(ii) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company and the Guarantors will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 135 days after the Issue Date, and (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company and the Subsidiary Guarantors will use their reasonable best efforts
to cause the Exchange Offer to be consummated on or before 180 days after the
Issue Date. The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference thereto.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Original Notes not tendered will not
have any further registration rights and such Original Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Original Notes could be adversely affected upon completion of the
Exchange Offer. Unless the context otherwise requires, the term "holder" with
respect to the Exchange Offer means any person in whose name the Original Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from the registered holder, or any person whose
Original Notes are held of record by DTC who desires to deliver such Original
Notes by book-entry transfer at DTC.
If (i) the Company and the Subsidiary Guarantors are not permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by any
applicable law or applicable interpretation of the Commission or the staff of
the Commission, or (ii) any holder of Original Notes notifies the Company on or
prior to the 20th day following the consummation of the Exchange Offer that (A)
it is prohibited by applicable law or Commission policy from participating in
the Exchange Offer, or (B) it may not resell the Exchange Notes acquired by it
in the Exchange Offer to the public without delivering a prospectus and this
Prospectus is not appropriate or available for such resales by such holder, the
Company and the Guarantors will file with the Commission a shelf registration
statement to be declared effective by the Commission within specified periods.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Original
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
$1,000 principal amount of Original Notes accepted in the Exchange Offer.
Holders may tender some or all of their Original Notes pursuant to the Exchange
Offer. However, Original Notes may be tendered only in integral multiples of
$1,000 in principal amount.
17
<PAGE> 23
The terms of the Exchange Notes are substantially identical in all respects
to the terms of the Original Notes except that (i) the Exchange Notes will be
freely transferable by holders thereof (other than as provided herein) and
issued free of certain transfer restrictions and registration rights relating to
the Original Notes, and (ii) the holders of the Exchange Notes will not be
entitled to certain rights of holders of the Original Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the
Original Notes and will be issued under and entitled to the benefits of the
Indenture.
As of the date of this Prospectus, $120,000,000 aggregate principal amount
of the Original Notes was outstanding. Of such amount, $118,750,000 aggregate
principal amount is registered in the name of Cede & Co., as nominee for DTC,
and $1,250,000 aggregate principal amount in the name of the beneficial holders
thereof or their nominees.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Business Corporations Act, Ontario or the Indenture in connection with
the Exchange Offer. The Company and the Guarantors intend to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company and
delivering the Exchange Notes to such holders. If any tendered Original Notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, the certificates for any
such unaccepted Original Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
September 18, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent of any extension by
oral or written notice and will make a public announcement thereof, each prior
to 9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. The Company reserves the right, in its sole
discretion, (i) to delay acceptance of any Original Notes, to extend the
Exchange Offer, or, if any of the conditions set forth herein under
"-- Conditions to the Exchange Offer" shall have not been satisfied, to
terminate the Exchange Offer, or (ii) to amend the terms of the Exchange Offer
in any manner by giving oral or written notice of such delay, extension or
termination to the Exchange Agent. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the holders of Original Notes, and the Company will extend the
Exchange Offer for a period of time, depending on the significance of the
amendment and the manner of disclosure to the registered holders if the Exchange
Offer would otherwise expire during such time. Without limiting the manner in
which the Company may choose to make public announcements of any delay in
acceptance, extension, termination or amendment of the Exchange Offer, the
Company shall have no obligation to publish, advertise, or otherwise communicate
any such public announcement, other than by making a timely release to an
appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will be payable semi-annually in arrears on
May 15 and November 15 of each year, commencing November 15, 1998. Interest on
the Exchange Notes will accrue from the date of issuance of the Original Notes,
May 21, 1998. Consequently, holders who exchange their Original Notes for
18
<PAGE> 24
Exchange Notes will receive the same interest payment on November 15, 1998 that
they would have received had they not accepted the Exchange Offer.
PROCEDURES FOR TENDERING
The tender to the Company of Original Notes by a holder thereof pursuant to
any one of the procedures set forth below will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a registered holder of Original Notes may tender in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to the Expiration Date. In
addition, (i) certificates for such Original Notes, or a timely confirmation of
a book-entry transfer of such Original Notes, if such procedure is available,
into the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (ii) the holder must comply with the guaranteed
delivery procedures described below.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender in the Exchange Offer should contact such registered holder promptly
and instruct such registered holder to tender on such beneficial owner's behalf.
If such beneficial holder wishes to tender directly, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Original Notes, either make appropriate arrangements to register
ownership of the Original Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the
Original Notes tendered thereby, the signature must correspond with the name(s)
written on the face of the Original Notes without alteration, enlargement or any
change whatsoever. If the Letter of Transmittal is signed by a participant in
DTC, the signature must correspond with the name as it appears on the security
position listing as the holder of the Original Notes. If the Letter of
Transmittal is signed by a person other than the registered holder of any
Original Notes listed therein, such Original Notes must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender the
Original Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Original Notes. If the
Letter of Transmittal or any Original Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE OPTION AND SOLE RISK OF
THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. DELIVERY IS RECOMMENDED BY OVERNIGHT OR HAND
DELIVERY SERVICE OR, IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special
19
<PAGE> 25
Delivery Instructions" on the Letter of Transmittal, or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by Original Notes (or a timely confirmation received of a book-entry
transfer of Original Notes into the Exchange Agents's account at DTC) is
received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery from an
Eligible Institution is received by the Exchange Agent. Issuances of Exchange
Notes in exchange for Original Notes tendered pursuant to a Notice of Guaranteed
Delivery by an Eligible Institution will be made only against submission of a
duly signed Letter of Transmittal (and any other required documents) and the
deposit of the tendered Original Notes with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes the Company's
acceptance of which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in tender of any
Original Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Original Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Original Notes or incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Original Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (i)
purchase or make offers for any Original Notes that remain outstanding after the
Expiration Date, or, as set froth under "-- Conditions to the Exchange Offer,"
to terminate the Exchange Offer, and (ii) to the extent permitted by applicable
law, purchase Original Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may differ
from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Original
Notes at DTC for purposes of the Exchange Offer within two business days after
the date of this Prospectus, and any financial institution that is a participant
in DTC's book-entry transfer facility system may make book-entry delivery of the
Original Notes by causing DTC to transfer such Original Notes into the Exchange
Agent's account in accordance with DTC's procedures for such transfer. Although
delivery of Original Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must in any case (other
than as set forth in the next paragraph) be transmitted to and received by the
Exchange Agent on or prior to the Expiration Date at one of its addresses set
forth below under "-- Exchange Agent," or the guaranteed delivery procedures
described below.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place for sending a signed, hard copy of the Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent.
20
<PAGE> 26
To tender Original Notes through ATOP, the electronic instructions sent to DTC
and transmitted by DTC to the Exchange Agent must contain the character by which
the participant acknowledges its receipt of and agrees to be bound by the Letter
of Transmittal.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes in the Exchange Offer and
(i) whose Original Notes are not immediately available, or (ii) who cannot
deliver their Original Notes (or complete the procedures for book-entry
transfer), the Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Original Notes, the
registration number or numbers of such Original Notes (if applicable), and
the total principal amount of Original Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three Nasdaq
National Market trading days after the Expiration Date, the Letter of
Transmittal, together with the Original Notes in proper form for transfer
(or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal,
together with the certificate(s) representing all tendered Original Notes
in proper form for transfer (or a confirmation of such a book-entry
transfer) and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three Nasdaq National Market trading
days after the Expiration Date.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including, if applicable, the registration number or
numbers and total principal amount of such Original Notes), (iii) be signed by
the Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Original Notes to register the transfer
of such Original Notes into the name of the Depositor withdrawing the tender,
(iv) specify the name in which any such Original Notes are to be registered, if
different from that of the Depositor, and (v) if applicable because the Original
Notes have been tendered pursuant to the book-entry procedures, specify the name
and number of the participant's account at DTC to be credited, if different than
that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Original Notes so withdrawn are validly retendered. Any Original Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection or termination of the Exchange Offer. Properly withdrawn
Original Notes may be retendered by
21
<PAGE> 27
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to issue Exchange Notes for, any Original
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any government agency with respect to the Exchange Offer
that, in the Company's judgment, would reasonably be expected to materially
impair the ability of the Company to proceed with the Exchange Offer, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred that, in the Company's judgment, would reasonably be expected
to materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted that, in the Company's
judgment, would reasonably be expected to materially impair the ability of
the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its judgment, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Original Notes (see "-- Withdrawal Rights"), or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to holders of Original Notes, and the Company will extend the
Exchange Offer for a period of time depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such period.
RESALES OF EXCHANGE NOTES
The Company and the Guarantors are making the Exchange Offer of the
Exchange Notes in reliance on the position of the staff of the Commission as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor any of the Guarantors has sought
its own interpretive letter, and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Commission, and subject to the two
immediately following sentences, the Company and the Guarantors believe that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than a holder who is an Affiliate or a broker-dealer) without
further compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. However, any holder of Original Notes who is an Affiliate
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Notes, or any broker-dealer who purchased
Original Notes from the Company to resell pursuant to Rule 144A or any
22
<PAGE> 28
other available exemption under the Securities Act, (i) will not be able to rely
on the interpretations of the staff of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be entitled to tender such
Original Notes in the Exchange Offer, and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Original Notes unless such
sale or transfer is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Original Notes acquired
for its own account as a result of market-making or other trading activities and
exchanges such Original Notes for Exchange Notes (such broker-dealer referred to
herein as a "Participating Broker-Dealer"), then such Participating
Broker-Dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of Exchange Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an Affiliate, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes, and (iv) if such holder
is not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such
Exchange Notes. The Letter of Transmittal contains the foregoing
representations. In addition, the Company and the Guarantors may require such
holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Company (or an agent thereof) in writing
information as to the number of "beneficial owners" (within the meaning of Rule
13d-3 under the Exchange Act) on behalf of whom such holder holds the Original
Notes to be exchanged in the Exchange Offer. Each Participating Broker-Dealer
must acknowledge that it acquired the Original Notes for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Commission in the interpretive
letters referred to above, the Company and the Guarantors believe that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes received upon exchange of such Original Notes
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
Exchange Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company and the Guarantors have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such Exchange Notes for a period of 120 days after the Expiration Date. See
"Plan of Distribution." Any person, including any Participating Broker-Dealer,
who is an Affiliate may not rely on such interpretive letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Original
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact that makes any
statement contained in this Prospectus untrue in any material respect or which
causes this Prospectus to omit to state a material fact necessary in order to
make the statements contained herein, in the light of the circumstances under
which they were made, not misleading, or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of Exchange Notes pursuant to this
Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer, or the Company has
given notice that the sale of Exchange Notes may be resumed, as the case may be.
23
<PAGE> 29
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
For Information by Telephone:
(800) 531-0368
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery Service:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Fourth Floor
Boston, MA 02102-0078 Two International Place
Boston, MA 02110
</TABLE>
By Facsimile Transmission (for Eligible Institutions Only):
(617) 664-5739
(Facsimile confirmation)
(617) 664-5456
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons solicitating acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
out-of pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Original Notes pursuant to the
Exchange Offer. If, however, Exchange Notes or Original Notes not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles of Canada.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of the Exchange Offer, the Company will have
fulfilled its obligations under the Registration Rights Agreement. Holders of
Original Notes who do not tender their Original Notes will not have any further
registration rights under the Registration Rights Agreement or otherwise
(subject to certain limited exceptions, if applicable). Accordingly, any holder
of Original Notes who does not exchange that holder's Original Notes for
Exchange Notes will continue to hold such untendered Original Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent such
24
<PAGE> 30
rights or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
The Original Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company or any of its subsidiaries, (ii) to
a Qualified Institutional Buyer in compliance with Rule 144A, (iii) to an
institutional Accredited Investor that, prior to such transfer, furnishes to the
Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the offered Notes (the form of which
letter can be obtained from such Trustee), (iv) outside the United States in
compliance with Rule 904 of Regulation S under the Securities Act, (v) pursuant
to Rule 144 under the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States. Accordingly,
to the extent that Original Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Original Notes could be adversely
affected.
25
<PAGE> 31
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of income for the year ended November 30,
1997 reflects the historical results of the Company, adjusted to give effect to
the issuance of the Original Notes and the application of the net proceeds
therefrom, the acquisitions of Chempower and CCG which were completed on March
1, 1997 and September 1, 1997, respectively, and the disposition of Eco
Environmental and Environmental Evolutions on August 31, 1997. The unaudited pro
forma statement of income for the twelve months ended May 31, 1998 reflects the
historical results of the Company adjusted to give effect to the issuance of the
Original Notes and the application of the net proceeds therefrom, the
acquisition of CCG and the divestitures of Eco Environmental and Environmental
Evolutions. The unaudited pro forma statement of income for the six months ended
May 31, 1998 reflects the historical results of the Company, adjusted to give
effect to the issuance of the Original Notes and the application of the net
proceeds therefrom.
The unaudited pro forma financial information does not purport to be
indicative of the results that would actually have been obtained had the
transactions given pro forma effect been consummated on the dates indicated and
do not purport to indicate results of operations as of any future date or for
any future period. The unaudited pro forma financial information is presented
for comparative purposes only. The pro forma adjustments, as described in the
accompanying notes, are based on available information and certain assumptions
that management believes are reasonable.
The consolidated financial statements have been prepared in accordance with
Canadian Basis. The differences between Canadian Basis and U.S. Basis are
described in Note 15 to the Consolidated Financial Statements.
26
<PAGE> 32
UNAUDITED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, 1997
--------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------
DISPOSITION OF
AMERICAN ENVIRONMENTAL PRO FORMA CONSOLIDATED
ECO CHEMPOWER CCG SUBSIDIARIES ADJUSTMENTS PRO FORMA
-------- --------- ------- -------------- ----------- ------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................. $220,478 $13,886 $23,374 $(6,240) $ -- $251,498
Operating expenses:
Direct costs of
revenue............. 162,882 13,747 22,760 (5,869) -- 193,520
Selling, general and
administrative
expenses............ 31,243 6,035 1,461 (1,284) -- 37,455
Depreciation and
amortization........ 5,382 190 46 (244) 456(e)(f) 5,830
-------- ------- ------- ------- ------- --------
Total operating
expenses............ 199,507 19,972 24,267 (7,397) 456 236,805
-------- ------- ------- ------- ------- --------
Operating income (loss).. 20,971 (6,086) (893) 1,157 (456) 14,693
Other (income) expenses:
Interest expense, net.. 4,946 (867) 17 (20) 8,605 (b)(c)(d) 12,681
Foreign exchange gain.. (557) -- -- -- -- (557)
Gain on sale of assets
and subsidiaries.... (2,682) -- -- -- 2,459(g) (223)
-------- ------- ------- ------- ------- --------
Income (loss) before
income taxes........... 19,264 (5,219) (910) 1,177 (11,520) 2,792
Provision for (recovery
of) income tax......... 1,829 -- -- -- (1,829)(h) --
-------- ------- ------- ------- ------- --------
Net income (loss)........ $ 17,435 $(5,219) $ (910) $ 1,177 $(9,691) $ 2,792
======== ======= ======= ======= ======= ========
Net income per share..... $ 1.08 $ 0.17
======== ========
Weighted average number
of shares used in
computing income per
common share
(in thousands)......... 16,218 16,417(i)
======== ========
</TABLE>
The accompanying notes are an integral part
of this pro forma financial information.
27
<PAGE> 33
UNAUDITED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MAY 31, 1998
---------------------------------------------------------------------
HISTORICAL
------------------------------------
DISPOSITION OF
AMERICAN ENVIRONMENTAL PRO FORMA CONSOLIDATED
ECO CCG SUBSIDIARIES ADJUSTMENTS PRO FORMA
-------- ------- -------------- ----------- ------------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue......................... $236,775 $ 7,862 $(3,153) $ -- $241,484
Operating Expenses:
Direct costs of revenues...... 179,094 8,290 (2,681) -- 184,703
Selling, general and
administrative expenses.... 35,710 776 (391) -- 36,095
Depreciation and
amortization............... 5,742 26 (73) 19(f) 5,714
-------- ------- ------- ------- --------
Total operating expenses...... 220,546 9,092 (3,145) 19 226,512
Operating income (loss)......... 16,229 (1,230) (8) (19) 14,972
Other income (expenses):
Interest expense, net......... 4,752 9 (8) 7,237(c)(d) 11,990
Foreign exchange gain......... (338) -- -- -- (338)
Loss on early extinguishment
of debt.................... 2,400 -- -- (2,400)(a) --
Gain on sale of assets and
subsidiaries............... (2,682) -- -- 2,459(g) (223)
-------- ------- ------- ------- --------
Income (loss) before income
taxes......................... 12,097 (1,239) -- (7,315) 3,543
Provision for (benefit of)
income taxes.................. 2,114 (354) -- (1,760)(h) --
-------- ------- ------- ------- --------
Net income (loss)............... $ 9,983 $ (885) $ -- $(5,555) $ 3,543
======== ======= ======= ======= ========
Net income per share............ $ 0.52 $ 0.18
======== ========
Weighted average number of
shares used in computing
income per common share (in
thousands).................... 19,173 19,255(i)
======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
information.
28
<PAGE> 34
UNAUDITED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, 1998
-----------------------------------------------
HISTORICAL
----------
AMERICAN PRO FORMA CONSOLIDATED
ECO ADJUSTMENTS PRO FORMA
---------- ----------- ------------
(IN THOUSANDS OF U.S. DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue........................................... $117,896 $ -- $117,896
Operating expenses:
Direct costs of revenue......................... 94,477 -- 94,477
Selling, general and administrative expenses.... 16,528 -- 16,528
Depreciation and amortization................... 2,222 -- 2,222
-------- ------- --------
Total operating expenses........................ 113,227 -- 113,227
Operating income.................................. 4,669 -- 4,669
Other (income) expenses:
Interest expense, net........................... 1,670 4,325(c)(d) 5,995
-------- ------- --------
Foreign exchange gain............................. (216) -- (216)
Loss on early extinguishment of debt.............. 2,400 (2,400)(a) --
-------- ------- --------
Income before income taxes........................ 815 (1,925) (1,110)
Provision for income tax.......................... 285 (285)(h) --
-------- ------- --------
$ 530 $(1,640) $ (1,110)
======== ======= ========
Net income per share.............................. $ 0.03 $ (0.05)
======== ========
Weighted average number of shares used in
computing income per common share (in
thousands)...................................... 20,296 20,296
======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
information.
29
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS OF U.S. DOLLARS)
INCOME STATEMENT
(a) Reflects the elimination of loss on early extinguishment of debt.
(b) Reflects increased interest expense on $40,900 of additional borrowings and
reduced interest income on $10,500 available cash used to finance the
Chempower acquisition. The borrowings, available cash and interest rates
are as follows:
<TABLE>
<S> <C> <C>
Convertible debt........................................... 9.5% $15,000
Shareholder notes.......................................... 9.0% $15,900
Existing credit facility................................... 9.0% $ 6,000
Property notes............................................. 10.0% $ 4,000
Available cash............................................. 5.0% $10,500
</TABLE>
(c) Reflects reduced interest expense for debt retired with proceeds from the
issuance of the Original Notes.
(d) Reflects the increased interest expense for interest on the $120,000 of the
Notes at an interest rate of 9.625%. Issuance costs of $4,393 are amortized
over the life of the Notes.
(e) Reflects the increased depreciation and amortization due to (1) the
revaluation of Chempower's property, plant and equipment ($9,000) over ten
years, (2) the purchase of property, plant and equipment from certain
Chempower shareholders ($4,500) over ten years and (3) goodwill resulting
from the purchase of Chempower ($10,000) over forty years.
(f) Reflects the increased amortization due to goodwill resulting from the
purchase of CCG ($3,000) over forty years.
(g) Reflects the elimination of the gain on the sales of Eco Environmental and
Environmental Evolutions.
(h) Reflects the income tax effect to the pro forma adjustments at an assumed
income tax rate of 40%, to the extent that a deferred tax asset is not
created.
PER SHARE DATA
(i) The weighted average shares gives effect to the 265,000 shares issued in
connection with the acquisition of CCG.
30
<PAGE> 36
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical financial data and
unaudited financial data for the Company at and for the dates indicated. The
summary historical financial data of the Company (except other financial and
operating data) (i) as of and for each of the five fiscal years ended November
30, 1997 have been derived from the financial statements of the Company, and
(ii) as of and for the six months ended May 31, 1997 and May 31, 1998 have been
derived from the interim unaudited financial statements of the Company which, in
the opinion of management, include all adjustments necessary for a fair
presentation of the Company's results of operations and financial condition.
Karlins Fuller Arnold & Klodosky, P.C. ("Karlins Fuller") audited the Company's
financial statements for the three years ended November 30, 1996 and
PricewaterhouseCoopers LLP audited the Company's financial statements for the
year ended November 30, 1997. This information should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The consolidated financial statements have been prepared in accordance with
Canadian Basis which differ in certain respects from those principles and
practices that the Company would have followed had its consolidated financial
statements been prepared in accordance with U.S. Basis. The differences between
Canadian Basis and U.S. Basis are described in Note 15 to the Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30,(1) MAY 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................................ $ 7,565 $ 34,991 $ 46,684 $119,529 $220,478 $101,599 $117,896
Operating Expenses:
Direct costs of revenue.............. 5,012 30,707 39,456 87,203 162,882 78,265 94,477
Selling, general and administrative
expense............................ 1,475 1,612 2,814 20,616 31,243 12,062 16,528
Depreciation and amortization........ 474 1,043 1,107 2,232 5,382 1,861 2,222
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............... 6,961 33,362 43,377 110,051 199,507 92,188 113,227
-------- -------- -------- -------- -------- -------- --------
Operating income....................... 604 1,629 3,307 9,478 20,971 9,411 4,669
Other (income) expenses:
Interest expense, net................ 229 681 713 1,747 4,946 1,864 1,670
Foreign exchange gain................ -- (118) (96) (221) (557) (435) (216)
Loss on early extinguishment of
debt............................... -- -- -- -- -- -- 2,400
Gain on sale of assets and
subsidiaries....................... -- -- (370) (2) (2,682) -- --
-------- -------- -------- -------- -------- -------- --------
Income before income taxes............. 375 1,066 3,060 7,954 19,264 7,982 815
Provision for (recovery of) income
tax.................................. 53 58 208 (809) 1,829 -- 285
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations...... 322 1,008 2,852 8,763 17,435 7,982 530
Discontinued operations................ -- (105) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................. $ 322 $ 903 $ 2,852 $ 8,763 $ 17,435 $ 7,982 $ 530
======== ======== ======== ======== ======== ======== ========
Net income per share................... $ 0.07 $ 0.15 $ 0.40 $ 0.81 $ 1.08 $ 0.55 $ 0.03
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands)........... 4,680 6,191 7,217 10,847 16,218 14,625 20,296
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Capital expenditures................... 6,630 121 386 4,803 3,134 683 (1,570)
EBITDA(2).............................. 1,078 2,672 4,414 11,710 19,752 11,273 6,891
Cash provided by (used in)
operating activities................. (2,382) (5) 2,605 3,752 (18,918) (11,759) (9,036)
Cash provided by (used in) investing
activities........................... (8,683) (1,394) (2,255) (16,567) (12,544) (9,045) (4,650)
Cash provided by (used in) financing
activities........................... 11,506 1,919 (326) 12,234 32,414 26,174 50,181
Ratio of EBITDA to interest expense,
net.................................. 4.7x 3.9x 6.2x 6.7x 4.0x 6.0x 4.1x
Ratio of total debt to EBITDA.......... 9.2x 3.3x 1.5x 2.5x 3.5x 5.6x 17.6x
Ratio of earnings to fixed
charges(3)........................... 2.5x 2.4x 5.0x 5.1x 4.7x 4.7x 1.4x
</TABLE>
31
<PAGE> 37
<TABLE>
<CAPTION>
AT NOVEMBER 30, AT
----------------------------------------------------- MAY 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 354 $ 874 $ 898 $ 317 $ 1,259 $ 37,618
Working capital........................ 3,639 6,441 6,639 10,946 59,907 121,109
Total assets........................... 15,007 22,947 31,061 104,484 211,786 279,701
Long-term debt, including current
portion.............................. 8,730 5,215 2,382 8,428 59,803 121,373
Shareholders' equity................... 3,288 11,299 18,736 55,043 107,099 119,854
</TABLE>
- ---------------
(1) The statement of income for the year ended November 30, 1993 reflects one
month of operations for C.A. Turner Construction Company, a Delaware
corporation, and Action Contract Services, Inc., a Delaware corporation
(together, the "Turner Group"). The statement of income for the year ended
November 30, 1994 reflects six months of operations for Cambridge
Construction Service Corp., a Nevada corporation ("Cambridge"). The
statement of income for the year ended November 30, 1995 reflects five
months of operations for the Lake Charles Group. The statement of income for
the year ended November 30, 1996 reflects eleven months of operations for
Environmental Evolutions, six months of operations for United Eco, four
months of operations for SRS and Industra Service and one month of
operations for MM Industra. The statement of income for the year ended
November 30, 1997 reflects nine months of operations for Chempower, three
months of operations for CCG and nine months of operations for Eco
Environmental and Environmental Evolutions prior to their sales.
(2) EBITDA is defined as earnings before net interest expense, taxes,
depreciation and amortization, other income (expense) and the $6.6 million
of sales proceeds received by the Company in excess of its cost of its
ownership in MART as described in Note 21 to the Notes to Consolidated
Financial Statements. The MART transaction was consummated in November 1997.
Such amount related to MART has been included in operating income in the
statement of income data. EBITDA is presented because it is a widely
accepted financial indication of a company's ability to incur and service
debt. EBITDA is not a measurement presented in accordance with GAAP and is
not intended to be used in lieu of GAAP presentations of results of
operations and cash provided by (used in) operating activities. For the
periods presented, there are no differences between Canadian Basis and U.S.
Basis for the calculation of EBITDA, as defined above.
(3) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes
and fixed charges. Fixed charges consist of net interest expense including
amortization of deferred financing costs, and the portion of rental expense
considered to be interest (assumed to be one-third).
32
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
American Eco is a leading provider of industrial support and specialty
fabrication services to principally three industry groups: (i) energy, (ii) pulp
and paper and (iii) power generation. The Company offers its customers a
single-source solution for an extensive array of support services such as
equipment and facility repair, maintenance, refurbishment, retrofit and
expansion. Specialty fabrication services offered by the Company include the
construction of decks, well jackets and modules for offshore oil and gas
platforms, the fabrication of piping, pressure vessels and other equipment used
in process industries, the erection of structural steel support systems and the
manufacture of electrical switch gear, power distribution panels, bus ducts and
control rooms. The Company also manufactures, sells, installs and operates
SAREX(R) oil filtration and separation systems worldwide.
The trend toward greater customer emphasis on outsourcing dictates that
support services companies provide an increasing breadth of services. This
market trend is the primary tenet of the Company's acquisition strategy, and has
precipitated consolidation in the support services and specialty fabrication
markets in North America. The Company has grown significantly in the past five
years through the acquisition of nine industrial support and specialty
fabrication service providers in various complementary geographic regions. The
Company had also acquired two environmental remediation companies, which were
subsequently sold in August 1997.
A substantial portion of the Company's work is recurring in nature, either
through term contracts or long-standing customer relationships. At May 31, 1998,
the Company had project backlog of approximately $345.5 million, substantially
all of which it expects to realize within the next twelve months.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THREE MONTHS ENDED MAY 31, 1997
Revenues. Revenue during the three months ended May 31, 1998 increased
approximately 5.5% or $3.1 million to $59.5 million from $56.4 million during
the same period in 1997. The $3.1 million increase in revenue is comprised of:
<TABLE>
<S> <C>
Acquisitions in 1997 subsequent to Second Quarter 1997...... $ 4.4
Disposition in 1997 of environmental subsidiaries........... (1.3)
-----
$ 3.1
=====
</TABLE>
The acquisition in 1997 was the CCG subsidiary which was acquired on
September 1, 1997. The Company's environmental subsidiaries, ECO Environmental
and Environmental Evolutions were included in the 1997 operations until their
disposal date of August 31, 1997. Revenues for the businesses that were included
in the consolidated financial statements for both periods were essentially
unchanged from the prior year. There was, however, a shift in the revenue mix
year between year as the 1997 quarter included a higher percentage of higher
margin specialty fabrication revenues whereas the 1998 quarter reflected a
higher percentage of lower margin maintenance and engineering revenues. The 1997
quarter benefitted from $5 million of construction services related to the MART
project, a state of the art thermal treatment facility which was completed in
1997.
Operating Expenses. The Company's direct costs of revenue increased 18.6%
to $49 million in the Second Quarter of 1998 compared to $41.4 million for the
comparable period in 1997. The increased costs are partially attributable to the
revenue growth in the period, but the more significant increase in costs is
attributable to the shift in revenues towards lower margin maintenance and
engineering activities as compared to the higher margin fabrication activity in
the prior year.
33
<PAGE> 39
Selling, general and administrative expenses increased 4% to $8.4 million
compared to $8.1 million for the Second Quarter of 1997. Many of these costs are
either fixed or semi-variable, and the increases represent some modest increase
in staff over the prior year in addition to the selling, general and
administrative expenses of the acquisitions net of dispositions.
During the Second Quarter of 1998, the Company issued $120 million of
9 5/8% ten year Senior Notes through a private placement. A portion of the
proceeds of the notes were used to pay off existing bank debt and notes payable.
As a result of the refinancing, the Company recorded a charge of $2.4 million as
a loss on early extinguishment of debt, primarily related to the prepaid
financing costs of the bank debt.
Income Taxes. The Company recorded an income tax benefit of $877 thousand
for the three months ended May 31, 1998 in recognition of the tax benefit
associated with the pre tax loss of $2.5 million for the period. In the
corresponding period of 1997, the Company reflected pre tax income of $4.4
million but recorded no tax provision, as the Company applied unrecorded net
operating loss carryforwards to its pre tax income. The loss carryforwards were
substantially utilized in fiscal 1997.
SIX MONTHS ENDED MAY 31, 1998 COMPARED TO SIX MONTHS ENDED MAY 31, 1997
Revenues. Revenues during the six months ended May 31, 1998 increased
approximately 16% or $16.3 million to $117.9 million from $101.6 million during
the same period in 1997. The $16.3 million increase in revenue is comprised of:
<TABLE>
<S> <C>
Acquisitions in 1997 subsequent to First Quarter 1997....... $23.9
Disposition in 1997 of environmental subsidiaries........... (3.8)
Reduction in revenue from existing businesses............... (3.8)
-----
$16.3
=====
</TABLE>
The acquisitions subsequent to the First Quarter of 1997 represent the
Company's Chempower and CCG subsidiaries which were acquired on March 1, 1997
and September 1, 1997, respectively. The Company's environmental subsidiaries,
Eco Environmental and Environmental Evolutions were included in the 1997
operations until their disposal date of August 31, 1997. The remaining
businesses were essentially flat for the six month period. There was some shift
of revenue from specialty fabrication to maintenance and engineering from 1997
to 1998. The 1997 quarter benefitted from $5 million of construction services
related to the MART project which was completed in 1997.
Operating Expenses. The Company's direct costs of revenue increased 20.7%
to $94.5 million for the six months ended May 31, 1998 compared to $78.3 million
during the same period of 1997. The increased costs are attributable to the
shift in revenue to lower margin activities in the maintenance and engineering
area versus the higher margin specialty fabrication activity.
Selling, general and administrative expenses increased 40.3 % to $16.3
million compared to $11.6 million for the six months ended May 31, 1997. Of the
total increase of $4.7 million, $2.9 million represented the selling, general,
and administrative expenses added at Chempower and CCG which were acquired
subsequent to February 28, 1997. Also included in the six months 1998 figure is
approximately $308 thousand of costs related to the unsuccessful acquisition of
Dominion Bridge.
In May 1998, the Company issued $120 million of 9 5/8% ten year Senior
Notes through a private placement. A portion of the proceeds of the notes were
used to pay off existing bank debt and notes payable. As a result of the
refinancing, the Company recorded a charge of $2.4 million as a loss on early
extinguishment of debt, primarily related to the prepaid financing costs of the
bank debt.
Income Taxes. In 1997 the Company recorded no income tax provision for the
six months ended May 31, 1997 as the Company applied unrecorded net operating
loss carryforwards to its pre tax income. The loss carryforwards were
substantially utilized in fiscal 1997.
34
<PAGE> 40
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996
Revenues. The Company's revenues grew 84.5%, to $220.5 million, in
fiscal 1997 from $119.5 million in fiscal 1996, primarily due to reporting the
results of the Chempower acquisition from effective March 1, 1997, the CCG
acquisition from September 1, 1997, and the full year of operations of MM
Industra, SRS and Industra Service which were acquired in fiscal 1996. These
results are partially offset by a decrease in revenues from the Lake Charles
Group. The Lake Charles Group generated $49.0 million in revenues in fiscal 1996
from a single contract. In addition, Eco Environmental and Environmental
Evolutions were only included through August 31, 1997, which was the effective
date of the respective divestitures.
The Company's industrial support segment generated $147.4 million, or
66.9%, of the Company's total revenues in fiscal 1997 compared to $94.6 million,
or 79.1%, in fiscal 1996. This 55.9% increase in revenue is primarily the result
of reporting Chempower's revenues from March 1997, CCG's revenues from September
1, 1997, and the effect of a full year of revenue from Industra Service.
The revenues generated from the Company's environmental services segment
decreased 34.4%, to $12.1 million, in fiscal 1997 from $18.5 million in fiscal
1996. This decrease primarily reflects the sale of Eco Environmental and
Environmental Evolutions on August 31, 1997. As a percentage of total revenues
the Company's environmental service segment contributed approximately 5.5% of
total revenues of fiscal 1997 compared to 15.5% of total revenues in fiscal
1996.
The specialty fabrication business segment generated $60.9 million, or
27.6%, of the Company's total revenues in fiscal 1997, compared to $6.5 million,
or 5.4%, in fiscal 1996. Management anticipates that the increase in revenues
from the Company's specialty fabrication service segment will continue and this
segment will contribute a greater percentage of the Company's total revenues in
fiscal 1998 as a result of increased business at MM Industra, SRS and
Chempower's Controlled Power Division.
Operating Expenses. The Company's total operating expenses increased
approximately 81.3%, to $199.5 million, in fiscal 1997 from $110.1 million in
fiscal 1996 primarily as a result of adding the operations of Chempower
effective March 1, 1997, CCG from September 1, 1997, and the full year effect of
the acquisitions of MM Industra and Industra Service. Expressed as a percentage
of total revenues, operating expenses were approximately 90.5% in fiscal 1997
compared to 92.1% in fiscal 1996.
Selling, general and administrative expenses increased to $31.2 million in
fiscal 1997 compared to $20.6 million in fiscal 1996. As a percentage of total
revenues, selling, general and administrative expenses decreased to 14.2% in
fiscal 1997 compared to 17.2% in fiscal 1996. The decrease is attributable to
the institution by the Company in fiscal 1996 of an operating plan which
augments its 1994 operating plan and is designed to control overhead expenses at
all levels.
Depreciation and amortization increased to $5.4 million in fiscal 1997 from
$2.2 million in fiscal 1996. As a percentage of total revenues, depreciation and
amortization increased to 2.4% in fiscal 1997 from 1.9% in fiscal 1996.
Management believes that the Company has been able to contain operating expenses
through a program instituted in fiscal 1994 pursuant to which project managers
are required to track such cost control indicators as labor productivity and
potential project cost overruns. Management believes that the Company will
continue to be able to control operating expenses, but there can be no assurance
that the Company's cost control policies will be as effective in the future as
they have been in the past.
Operating expenses of the Company's industrial support segment increased to
$135.7 million in fiscal 1997 compared to $92.8 million in fiscal 1996. As a
percentage of revenues from the industrial support segment, operating expenses
decreased to 92.0% in fiscal 1997 compared to 98.2% in fiscal 1996.
Operating expenses of the Company's environmental services segment
decreased to $13.6 million in fiscal 1997 compared to $16.6 million in fiscal
1996. As a percentage of revenues from the environmental services segment,
operating expenses increased to 111.9% in fiscal 1997 compared to 90.0% in
fiscal 1996. Management does not expect this trend to continue due to the sale
of two environmental operating units as of August 31, 1997.
35
<PAGE> 41
Operating expenses of the Company's specialty fabrication services segment
increased to $50.3 million in fiscal 1997 compared to $4.3 million in fiscal
1996. As a percentage of revenues from the specialty fabrication services
segment, operating expenses increased to 82.5% in fiscal 1997 compared to 67.0%
in fiscal 1996. This significant increase is due to a full year of operations
for MM Industra and nine months of operations for Chempower's Controlled Power
Division. Management believes that the specialty fabrication services segment
will continue to grow based on the significant backlog of contracts in this
segment.
The Company's interest expense on long-term debt increased to $4.9 million
from $1.7 million, and as a percentage of total revenue, interest expense
increased to 2.2% compared to 1.5% in fiscal 1996.
Provision for Income Tax. In fiscal 1997, the Company applied its remaining
$2.5 million in net operating loss carry-forwards and began to accrue income
taxes. The Company had $1.8 million in tax expenses in fiscal 1997. At November
30, 1997, the Company had no significant tax loss carry-forwards.
Net Income. Net income increased approximately 99.0%, to $17.4 million, or
$1.08 per share, in fiscal 1997 from $8.8 million, or $0.81 per share, in fiscal
1996. An income tax recovery contributed $809,000 to the Company's net income in
fiscal 1996 compared to a provision of $1.8 million in income tax expense in
fiscal 1997.
FISCAL YEAR ENDED NOVEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1995
Revenues. The Company's revenues grew 255.9%, to $119.5 million, in fiscal
1996 from $46.7 million in fiscal 1995 primarily due to reporting the results of
the United Eco acquisition from May 1996, the SRS and Industra Service
acquisitions from July 1996 and the MM Industra acquisition from September 1996.
The Company's industrial support segment generated $94.6 million, or 79.1%,
of the Company's total revenues in fiscal 1996 compared to $41.3 million, or
88.5%, in fiscal 1995. This 128.9% increase in revenues reflects in part the
addition of four months of operations of Industra Service and a single project
performed by the Lake Charles Group in the amount of $49.0 million that
concluded in fiscal 1996. The revenues generated by the Company's industrial
support operations that were in place at November 30, 1995 grew 105.0% in fiscal
1996.
The revenues generated from the Company's environmental services segment
increased 244.8%, to $18.5 million, in fiscal 1996 from $5.4 million in fiscal
1995. The growth primarily reflects the effects of eleven months of operation
for Environmental Evolutions and six months of operations of United Eco. As a
percentage of total revenues, the Company's environmental services segment
contributed approximately 15.5% of total revenues in fiscal 1996 as compared to
11.5% of total revenues in fiscal 1995.
The Company significantly expanded its specialty fabricating business in
fiscal 1996 through the acquisition of SRS and MM Industra, and this business
segment generated $6.5 million, or 5.4%, of the Company's total revenues in
fiscal 1996. Prior to fiscal 1996, the Company had provided specialty
fabricating services through the Turner Group and the Lake Charles Group as part
of those subsidiaries' industrial support services and the Company did not
separately report revenues for specialty fabrication services.
Operating Expenses. The Company's total operating expenses increased
approximately 153.7%, to $110.1 million, in fiscal 1996 from $43.4 million in
fiscal 1995 primarily as a result of five acquisitions during fiscal 1996.
Expressed as a percentage of total revenues, operating expenses were
approximately 92.0% in fiscal 1996 compared to 92.1% in fiscal 1995.
Selling, general and administrative expenses increased to $20.6 million in
fiscal 1996 compared to $2.8 million in fiscal 1995. This increase is primarily
a result of acquisitions in 1996 and a full year of results for the Lake Charles
Group, which was acquired in July 1995. Depreciation and amortization increased
from $1.1 million in Fiscal 1995 to $2.2 million in fiscal 1996 primarily as a
result of the acquisitions completed during 1996.
The Company's interest expense on long-term debt increased to $1.7 million
from $713,000 and as a percentage of total revenue interest expense remained
unchanged at 1.5%. Depreciation and amortization increased to $2.2 million in
fiscal 1996 from $1.1 million in fiscal 1995. As a percentage of total revenues,
depreciation and amortization decreased slightly to 1.9% in fiscal 1996 from
2.4% in fiscal 1995.
36
<PAGE> 42
Provision for Income Tax. The Company had net operating loss
carry-forwards in Canada which it utilized to reduce its Canadian tax
liabilities. The application of $786,000 in such net operating loss carry-
forwards contributed to a tax recovery of $809,000 in fiscal 1996. The Company
provided for $208,000 in taxes in fiscal 1995. At November 30, 1996, the Company
had a total of $2.5 million in net operating loss carry-forwards that expire
between 1999 and 2003.
Net Income. Net income from continuing operations increased
approximately 207.3%, to $8.8 million, or $0.81 per share, in fiscal 1996 from
$2.9 million, or $0.40 per share, in fiscal 1995. A tax recovery of $809,000
contributed approximately $0.07 per share to the Company's net income in fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash on hand. The
Company's cash increased by $36.4 million from November 30, 1997 to $37.6
million at May 31, 1998. The significant increase in cash was generated by the
issuance of the Original Notes. The net proceeds, after all expenses, aggregated
approximately $115.7 million. These proceeds were utilized to retire existing
bank debt and notes payable of approximately $71.6 million. The remainder of the
proceeds were used to fund working capital needs or remain as available cash to
the Company.
For the six months ended May 31, 1998 the Company utilized $9.0 million of
cash to fund operating activities versus $11.8 million for the like period in
1997. Increases in costs and estimated earnings in excess of billing, inventory,
and prepaid expenses represented the primary variances. Several large contracts
in the current period do not permit billing by the Company until milestones are
met on the projects. Billing on these contracts is expected to be accomplished
in the third and fourth quarters of fiscal 1998.
Cash used in investing activities was $4.7 million in 1998 versus $9.0
million in 1997. In 1998, the primary use of cash was for capital spending of
$1.6 million and an increase in investment of $6.1 million, primarily the $5.0
million investment in Dominion Bridge.
Cash flow from financing activity was $50 million in the six months ended
May 31, 1998 compared to $26 million for the six months ended May 31, 1997. The
proceeds from the issuance of the Original Notes were used to repay bank debt
and notes payable in 1998.
The Company's cash requirements consist of working capital needs,
obligations under its leases and senior notes and the funding of potential
acquisitions. Management believes that the Company's cash balances are
sufficient to meet its anticipated cash requirements for the foreseeable future,
subject to raising additional capital as necessary for possible acquisitions.
There can be no assurance that the Company will obtain additional debt or equity
capital for possible acquisitions or that the terms of any such equity capital
will not be dilutive.
RECOGNITION OF REVENUES
The Company recognizes revenues and profits on contracts using the
percentage-of-completion method of accounting. Under the
percentage-of-completion method, contract revenues are accrued based on the
percentage of accrued costs to total estimated project costs. As contracts can
extend over more than one accounting period, revisions in estimated total costs
and profits during the course of work are reflected during the period in which
the facts requiring the revisions become known. Losses on contracts are charged
to income in the period in which such losses are first determined. The
percentage-of-completion method of accounting can result in the recognition on
uncompleted contracts of costs in excess of billings, which are classified as
current assets, or billings in excess of costs, which are classified as current
liabilities.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues from industrial support and specialty fabrication
services may be affected by the timing of scheduled outages at its industrial
customers' facilities and by weather conditions with respect to projects
conducted outdoors. Historically, the Company has experienced decreased activity
during the first quarter of its fiscal year due to less plant maintenance and
turnaround activity in the refinery and power generating industries in North
America. The effects of seasonality may be offset by the timing of large
individual contracts, particularly if all or a substantial portion of the
contracts fall within a one-to-two quarter
37
<PAGE> 43
period. Accordingly, the Company's quarterly results may fluctuate and the
results of one fiscal quarter should not be deemed to be representative of the
results for any other quarter, or for the full fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 1997, the Accounting Standards Board (AcSB) of the Canadian
Institute of Chartered Accountants (CICA) approved CICA 3465, INCOME TAXES. CICA
3465 establishes standards for recognition, measurement and disclosure of income
taxes in the financial statements. The new standard adopts the liability
approach based on the temporary differences method of accounting for income
taxes and is similar in many respects to the Statement of Financial Accounting
Standard No. 109 in the United States. This standard is effective for fiscal
years beginning on or after January 1, 2000, although prior adoption is
acceptable. The Company has not yet determined the impact this standard will
have on its financial position or results of operations.
IMPACT OF THE YEAR 2000 PROBLEM
The Year 2000 Problem is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's computer programs that have data-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in other routine business activities.
Based on a recent assessment, management determined that the Company will
be required to modify or replace significant portions of its software so that
its computer systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 Problem can be mitigated. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Problem could have a material impact on the operations of the
Company.
Based on presently available information, the Company has initiated formal
communication with all of its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to the failure of these
third parties to solve their own Year 2000 Problems. However, there can be no
guarantee that the systems of other companies on which the Company's system rely
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company.
The Company will utilize both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. The Company plans
to complete the Year 2000 project within one year, but no later than April 1999.
The total remaining cost of the Year 2000 project is estimated at $1.5 million
and is being funded through operating cash flow of the Company. Of the total
project cost, approximately $1.0 million is attributable to the purchase of new
software, which will be capitalized. The remaining $500,000 will be expensed as
incurred over the next two years and is not expected to have a material effect
on the results of operations of the Company. To date, the Company has not
incurred any expense for its Year 2000 project.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates.
These estimates were derived by utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from such plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties.
38
<PAGE> 44
BUSINESS
THE COMPANY
American Eco is a leading provider of industrial support and specialty
fabrication services to principally three industry groups: (i) energy, (ii) pulp
and paper and (iii) power generation. The Company offers its customers a
single-source solution for an extensive array of support services such as
equipment and facility repair, maintenance, refurbishment, retrofit and
expansion. Specialty fabrication services offered by the Company include the
construction of decks, well jackets and modules for offshore oil and gas
platforms, the fabrication of piping, pressure vessels and other equipment used
in process industries, the erection of structural steel support systems and the
manufacture of electrical switch gear, power distribution panels, bus ducts and
control rooms. The Company also manufactures, sells, installs and operates
SAREX(R) oil filtration and separation systems worldwide.
The Company has strategically positioned itself as a single-source provider
of support services, principally to process industries, which can be performed
by an outside service company with greater efficiency, safety and
cost-effectiveness. By outsourcing support services, these industries can focus
on their core manufacturing processes, reduce operating costs, improve safety
and conserve human and capital resources.
The trend toward greater customer emphasis on outsourcing dictates that
support services companies provide an increasing breadth of services. This
market trend is the primary tenet of the Company's acquisition strategy, and has
precipitated consolidation in the support services and specialty fabrication
markets in North America. The Company has grown significantly in the past five
years through the acquisition of nine industrial support and specialty
fabrication service providers in various complementary geographic regions. The
Company had also acquired two environmental remediation companies, which were
subsequently sold in August 1997. The Company's revenue and EBITDA grew from
$7.6 million and $1.1 million, respectively, for the fiscal year ended November
30, 1993 to $236.8 million and $20.7 million, respectively, for the twelve
months ended May 31, 1998.
The Company's industrial support and specialty fabrication businesses
generated approximately 72% and 28% of its revenues, respectively, for the
twelve months ended May 31, 1998, on a pro forma basis after giving effect to
the Company's 1997 acquisition of CCG and its 1997 divestitures of Eco
Environmental and Environmental Evolutions. Management estimates that the
energy, pulp and paper and power generation industries, accounted for
approximately 65%, 10% and 23% of the Company's revenue, respectively, for the
twelve months ended May 31, 1998 on the pro forma basis described above, with
the remaining 2% associated with other industries.
The Company believes it has achieved a competitively advantaged position in
the industrial support and specialty fabrication markets it serves by
consistently providing high-quality, cost-effective service on a safe and timely
basis. The Company's key competitive strengths include: (i) long-standing
customer relationships, (ii) an outstanding safety and environmental record,
(iii) a broad array of value-added services, (iv) the ability to provide its
services throughout North America and (v) an experienced, dedicated management
in the field and at the corporate level.
A substantial portion of the Company's work is recurring in nature, either
through term contracts or long-standing customer relationships. At May 31, 1998,
the Company had project backlog of approximately $345.5 million, substantially
all of which it expects to realize within the next twelve months.
At May 31, 1998, the Company operated primarily through the following
subsidiaries: Turner Group; Cambridge; Industra Service; MM Industra; United
Eco; SRS; Chempower; and CCG.
THE OUTSOURCING TREND
Over the last several years, a trend toward greater use of outsourcing
services has emerged. This trend has created an opportunity for companies such
as American Eco to satisfy increasing customer demand for outsourcing industrial
support services, and has required that industrial support service providers
offer a
39
<PAGE> 45
greater breadth of services. As companies increasingly realize the benefit and
breadth of outsourcing services, the growth in outsourcing services should
accelerate.
Factors driving the increased outsourcing of industrial support services
include: (i) use of outside contractors to control internal labor and insurance
costs, which also eliminates the need to maintain expensive and under-utilized
equipment, (ii) the growing cost of training and maintaining a skilled work
force to perform support service functions, (iii) compliance with ever stricter
environmental and safety regulations which creates the need for more frequent
facility upgrades or modifications, and (iv) a preference by customers to
simplify vendor management through the use of large, single-source, support
service providers with broad geographic coverage, an established safety record,
a history of environmental compliance and a reputation for quality.
Outsourcing yields substantial customer benefits through lower overall
operating costs, the ability to place greater emphasis on core business
processes, the conservation of human and capital resources, the higher
probability of completing projects on schedule due to contract stipulations,
improved equipment quality and reliability, and access to technical expertise
not available internally.
According to The Outsourcing Institute, U.S. companies spent approximately
$85.0 billion on outsourcing services in 1997, a 26% increase over 1996.
BUSINESS STRATEGY
The Company's objectives are to continue to strengthen and broaden its
position as a leading provider of industrial support and specialty fabrication
services to the energy, pulp and paper and power generation industries in North
America, and thereby increase cash flow and profitability. To achieve these
objectives, the Company is pursuing the following business strategies:
Acquire Complementary Industrial Service Businesses. The Company evaluates,
on an ongoing basis, potential acquisitions of complementary businesses in an
effort to further strengthen and broaden its single-source service offering, and
expand its customer base and geographic presence. Management believes that the
industrial support services and specialty fabrication markets are fragmented
markets which are entering a period of consolidation due to: (i) customer demand
for greater breadth and quality of service, (ii) the need to service all
customer facilities, thus enabling the customer to reduce its vendor
relationships and (iii) the increased importance of established safety and
environmental compliance records. These factors have increased the necessary
economies of scale and scope in the support services and specialty fabrication
markets, eroded the competitiveness of smaller industry participants, and
increased the barriers to entry for new competitors.
Strengthen Competitive Position in Growing Outsourcing Market. Management
believes that participants in the energy, pulp and paper and power generation
industries, in an effort to remain competitive, will continue to increase their
reliance on independent contractors to provide industrial support and specialty
fabrication services. Management is expanding the Company's capabilities to
provide its customers a single-source solution for their support services and
specialty fabrication needs.
Cross-Sell Services. The sales staff, operations managers and business
development personnel of each of the Company's subsidiaries are familiar with
the capabilities of all the Company's subsidiaries. The Company trains its
personnel to identify cross-selling opportunities and integrate the breadth of
the Company's services into each bid proposal. This provides the customer a more
comprehensive portfolio of services. The Company's cross-selling initiatives
have resulted in several successful projects which have involved multiple
operating subsidiaries of the Company and the performance of services internally
which were historically performed by third parties.
Maintain Decentralized Operating Structure. While at the corporate level
the Company retains centralized control over certain administrative and finance
functions, its operating subsidiaries maintain a high level of autonomy.
Management believes that the Company's decentralized operating structure is
critical to its success, as many decisions to purchase its services are made by
local customers based on established relationships and a service provider's
ability to respond rapidly to the customer's needs. In addition, the
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Company is instituting a program to improve subsidiary reporting procedure and
eliminate functional redundancy.
ACQUISITION HISTORY
The acquisition of the operating assets of the Turner Group in November
1993 for approximately $4.0 million in cash initiated the Company's entry into
industrial support services. The Turner Group is located in Port Arthur, Texas
and provides construction, maintenance, demolition and industrial maintenance
services to petroleum and petrochemical refineries along the Gulf Coast of the
United States. The Turner Group has a 50-year operating history and is located
in a region which contains the largest concentration of crude oil refining
capacity in the United States.
In June 1994, the Company acquired Cambridge, a construction management
company located in Dallas, Texas, for approximately $1.6 million, which included
400,000 common shares of the Company and related acquisition costs of $400,000.
Cambridge provides project management consulting services to small contractors.
In July 1995, the Company acquired the Lake Charles Group, a construction
company located in Lake Charles, Louisiana, for approximately $3.8 million,
which included 641,000 common shares and 105,000 warrants to purchase common
shares of the Company. The Lake Charles Group commenced operations in 1986 and
provides general contracting, industrial maintenance, heating and air
conditioning and industrial sheet metal services to commercial and industrial
customers.
In May 1996, the Company acquired United Eco, a construction company with
headquarters in High Point, North Carolina. The consideration for United Eco
consisted of 315,000 common shares of the Company, with a fair market value of
approximately $2.5 million. United Eco provides environmental contracting, site
remediation, waste water treatment of ground contamination and recycling
services to customers in the eastern and southeastern regions of the United
States. In addition, United Eco operates two thermal desorption treatment
facilities.
In July 1996, the Company acquired Irvine, California based SRS for 753,634
common shares of the Company, with a fair market value of approximately $5.7
million. SRS manufactures and distributes SAREX(R) oil filtration and separation
systems worldwide. Over 30,000 SRS systems have been installed in approximately
half of the world's oil and petrochemical tankers and oil refineries. The
acquisition of the SAREX(R) technology, and SRS's waste treatment expertise,
should enhance the Company's competitiveness when bidding on turnkey projects
for the upgrade of petroleum refineries.
In July 1996, the Company acquired Industra Service, which is based in
Vancouver, British Columbia. The Company effected a take-over bid for Industra
Service by exchanging 1,647,459 common shares of the Company, with a fair market
value of approximately $15.1 million, for 94% of the outstanding shares of
Industra Service common stock. In December 1996, the Company received
authorization to acquire all but a small fraction of the remaining 6% of the
outstanding shares of Industra Service common stock for approximately $1.2
million. Industra Service is an industrial engineering and environmental service
company which provides industrial support services to the utility, petroleum and
petrochemical refining and forest products industries, principally in western
Canada and the northwestern United States. The Company effectively owns 100.0%
of the outstanding common stock of Industra Service.
In September 1996, the Company acquired certain assets of M&M Manufacturing
Ltd. of Dartmouth, Nova Scotia for approximately $6.5 million in cash. The
Company conducts these operations through MM Industra, a wholly-owned subsidiary
of the Company. MM Industra provides pipefitting, assembling, machining and
fabrication services to the oil and petrochemical refining, utility, forest
products and offshore oil and gas industries. The Province of Nova Scotia
granted the Company authorization to purchase and operate the assets. MM
Industra commenced operation in October 1996.
In March 1997, the Company completed the acquisition of Chempower which is
based in Akron, Ohio for approximately $50.0 million in cash, which includes
acquisition costs of approximately $3.0 million. Chempower is a manufacturing
and construction company for the utility and chemical processing industries.
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In addition, the Company acquired real property from the shareholders of
Chempower with an appraised value of approximately $4.5 million.
In September 1997, the Company acquired CCG, a provider of maintenance and
specialty construction services to commercial customers throughout North
America. The consideration for CCG consisted of 265,000 common shares of the
Company, with a fair market value of approximately $2.6 million. The acquisition
of CCG, through the application of its management information software, should
augment the Company's other energy management services.
RECENT DEVELOPMENTS
Eco Environmental and Environmental Evolutions Divestitures
On August 31, 1997, the Company sold Eco Environmental and Environmental
Evolutions to Eurostar Interests, Ltd. ("Eurostar"), a company controlled by J.
C. Pennie, the Vice-Chairman of the Company, in exchange for a note in the
amount of $11.0 million. This note bears interest at the rate of 10% per annum
and is due on August 31, 1998. As a result of this transaction, the Company
recorded a gain of approximately $2.5 million. The sale was part of the
Company's strategic plan to focus on the growing industrial support services and
specialty fabrication markets, while limiting its environmental services
exposure to higher margin waste water processing, treatment of ground water
contamination and oil separation and recovery. Eurostar assigned its interest in
Eco Environmental and Environmental Evolutions to Eco Technologies
International, Inc. a Canadian company ("ETI"). In February 1998, the Company
received $603,000 in cash for reimbursement of certain administrative services
performed by the Company on behalf of the two environmental companies from
September 1997 through November 1997. Mr. Pennie owns 50% of Windrush
Corporation ("Windrush"), which owns 6.66% of ETI, and Mr. Pennie is Chairman
and Chief Executive Officer of ETI. Barry Cracower, a director of the Company,
is also a director of ETI. See "Certain Relationships and Related Transactions."
The Company entered the environmental services business in 1993, with the
acquisition of Eco Environmental, which is based in Houston, Texas. In January
1996, the Company acquired Environmental Evolutions. Environmental Evolutions,
which is based in Corpus Christi, Texas, is a provider of hazardous spill
response services to the pipeline and utility industries, primarily along the
Gulf Coast of Texas.
US Industrial Services, Inc. (formerly, EIF Holdings, Inc.)
The Company currently owns approximately 21.5% of the outstanding common
stock of US Industrial Services, Inc., a Delaware corporation ("US Industrial")
(formerly EIF Holdings, Inc., a Hawaii corporation ("EIF")), subject to a
purchase option it granted to Frank J. Fradella, who was then the principal
executive officer of US Industrial and is presently the President and Chief
Operating Officer of the Company, to purchase such shares at $0.65 per share in
cash through December 1998. US Industrial is engaged in industrial maintenance
and environmental construction related activities. On June 22, 1998, EIF
migrated to the State of Delaware, changed its name to US Industrial Services,
Inc. and effected a 1-for-10 reverse stock split. The US Industrial common stock
is traded on the OTC Bulletin Board under the symbol USIS. In 1996, American Eco
provided US Industrial a $5.2 million line of credit. In July 1997, the line of
credit was increased to $15.0 million and in September 1997, the line of credit
was increased to $20.0 million. The maturity date for the line of credit is
August 18, 1998. On July 15, 1998, the Company exercised an option to convert $1
million of the US Industrial indebtedness into 1,000,000 shares of US Industrial
common stock. In addition, on July 24, 1998, the Company sold the remaining US
Industrial indebtedness (approximately $17.9 million) to an unrelated third
party for $5 million in cash plus a note for $12.9 million payable on January
29, 1999, together with interest at the rate of 10% per annum. On July 27, 1998,
the purchaser of the US Industrial indebtedness converted the indebtedness into
US Industrial common stock.
Dominion Bridge Acquisition Discussions and Joint Venture
On February 20, 1998, the Company and Dominion Bridge entered into a
non-binding letter of intent (the "Letter of Intent") which provided for: (i)
the purchase of $5.0 million of Dominion Bridge common
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stock and warrants by the Company (the "Dominion Bridge Stock Purchase"), (ii) a
working capital loan facility of up to $25.0 million to be provided by the
Company to Dominion Bridge, (iii) the engagement of the Company to provide
certain management services to Dominion Bridge and (iv) the acquisition by the
Company of the assets of Dominion Bridge. The Dominion Bridge Stock Purchase was
completed on February 20, 1998, whereby the Company acquired 1,923,077 shares of
common stock and warrants for the purchase of 192,308 shares of common stock of
Dominion Bridge at a price of $3.00 per share, or in the aggregate,
approximately 6.7% of the total outstanding common stock of Dominion Bridge,
assuming exercise of the warrants. Immediately following consummation of the
Dominion Bridge Stock Purchase, Michael E. McGinnis, the Chairman of the Board,
President and Chief Executive Officer of the Company, was elected to serve as a
director of Dominion Bridge, and serve on its Executive Committee for a term
which expires in March 1999. On March 23, 1998, the Letter of Intent was
terminated by the Company because of complexities which arose in trying to
implement the Letter of Intent. The Company has no further obligation to
Dominion Bridge under the Letter of Intent. In May 1998, Dominion Bridge entered
into a management agreement with US Industrial pursuant to which US Industrial
renders certain management services to Dominion Bridge.
The Company and Dominion Bridge currently are participating in a joint
venture in which the Company holds a 51% interest. In May 1998, the joint
venture was granted a gas pipeline construction contract in Canada estimated at
CDN$65 million for which the Company is providing bonding and fabrication. In
addition, the Company and Dominion Bridge are participating in two contracts
estimated at CDN$234 million for the construction of two semi-submersible
drilling vessels for which the Company is providing bonding, fabrication and
construction.
Pictou Acquisition
In July 1998, the Company consummated the acquisition of the Pictou
facility, located in Nova Scotia, from the Province of Nova Scotia for 1,170,672
common shares of the Company and cash totaling approximately $9.4 million. In
addition, the Company received a grant of approximately $1.1 million from the
Province of Nova Scotia for improvements to the facility. The Pictou facility is
comprised of a fabrication facility, which has historically conducted
shipbuilding, ship repair and conversion, and industrial fabrication, and
administrative offices located on 10 acres in the Port of Pictou, Nova Scotia.
The Pictou facility and the Company's MM Industra subsidiary in Dartmouth, Nova
Scotia are the only existing fabrication facilities in the Province of Nova
Scotia which are capable of fabricating certain components required for
completion of the $3 billion Sable Island Gas Project ("Sable Island").
PRINCIPAL INDUSTRIES SERVED BY THE COMPANY
ENERGY
The Company provides industrial support and specialty fabrication services
to the energy industry, with particular focus on (i) petroleum refineries in
North America, (ii) petrochemical and chemical facilities and (iii) the offshore
oil and gas industry in eastern Canada.
Petroleum Refineries. The typical petroleum refinery in North America is an
aging facility that must process crude oil at high utilization rates while
complying with stringent environmental regulations. High utilization rates
accelerate a facility's rate of deterioration and increase the need for repair
and maintenance work. The Company believes that any increase in capacity is
likely to require the refurbishment or expansion of existing facilities due to
the prohibitively high cost to construct new facilities. The Company believes
that plant managers increasingly hire independent contractors to maintain the
operability of refineries and have generally reduced their internal maintenance
personnel.
Petroleum refiners repair and replace process equipment and piping systems
on an on-going basis in order to maintain the operability and efficiency of
their facilities, and to ensure that such facilities comply with current safety
and environmental regulations. Refinery maintenance projects vary in scope from
routine repairs to major capital improvements and turnarounds which require the
shutdown of certain operating units or the entire refinery. In addition to
routine maintenance, refiners periodically undertake capital improvement
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projects to refurbish their facilities. Such projects can require from six
months to three years to complete depending upon the type, utilization rate and
operating requirements of the particular refinery.
In the Company's core operating region along the U.S. Gulf Coast, there is
an aggregate of approximately 6.8 million barrels of crude oil distillation
capacity, which accounts for approximately 42% of total U.S. crude oil
distillation capacity.
Petrochemical/Chemical. The petrochemical and chemical industries are
capital-intensive and heavily regulated. Continuous capital spending is
necessitated by the large plant sizes and economies of scale required to process
end-products efficiently, as well as the complex technology and the
sophisticated safety and environmental equipment utilized in these facilities.
High capital costs represent significant barriers to entry in this industry, so
any entry into the industry or increase in capacity is likely to result from the
expansion or refurbishment of existing facilities due to the prohibitively high
cost associated with building a "grass-roots" facility. As such, when
petrochemical/chemical processors undertake significant facility modification
programs, they also typically expand the rated capacity of their facilities.
Canadian Offshore Oil and Gas. Recent offshore oil and gas activity in
eastern Canada has concentrated on the development of the Hibernia and Terra
Nova fields, and Sable Island. The Company fabricated nine utility shaft modules
for the Hibernia field and recently delivered production well jackets to Sable
Island. The alliance which is developing Sable Island has committed that it will
perform the majority of the fabrication work for the project in the Province of
Nova Scotia. The Company operates the only facilities in Nova Scotia capable of
fabricating the production well jackets, decks and certain other components of
these offshore platforms. Management believes that Sable Island will generate
significant fabrication and maintenance revenues for the Company over the next
three years.
PULP AND PAPER
The pulp and paper industry experienced severe pricing pressure from the
fall of 1995 through the spring of 1997 due principally to overbuilt customer
inventories caused by substantial price hikes during the period from mid-1994 to
the fall of 1995. As a result of this pricing pressure, many plant managers
deferred maintenance and canceled capital expenditure projects. Management
believes that the recent upturn in this industry will lead to an increase in
plant maintenance and capital improvement projects. The American Forest & Paper
Association's annual capacity survey projects capacity growth from 1997 to 1999
at an annual rate of 1.5%, which is below the average rate of 2.6% from 1986 to
1995, but suggests pulp and paper producers are taking a more conservative view
toward pulp and paper demand growth. This modest projected capacity increase
should translate into greater stability in pulp and paper prices.
In November 1997, the U.S. Environmental Protection Agency (the "EPA")
issued the Cluster Rule which is an integration of the Federal Clean Air and
Clean Water Acts. The Cluster Rule imposes stricter environmental regulations on
the pulp and paper industry through the reduction of pollutants generated by
using elemental chlorine free bleaching technologies which rely on chlorine
dioxide rather than pure chlorine. The EPA estimates that the cost of the
equipment and mill modifications required to comply with the Cluster Rule will
be approximately $2.6 billion over the next three years. The Cluster Rule is
expected to affect 155 mills across the U.S. and improve the water quality in 73
rivers and streams receiving discharges from pulp and paper mills.
POWER GENERATION
As the Federal Energy Regulatory Commission has begun to implement the
provisions of the Energy Policy Act of 1992, which deregulates the electric
power generation industry by allowing independent power producers and other
companies access to its transmission and distribution systems, the electric
utility industry in the United States will become increasingly competitive. In
anticipation of this deregulation, utilities are attempting to reduce their
operating costs in order to produce power at market competitive rates. Utilities
are accomplishing this, in part, by deferring repairs and refurbishing their
existing power stations. In the near term, such deferred maintenance may reduce
the amount of available outside contract business. However, in the longer term,
utility companies will be required to make necessary repairs, and in a manner
similar to the
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evolution of outsourcing in the petroleum refining industry, utility plant
managers will likely increase the use of outsourcing services in an effort to
reduce operating costs.
INDUSTRIAL SUPPORT SERVICES
Turnarounds. Turnaround services include the maintenance of crude
distillation units, catalytic reformer units, delayed coker units, alkylation
units, platformers, fluid catalytic cracking units and butamer units as part of
a single project. These services also include the maintenance and modification
of heat exchangers, heaters, vessels and piping.
Planning and Project Management. The Company has developed the planning
capabilities, operational skills and field supervision techniques necessary to
manage all aspects of turnaround projects and other facility maintenance
services. During the management of a turnaround project, the Company is
responsible for cost control procedures, resource planning and scheduling,
safety control, hazardous material handling, personnel hiring and training,
equipment and tools procurement, field inspections, and overall project
coordination. Certain specialized types of welding are often provided directly
by the Company. Typically a portion of a turnaround project is performed by
subcontractors under the supervision of the Company. The Company also develops
suggested maintenance programs that incorporate its project experience.
Fluid Catalytic Cracking Turnarounds. Fluid Catalytic Cracking Units
("FCCU") require a high level of maintenance due to extreme temperatures, in
excess of 1000 degreesF inside the FCCU. The high temperature degrades the
refractory lining and stainless steel components inside the FCCU. Refractory
lining is heat resistant material designed to insulate the inner shell of the
FCCU. The main components of a FCCU are the reactor, the regenerator and the
flue gas exhaust system. The majority of FCCU maintenance during a turnaround
project is on this equipment. Major maintenance work is typically performed to
increase the efficiency of, and reduce the air pollution from, the FCCU.
Dismantling and Demolition. Dismantling and demolition services are
provided when a customer has decommissioned an entire facility or unit within
its plant. A typical dismantling project begins by identifying potential safety
hazards and preparing a work plan. This includes an estimate of the number of
personnel and type of equipment necessary to complete the project. Personnel
then examine and, if necessary, drain refinery pipelines or remove asbestos or
other hazardous materials. Dismantled equipment is typically cut into scrap and
sold in the scrap market. The Company salvages certain equipment for resale by
the customer.
ASME Code Stamp. The Company's subsidiaries which comprise the Turner Group
are qualified to perform welding services on equipment that contain American
Society of Mechanical Engineer ("ASME") stamps. State agencies and insurance
companies typically require that ASME-certified welders perform services on
ASME-coded equipment.
Instrumentation and Electrical. These services include lighting, power and
instrumentation wiring for electrical systems up to 5,000 volts, and the
installation, termination, troubleshooting and commissioning of switches,
transformers, and associated control and monitoring equipment. The Company is
qualified to calibrate and commission both electrical and pneumatic instrument
systems. The Turner Group has had extensive experience with the conversion and
physical design of distribution control systems.
Site Remediation. Site remediation includes the on-site clean-up and
treatment of hazardous and non-hazardous organic and inorganic contaminants.
Waste services include removal, encapsulation, stabilization, treatment and
disposal services. The Company employs bioremediation, vapor extraction, thermal
desorption and other techniques to degrade hazardous and non-hazardous
contaminates in soil, sludges, slurries, and liquids contaminated with
hydrocarbons, creosote, pentachlorophenol, pentachloroethylene, PCB's, digester
sulfides, phenols, benzene, toluene, chlorinated aliphatic solvents and raw
sewage. The Company has developed and licenses certain technologies that it uses
in its site remediation business. The Company's United Eco subsidiary has
executed a licensing agreement with Solucorp Industries Ltd. ("Solucorp"), to
use Solucorp's patented Molecular Bonding System ("MBS") technology for the
chemical stabilization of materials contaminated with heavy metals. The MBS
technology uses a mobile facility to process large
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quantities of soils, ash, sediments and sludges. The agreement permits United
Eco to use this technology throughout North America.
SPECIALTY FABRICATION SERVICES
Offshore Oil and Gas Structures. The Company operates two facilities in
Nova Scotia, Canada capable of fabricating platform topsides up to 1,800 tons,
production well jackets and piles up to 3,000 tons, subsea templates,
accommodation modules, BOP carriers and separation modules for use in the harsh
offshore environments of eastern Canada and the North Sea. In addition, the
Company's facilities have historically engaged in the refit, maintenance,
upgrade and modification of drilling rigs and other offshore structures utilized
by oil and gas companies and drilling contractors. Upon completing the
acquisition of the Pictou facility, the Company will operate an additional
facility in Nova Scotia which, historically, has conducted shipbuilding, ship
repair and conversion, and industrial fabrication.
Industrial Fabrication. The Company owns and operates approximately 687,000
square feet of facilities in North America where it fabricates piping, power
boiler assemblies, pressure vessels, reactors, drums, towers, precipitators,
tanks, exchanger tubing, heater coils and other equipment used in process
industries. The Company also performs emergency fabrication as necessary. In
many instances, facilities are operated 24 hours a day to assist a turnaround
project.
Electrical Switch Gear, Bus Ducts and Sheet Metal. The Company's
manufacturing services include the design and fabrication of electrical switch
gear, power distribution panels, bus ducts and control rooms for mass transit
authorities, utilities, chemical and other industrial and commercial customers.
The Company's Chempower subsidiary also manufactures custom sheet metal products
which include metal casings for use in the gaming and electronics industries.
Oil Separation and Removal Systems. SRS manufactures, sells, installs and
operates the SAREX(R) process, an integrated, three phase, oily water processing
treatment system that combines centrifugal technology for sludge dewatering and
oil recovery. This process is currently utilized by hydrocarbon processing
customers in the United States, France, South Africa, Venezuela, Saudi Arabia
and Singapore. Over 30,000 SAREX(R) oil separation and removal systems have been
installed in oil tankers and petroleum refineries around the world.
Structural Steel Support Systems. The Company fabricates and erects,
according to customer specifications, structural steel support systems such as
pipe racks.
BACKLOG
At May 31, 1998, the Company's backlog was approximately $345.5 million,
compared to approximately $245 million at February 28, 1998. The increase in the
Company's backlog is primarily attributable to construction projects which were
awarded to the Company and Dominion Bridge in May 1998. Approximately $44
million of the total backlog at May 31, 1998 is associated with recurring work,
such as maintenance activities, which is not under firm contract but which has a
high probability of occurring. The backlog at May 31, 1998 represents revenue
that the Company expects to realize from work performed under contractual
agreements within the next 12 months. Contracts included in backlog may have
provisions which permit cancellation or delay in their performance. There is no
assurance that contracts included in backlog will not be canceled or delayed.
MARKETING
The Company obtains its contracts either through a competitive bidding
process or on a negotiated basis with long-standing customers. The Company
typically prepares bids for its industrial support and specialty fabrication
services on a project basis. Fee arrangements for services are typically bid
either on a fixed-price or a detailed time and material billing schedule. Bids
are generally awarded based on price, scheduling, performance, quality and
safety. A substantial portion of the Company's maintenance service is recurring
in nature.
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The sales staff, operations managers and business development personnel of
each of the Company's subsidiaries are familiar with the capabilities of all the
Company's subsidiaries. The Company trains its personnel to identify
cross-selling opportunities and integrate the breadth of the Company's services
into each bid proposal. This provides the customer a more comprehensive
portfolio of services. The Company's cross-selling initiatives have resulted in
several successful projects which have involved multiple operating subsidiaries
of the Company and the performance of services internally which were
historically performed by third parties. The Company is attempting to cross-sell
its services so that it may win larger, single-source turnkey projects. During
fiscal 1996, SRS, Industra Service and United Eco were awarded a contract to
construct a remediation facility, MART, in New Jersey which treats soils
contaminated by hydrocarbons, heavy coal tars and polychlorinated biphenyls. The
facility services utilities, environmental contractors and heavy manufacturing
industries throughout the northeast United States, and incorporated site
remediation technologies provided by United Eco and SRS. The facility commenced
operation in July 1997, and the Company sold its interest in MART in November
1997. In fiscal 1997, the Company obtained a contract to fabricate and erect a
850-ton bulk material ship loader in Port Moody, British Columbia. MM Industra
fabricated the "bridge" and other components of the ship loader, while Industra
Service completed the final assembly, erection, testing and commissioning of the
ship loader.
The Company also enters into partnering arrangements and strategic
alliances with its customers, whereby the Company participates in the
pre-planning stages of projects. This early involvement by the Company enhances
its knowledge of the customers' needs.
The Company, through its SRS subsidiary, has entered into four strategic
alliances with established companies in Venezuela, France, Saudi Arabia and
South Africa. These alliances will enhance the Company's ability to grow its
other industrial support and specialty fabrication businesses internationally by
providing the Company an international presence.
COMPETITION
The market for industrial support services is highly competitive with
numerous companies of various sizes, geographic presence and capabilities
participating. Management believes that the typical provider of industrial
support services in North America is a small- to medium-sized company that
serves customers in one region, and offers a limited range of services. The
Company competes with numerous small, independent contractors which,
collectively, have a significant overall share of the market for these services.
Certain of the Company's competitors have greater financial resources or offer
specialized technologies or services not provided by the Company. Management
believes that none of the Company's competitors match the Company's geographic
diversity and breadth of services. The principal competitive factors for
industrial support services are price, quality, scope of services offered, and
safety.
The specialty fabrication market in North America is highly fragmented,
with few large participants. Many of the Company's competitors are local
entities. The principal competitive factors for specialty fabrication services
are price, quality, product availability, ability to meet delivery schedule, and
safety.
CUSTOMERS
In fiscal 1997, Huntsman Chemical, International Paper, Mobil Oil, American
Electric Power, Ashland Oil and Brown & Root together accounted for
approximately 31.2% of the Company's total revenues. Huntsman Chemical accounted
for 6.9% of the Company's revenues in fiscal 1997. In fiscal 1996, the Company's
top six continuing customers accounted for 18.0% of total revenues. The loss of
any one or more of these key customers could have a material adverse impact on
the Company's business, results of operations and financial condition.
Management believes that the Company's continued efforts to expand and diversify
its customer base and the addition of a full year of operations from Chempower
and CCG, will further reduce the Company's dependence on any single customer.
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EMPLOYEES
At May 31, 1998, the Company employed 731 full-time employees and 1,219
hourly workers, some of whom were represented by labor unions under agreements
expiring at various dates. Total employment levels ranged from 1,276 to 4,138
workers per week during fiscal 1997. The Company's experience has been that
hourly-rate employees are generally available over an extended period of time in
the quantity, and at the skill level, necessary for its projects. The Company
has not experienced any work stoppage or employee shortage. The Company
considers its relations with its employees to be good.
GOVERNMENT REGULATION AND RISK MANAGEMENT
Certain of the Company's services involve contact with crude oil, refined
petroleum products, asbestos and other substances classified as hazardous
material under the various federal, state and local environmental laws. Under
these laws, hazardous material is regulated from the point of generation to the
point of disposal. In addition, the EPA has issued regulations for hazardous
waste remediation contractors. To the best of management's knowledge, the
Company and its operating subsidiaries have obtained all the required material
permits and licenses in the states in which they operate.
All of the Company's U.S. operations are subject to regulations issued by
the United States Department of Labor under the Occupational Safety and Health
Act ("OSHA"). These regulations set forth strict requirements for protecting
personnel involved with any materials that are classified as hazardous, which
includes materials encountered when performing many of the Company's services.
There are similar federal and provincial rules governing the Company's Canadian
operations. Violations of these rules can result in fines and the suspension of
operating licenses. To the best of management's knowledge, the Company and its
operating subsidiaries are in material compliance with OSHA and Canadian
regulations.
The Company's safety and training efforts are conducted primarily at the
subsidiary level. In addition to training designed to advance the skill level of
individual employees, the Company uses entry level screening and broad-based
skill development programs to improve the overall quality and technical
competence of its work force. The Company has a designated safety officer at
each of its subsidiaries who is responsible for compliance with applicable
governmental procedures and the Company's internal policies and practices. All
of the Company's technicians are subject to pre-employment, scheduled and random
drug testing. The Company's operations and personnel are subject to significant
regulation and certification requirements imposed by federal, state and other
authorities.
The Company maintains worker's compensation insurance in accordance with
statutory requirements and contractors' general liability insurance with an
annual aggregate coverage limit that varies with each subsidiary. The Company's
general liability insurance specifically excludes all pollution related claims
and fines levied against the Company as a result of any violations by the
Company of any regulations issued by the Department of Labor under OSHA. To
date, the Company has not incurred any significant fines or penalties or any
liability for pollution, environmental damage, toxic torts or personal injury
from exposure to hazardous wastes. However, a successful liability claim for
which the Company is only partially insured or completely uninsured could have a
material adverse effect on the Company. In addition, if the Company experiences
a significant amount of such claims, increases in the Company's insurance
premiums could materially and adversely affect the Company. Any difficulty in
obtaining insurance coverage consistent with industry practice may also impair
the Company's ability to obtain future contracts, which in most cases are
conditioned upon the availability of specified insurance coverage. The Company
has not experienced any difficulty in obtaining adequate insurance coverage for
its businesses.
The Company has arranged for a surety line to post performance and payment
bonds on contracts should a customer request that the Company post such bonds as
a condition to the granting of a contract to the Company.
LEGAL PROCEEDINGS
The Company and its operating subsidiaries are currently involved in
various claims and disputes in the normal course of business. Management
believes that the disposition of all such claims, individually or in the
aggregate, will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
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<PAGE> 54
PROPERTIES
The principal administrative offices of the Company are maintained in
Toronto, Ontario and Houston, Texas. The Company owns 13 facilities and leases
an additional 13 facilities in the United States and Canada. The Company
believes that its existing facilities are adequate to meet its current
requirements and that suitable additional space would be available as needed to
accommodate any expansion of operations.
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
BUSINESS UNIT AND LOCATION OWNERSHIP PRIMARY USE(A) (SQ. FT.)
-------------------------- --------- -------------- --------------
<S> <C> <C> <C>
AMERICAN ECO
Toronto, Ontario................................ Leased Adm. 2,000
Houston, Texas.................................. Leased Adm. 14,000
CCG
Dallas, Texas................................... Leased Adm. 7,000
CHEMPOWER
Canton, Ohio.................................... Owned Adm./Mfg. 205,000
Cincinnati, Ohio................................ Owned Adm./Const. 25,000
Las Vegas, Nevada............................... Leased Adm./Mfg. 47,000
Washington, Pennsylvania........................ Owned Adm./Const./Mfg. 112,000(b)
Knoxville, Tennessee............................ Leased Adm. 1,000
Waverly, Tennessee.............................. Owned Adm./Const./Mfg. 95,000
Winfield, West Virginia......................... Owned Adm./Const. 90,000
INDUSTRA SERVICE
Edmonton, Alberta............................... Owned Adm./Const./Fabr. 20,000
New Westminster, British Columbia............... Owned Adm./Const./Mfg./Fabr. 74,000
Portland, Oregon................................ Leased Adm./Const./Eng. 22,300
Greenville, South Carolina...................... Leased Adm./Eng. 14,200
Seattle, Washington............................. Leased Adm. 18,800
LAKE CHARLES GROUP
Lake Charles, Louisiana......................... Owned Adm./Const./Fabr. 10,000
MM INDUSTRA
Dartmouth, Nova Scotia.......................... Owned Adm./Mfg. 60,000
Dartmouth, Nova Scotia.......................... Leased Mfg./Const. 180,000
Pictou, Nova Scotia............................. Owned Adm./Mfg./Const. 160,000
SRS
Irvine, California.............................. Leased Adm./Mfg. 24,000
TURNER GROUP
Bridge City, Texas.............................. Owned Adm./Fabr. 2,686
Port Arthur, Texas(c)........................... Owned Adm./Const./Mfg. 29,000
UNITED ECO
Highpoint, North Carolina....................... Owned Adm./Const./Remed. 7,500
Apex, North Carolina............................ Leased Adm. 5,000
Lexington, South Carolina....................... Leased Adm./Remed. 5,000
Blacksburg, Virginia............................ Leased Fabr. 5,000
</TABLE>
- ---------------
(a) Adm. = Administration; Const. = Construction warehouse; Mfg. =
Manufacturing facility; Fabr. = Fabrication facility; Eng. = Engineering
facility; Remed. = Remediation facility.
(b) Amount includes approximately 30,000 square feet of floor space leased to
unaffiliated tenants.
(c) This facility is situated on 6.5 acres and contains 15,000 square feet of
office and warehouse space and 14,000 square feet of covered fabrication
area. The facility is in close proximity to the Intercoastal Waterway.
49
<PAGE> 55
MANAGEMENT
The names of the executive officers, directors and certain significant
employees of the Company are set forth below, together with the positions held
by each such person in the Company and their ages at June 30, 1998. All
directors are elected annually by the shareholders of the Company and serve
until their successors are duly elected and qualified. Officers are elected by
the Board of Directors and serve at the will of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Michael E. McGinnis.................. 48 Chairman of the Board of Directors and Chief
Executive Officer
J. C. Pennie......................... 59 Vice-Chairman of the Board of Directors
Frank J. Fradella.................... 42 President, Chief Operating Officer and Director
Bruce D. Tobecksen................... 54 Senior Vice President and Chief Financial
Officer
Bruce A. Rich........................ 58 Secretary
Barry Cracower....................... 60 Director
William A. Dimma..................... 70 Director
Hon. Donald R. Getty................. 64 Director
Francis J. Sorg, Jr.................. 76 Director
Larry Cundy.......................... 47 Vice President, Northwest Region
Joseph D. DeFranco................... 74 Vice President, Western Region
Besim Halef.......................... 42 Vice President, Northeast Region
Matthew D. Hill...................... 28 Vice President, Southwest Region
John Hoyle........................... 51 Division President, United Eco
C.N. Jones........................... 41 Division President, CCG
Toomas Kukk.......................... 57 Vice President, Midwest Region
</TABLE>
EXECUTIVE OFFICERS
Michael E. McGinnis has been the Chief Executive Officer of the Company
since 1993, a director since 1994, Chairman of the Board since May 1997, and had
been the Company's President from 1993 to July 1998. He was the President and
Chief Executive Officer of Eco Environmental when it was acquired by the Company
in 1993. Prior to joining Eco Environmental in 1992, Mr. McGinnis was employed
with The Brand Companies, Inc., one of the largest asbestos abatement
contractors in the United States. Mr. McGinnis joined The Brand Companies in
1965 and served in various operational and administrative capacities for over 27
years. Mr. McGinnis has been a director of US Industrial Services, Inc. since
February 1996, having served as its Chairman of the Board from June 1996 to
October 1997, and was President of US Industrial Services, Inc. from March 1996
to August 1996. He has been a director of Dominion Bridge since February 1998.
Frank J. Fradella was named President and Chief Operating Officer and a
director of the Company in July 1998, and had been Executive Vice President and
Chief Operating Officer of the Company from October 1996 to May 1997. Prior to
rejoining the Company, Mr. Fradella served as President, Chief Executive Officer
and a director of US Industrial Services, Inc. from May 1997 to July 1998 and
was Chairman since November 1997. From February 1993 to October 1996, he was
employed by NSC Corporation having served as its President and CEO since
September 1994. From February 1991 to January 1993, Mr. Fradella was Vice
President of Kaselaan & D'Angelo Associates.
Bruce D. Tobecksen has been Senior Vice President and Chief Financial
Officer of the Company since April 1998, and served as a Vice President and the
Treasurer from January 1998 until April 1998. Prior thereto, from 1993 until
1998, Mr. Tobecksen was employed by Waste Management, Inc., a waste
50
<PAGE> 56
management services company, serving as Vice President, Finance. From 1987 to
1993, he was employed as Chief Financial Officer by Chemical Waste Management,
Inc., a subsidiary of Waste Management, Inc.
Bruce A. Rich has been Secretary of the Company since May 1997. He has been
a partner in Thelen Reid & Priest LLP, a New York, New York law firm since 1992,
and prior thereto was a partner in another law firm. Thelen Reid & Priest LLP
has performed legal services for the Company.
OUTSIDE DIRECTORS
Barry Cracower has been a director of the Company since December 1996. Mr.
Cracower has been the President of Pharmx Rexall Drug Stores Ltd., a drug store
chain based in Concord, Ontario, since 1990. Prior to 1990, he held senior
executive positions at several major Canadian corporations. Mr. Cracower served
on the Board of Directors of the predecessor corporation to the Company, ECO
Corp., in 1992 during its restructuring. He also is as a director of ETI and
Algonquin Mercantile Corporation, both Canadian companies.
William A. Dimma has been a director of the Company since January 1997. Mr.
Dimma has served as the Chairman of the Board of Canadian Business Media Ltd.
since 1992. Mr. Dimma has served as the Deputy Chairman and also as the
President and Chief Executive Officer of Royal LePage Limited, a Canadian real
estate company since 1993. In addition to the companies mentioned above, Mr.
Dimma is a director of the Greater Toronto Airport Authority, Magellan Aerospace
Corporation, IPL Energy Inc., a pipeline and gas distribution company, London
Life Insurance Company, Sears Canada Inc., Trilon Financial Corporation, a
financial services company, Silcorp Limited, an operator of convenience stores,
Swiss Re Life and Health Canada Ltd., Camreal Corporation and the Mansanto
Canada Innovation and Growth Council. Mr. Dimma also serves as Chairman of the
Board of Swiss Reinsurance Company Canada Ltd., Home Capital Group and Royal
LePage Commercial Advisory Board.
Hon. Donald R. Getty has been a director of the Company since January 1997.
Mr. Getty has been the President and Chief Executive Officer of Sunnybank
Investments Ltd., an investment and consulting company located in Edmonton,
Alberta, since December 1992. Mr. Getty has held elected and appointive offices
in Canadian government, most recently as the Premier of the Province of Alberta
from 1985 to 1992 and as the Minister of Energy and Natural Resources for the
government of Alberta between 1971 and 1979. Mr. Getty currently serves on the
boards of directors of Mera Petroleum, an oil and gas company, Cen Pro
Technologies, an engineering company, Guyanor Resources, a mining company, Bow
Valley Brewery Inc., a microbrewery, Nation Wide Resources Ltd., a producer of
road building materials, Eclipse Investment Ltd., an investment holding company,
and the Alberta Racing Corporation, a provincial government agency regulating
horse racing, all located in Canada.
J. C. Pennie has been a director of the Company since February 1992 and the
Vice-Chairman of the Board of Directors, a non-executive position, since October
1993. Mr. Pennie served as the Company's President and Chief Executive Officer
in 1992 in order to execute the downsizing and reorganization of the Company.
Prior to joining the Company, Mr. Pennie was a business consultant with over 25
years of experience in assisting turnaround and start-up companies. He is the
Chairman and Chief Executive Officer of ETI and a principal of Windrush, both
Canadian companies.
Francis J. Sorg, Jr. has been a director of the Company since May 1997. For
the past 27 years, Mr. Sorg has served as Chairman of the Board of SRS, which
the Company acquired in July 1996. He also served as Chairman of Thos de la Rue,
Inc., the US subsidiary of De La Rue Ltd; Chairman of Newsrad, Inc.; Chairman of
Wolfort Co.; Senior Vice President of Bowne & Co.; and a founder and President
of North Shore University Hospital, Manhasset, New York.
SIGNIFICANT EMPLOYEES
Larry Cundy has served as the Company's Vice President for the Northwestern
Region since April 1998 and as the Division Chief Executive Officer of Industra
since April 1997. For more than twenty years prior
51
<PAGE> 57
thereto, Mr. Cundy had been employed by Parsons Power Inc. and its predecessor,
his last position being Regional Director of Sales.
Joseph D. DeFranco has served as the Company's Vice President for the
Western Region since April 1998 and as the Division President of SRS since July
1996 when SRS was acquired by the Company. Mr. DeFranco has served as the
President, Chief Executive Officer, Treasurer and a director of SRS since 1973.
Besim Halef has served as the Company's Vice President for the Northeast
Region since April 1998 and as the Division President of MM Industra since June
1996. Between April 1994 and May 1996, Mr. Halef served as a project general
manager for National Heavy Industries Limited, Saudi Arabia in connection with a
project which built specialty fabrication facilities in the Kingdom of Saudi
Arabia. Mr. Halef had served in various capacities at M&M Manufacturing Limited
Partnership, the predecessor of MM Industra, between 1985 and 1994, most
recently as the Executive Vice President and General Manager from March 1991 to
April 1994.
Matthew D. Hill has served as the Company's Vice President for the
Southwest Region since April 1998 and as the Division President and Vice
President/Director of Operations, Gulf Coast of the Turner Group since April
1997. Mr. Hill served as the Executive Director of Administration from January
1997 to March 1997 and as the Director of Special Projects from March 1996 to
January 1997. Prior thereto, Mr. Hill was Manager of Eco Environmental's Spill
Response Division from April 1995 to March 1996. Prior to joining Eco
Environmental, Mr. Hill had been Plant Manager of Alumatech, Inc., a specialty
aluminum trailer manufacturer, from May 1992 to March 1995.
John Hoyle has served as the Division President of United Eco since
November 1996. Mr. Hoyle had been the President of Four Seasons Environmental,
Inc., an environmental services company, between July 1996 and August 1993, and
served as the Vice President of that corporation between September 1990 and
August 1993.
C.N. Jones has served as the Division President of CCG since September 1997
when CCG was acquired by the Company. Mr. Jones founded CCG in November 1991 and
served as its President until September 1997. From 1986 to 1991, he was a
partner in a Dallas based construction company which served clients nationally.
Prior thereto, he was employed by a certified public accounting firm, dealing
primarily with construction clients.
Toomas Kukk has served as the Company's Vice President for the Midwest
Region since April 1998 and as the Division President of Chempower since its
acquisition in March 1997. Mr. Kukk founded Chempower and Powerhouse Equipment,
Inc., the predecessor to Chempower, and he served as the Chief Executive Officer
and Chairman of the Board of Directors of Chempower since its organization in
1985.
52
<PAGE> 58
EXECUTIVE COMPENSATION
The following table discloses the compensation awarded to or earned by the
Chief Executive Officer and the other most highly compensated executive officers
of the Company as of the end of fiscal 1997 whose annual salary plus other forms
of compensation exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS($) COMPENSATION($)
----------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. McGinnis 1997 280,832(1) -- 10,885(2) 150,000 --
Chairman of the Board, 1996 205,945(1) -- 6,439(2) 20,000 --
President and Chief 1995 103,651(1) -- 6,440(2) 100,000 --
Executive Officer
David L. Norris 1997 144,231(3) -- 4,900(2) 70,000 --
Senior Vice President and 1996 -- -- -- 15,000 --
Chief Administrative
Officer(3)
</TABLE>
- ---------------
(1) Includes $1,600, $1,138 and $1,158 of deferred compensation contributed by
the Company to Mr. McGinnis' 401(k) plan in fiscal 1997, 1996 and fiscal
1995, respectively.
(2) Represents automobile lease payments paid by the Company.
(3) Mr. Norris became an employee in August 1996. From August 1996 to February
1997, he had been an executive officer of US Industrial, and the Company
reimbursed US Industrial for compensation amounts paid by US Industrial to
Mr. Norris. Mr. Norris became a consultant to the Company and ceased serving
as Senior Vice President and Chief Administrative Officer in July 1998.
COMPENSATION OF DIRECTORS
The directors of the Company who are not otherwise employees or consultants
of the Company receive CDN$20,000 per year, paid quarterly. In addition, the
directors of the Company receive CDN$1,000 per meeting and all reasonable
expenses incurred by them in respect of their duties are reimbursed by the
Company. None of the directors of the Company receives compensation in his
capacity as a director pursuant to any other arrangement or in lieu of any
standard arrangement except through the granting of stock options. However, in
fiscal 1997, the Company paid $112,885 in fees to Windrush, 50% of which is
owned by Mr. Pennie, for administrative, strategic, marketing, planning and
other services rendered to the Company.
COMMITTEES
The Board of Directors has designated an Audit Committee and a Compensation
Committee. The Audit Committee is comprised of Barry Cracower, J. C. Pennie and
Francis J. Sorg, Jr. The Compensation Committee, which also functions as the
Corporate Governance Committee, is comprised of William A. Dimma, Hon. Donald R.
Getty and Francis J. Sorg, Jr.
EMPLOYMENT AGREEMENTS
The Company and Michael E. McGinnis have entered into an employment
agreement pursuant to which Mr. McGinnis receives an annual base salary of
$300,000, an automobile allowance of $750 per month plus operating and
maintenance expenses associated with such vehicle. Mr. McGinnis is entitled to
participate in an annual bonus program determined by the level of basic earnings
per share of the Company for each fiscal year of the term of the employment
agreement. The agreement provides for up to five years compensation if he is
terminated without cause or upon his death or disability, subject to certain
limitations. The employment agreement terminates on May 1, 2002. Mr. McGinnis
waived his annual bonus for fiscal 1997.
53
<PAGE> 59
The Compensation Committee of the Company's Board of Directors is currently
considering the terms of an employment agreement to be entered into by the
Company and Frank J. Fradella. The terms of such agreement are expected to be
similar to the terms of Mr. McGinnis' employment agreement with the Company.
The Company and David L. Norris, who became a consultant to the Company and
ceased serving as Senior Vice President and Chief Administrative Officer in July
1998, entered into a three year employment agreement effective May 1, 1997
pursuant to which Mr. Norris is paid an annual base salary of $225,000, an
automobile allowance of $750 per month plus operating and maintenance expenses
associated with such vehicle. Mr. Norris is entitled to participate in an annual
bonus program determined by the level of basic earnings per share of the Company
for each fiscal year of the term of the employment agreement. The agreement
provides for up to three years compensation if Mr. Norris is terminated by the
Company without cause, subject to certain limitations. Mr. Norris waived his
annual bonus for fiscal 1997.
The Company and Bruce D. Tobecksen entered into a three year employment
agreement effective January 1, 1998 pursuant to which Mr. Tobecksen is paid an
annual base salary of $250,000, an automobile allowance of $750 per month plus
operating and maintenance expenses associated with such vehicle. Mr. Tobecksen
is entitled to participate in an annual bonus program determined by the level of
basic earnings per share of the Company for each fiscal year of the term of the
employment agreement. The agreement provides for up to three years compensation
if Mr. Tobecksen is terminated by the Company without cause, subject to certain
limitations.
EMPLOYEE PLANS
The Company has a stock option plan (the "Option Plan") for the grant of
options to its employees, officers, directors and consultants for the purchase
of the Company's common shares. The Option Plan provides for the grant of
options for the purchase of 3,504,369 common shares of which at May 31, 1998,
options for the purchase of 1,119,900 common shares were outstanding. The Option
Plan limits the number of common shares subject to options to be granted to any
insider to not more than 5.0% of the outstanding shares.
The Company has a 401(k) retirement plan for its U.S. branch employees
under which the Company may make matching contributions with respect to an
employee's contribution in an amount not to exceed 25% of the first 4% of the
employee's compensation. The Company also may make a profit sharing contribution
to the 401(k) plan for all participants therein, in amounts as determined by the
Board of Directors. Through December 31, 1997, no profit sharing contribution
was made to the 401(k) plan.
SHARE OWNERSHIP
To the knowledge of the Company, at May 31, 1998, no person beneficially
owned more than 5.0% of the outstanding common shares. At June 30, 1998, the
directors and executive officers beneficially owned an aggregate of 811,522
common shares, or approximately 3.8% of the outstanding common shares, which
included an aggregate of 405,000 common shares subject to presently exercisable
options. See "Security Ownership of Management and Principal Stockholders."
54
<PAGE> 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT OR AFFILIATES OF MANAGEMENT
Pursuant to an agreement between the Company and Windrush, dated December
1, 1997, Windrush receives a fee of $10,000 per month in consideration for
administrative, strategic, marketing and planning services rendered to the
Company plus fees which are negotiated on a project-by-project basis for other
specific services. This agreement expires on December 1, 2000. J. C. Pennie, the
Vice-Chairman of the Board of Directors of the Company, owns 50% of Windrush.
On August 31, 1997, the Company sold Eco Environmental and Environmental
Evolutions to Eurostar, a Company controlled by J. C. Pennie, the Vice-Chairman
of the Company, in exchange for a note in the amount of $11.0 million. This note
bears interest at the rate of 10% per annum and is due on August 31, 1998. The
note is also supported by a performance bond in the amount of $3.0 million. As a
result of this transaction, the Company recorded a gain of approximately $2.5
million.
Eurostar assigned its interest in Eco Environmental and Environmental
Evolutions to ETI. In February 1998, the Company received $603,000 in cash for
reimbursement of certain administrative services performed by the Company on
behalf of the two environmental companies from September 1997 through November
1997. J. C. Pennie owns 50% of Windrush, which owns 6.6% of ETI, and Mr. Pennie
is Chairman and Chief Executive Officer of ETI. Barry Cracower, a director of
the Company, is also a director of ETI.
In March 1997, the Company entered into a three-year consulting contract
with Mark White, Chairman of the Board of Directors at the time. On May 7, 1997,
a new slate of directors was elected by the shareholders of the Company and Mr.
White's directorship was terminated. Total consideration of $500,000 for the
three-year consulting contract was paid in full in fiscal 1997.
In December 1997, the Company granted to Frank J. Fradella, presently the
President and Chief Operating Officer of the Company, an option to purchase all
880,000 shares of US Industrial common stock which the Company directly owned at
that time, at a purchase price of $0.65 per share in cash through December 1998.
Mr. Fradella had been serving as Chairman of the Board, President and Chief
Executive Officer of US Industrial at the time he was granted such option by the
Company.
INDEBTEDNESS OF MANAGEMENT OR AFFILIATES OF MANAGEMENT
During fiscal 1997, the Company loaned $84,100 to Michael E. McGinnis for
the purpose of purchasing common shares of the Company in the open market. The
loan increased his indebtedness to the Company to $630,057. This indebtedness
matures on May 31, 1999, bears interest at the rate of 10.0% per annum and is
collateralized by the purchased shares. The outstanding balance of the loan,
including interest, at May 31, 1998 was $663,423.
In 1997, the Company loaned $305,000 which bears interest at the rate of
8.5% per annum to David L. Norris, who ceased serving as Senior Vice President
and Chief Administrative Officer in July 1998, for the purchase of a home in
connection with his relocation to the Company's headquarters in Houston, Texas.
The indebtedness matures on May 31, 1999 and is unsecured. The outstanding
balance of the loan, including interest, at May 31, 1998 was $311,058.
In June 1997, the Company loaned $60,105 to J. C. Pennie. The loan matures
on May 31, 1999, bears interest at the rate of 8.5% per annum and is unsecured.
The outstanding balance of the loan, including interest, at May 31, 1998 was
$63,072.
55
<PAGE> 61
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1998 the number of common
shares of the Company beneficially owned by (i) each person known to be the
beneficial owner of more than five percent of the outstanding common shares of
the Company, (ii) each director of the Company, (iii) each named executive
officer, and (iv) all executive officers and directors of the Company as a group
as known by the Company or as reflected on the records of the transfer agent.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
- ------------------------------------------------------------ -----------------------
NUMBER PERCENTAGE
-------- -----------
<S> <C> <C>
Barry Cracower.............................................. 48,000(2) *
William A. Dimma............................................ 48,000(2) *
Frank J. Fradella........................................... 27,500(3) *
Hon. Donald R. Getty........................................ 48,000(2) *
Michael E. McGinnis......................................... 424,010(4) 2.0%
John C. Pennie.............................................. 60,500(5) *
Francis J. Sorg Jr.......................................... 140,512(5) *
Bruce D. Tobecksen.......................................... 15,000(2) *
Directors and executive officers as a group (8 persons)..... 811,522(6) 3.8%
</TABLE>
- ---------------
* Represents less than one percent of the issued and outstanding common
shares.
(1) Unless otherwise indicated, all persons have sole voting and investment
power over the common shares.
(2) Represents common shares underlying presently exercisable stock options.
(3) Includes 20,000 common shares underlying presently exercisable stock
options.
(4) Includes (i) 130,000 common shares underlying presently exercisable stock
options, and (ii) 81,750 shares owned by his wife.
(5) Includes 48,000 common shares underlying presently exercisable stock
options.
(6) Includes common shares disclosed in notes (2), (3), (4) and (5) above.
56
<PAGE> 62
DESCRIPTION OF THE NOTES
GENERAL
The Original Notes were issued pursuant to the Indenture dated as of May
21, 1998 among the Company, the initial Guarantors (as defined below) and State
Street Bank and Trust Company, as trustee (the "Trustee"). The Exchange Notes
will be issued under the Indenture, which will be qualified under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part. The terms of the Notes will include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Notes will be subject to all such terms, and prospective investors are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of certain provisions of the Indenture does not purport to be
complete. Copies of the Indenture and the Registration Rights Agreement are
available as set forth under "-- Additional Information." The definitions of
certain terms used in the following summary are set forth below under
"-- Certain Definitions." As used in this "Description of the Notes," the
"Company" means American Eco Corporation, excluding its subsidiaries.
The Notes are senior general unsecured obligations of the Company, ranking
pari passu in right of payment with all other senior indebtedness of the Company
and senior in right of payment to any subordinated indebtedness of the Company
incurred in the future. The Notes are unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by all of the Company's
present and future Restricted Subsidiaries (the "Guarantors"). Holders of
secured indebtedness of the Company and the Guarantors will have claims with
respect to the assets constituting collateral for such secured indebtedness that
are superior to the claims of the holders of the Notes. Accordingly, the Notes
and the Subsidiary Guarantees will be effectively subordinated to claims of
secured creditors of the Company and the Guarantors to the extent of such
collateral. See "Risk Factors -- Effective Subordination."
The Indenture provides for the issuance of up to $120.0 million of Original
Notes and an equal aggregate principal amount of Exchange Notes that may be
issued in exchange for Original Notes pursuant to the Exchange Offer. The
Indenture also provides the Company the flexibility of issuing additional Notes
in the future in an unlimited amount; however, any issuance of such additional
Notes would be subject to the covenant described in the first paragraph under
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock." The Original Notes, the Exchange Notes and any such additional Notes are
collectively referred to as the "Notes" in this "Description of the Notes."
Any Original Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries. Under certain circumstances, the Company will be able
to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to the restrictive covenants set
forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $120.0
million and will mature on May 15, 2008. Interest on the Notes will accrue at
the rate of 9 5/8% per annum and will be payable semi-annually in arrears on May
15 and November 15 of each year, commencing, in the case of the Original Notes
and the Exchange Notes, on November 15, 1998, to holders of record on the
immediately preceding May 1 and November 1. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of and
premium, interest and Liquidated Damages, if any, on the Notes will be payable
in U.S. dollars at the office or agency of the Company maintained for such
purpose in New York, New York or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to holders
of the Notes at their respective addresses set forth in the register of holders;
provided, however, that all payments with respect to Notes the
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<PAGE> 63
holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York, New York will be the office
of the Trustee maintained for such purpose. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed by all of the Company's present and future Restricted
Subsidiaries. See "-- Certain Covenants -- Additional Subsidiary Guarantees."
The obligations of each Guarantor under its Subsidiary Guarantee will be a
general unsecured obligation of such Guarantor, ranking pari passu in right of
payment with all other current or future senior indebtedness of such Guarantor
and senior in right of payment to any subordinated indebtedness incurred by such
Guarantor in the future.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another Person
(other than the Company or another Guarantor), whether or not affiliated with
such Guarantor, unless (i) subject to the provisions of the following paragraph,
the Person formed by or surviving any such consolidation or merger (if other
than such Guarantor) shall execute a Guarantee and deliver an Opinion of Counsel
in accordance with the terms of the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; (iii) such
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have a Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction; and (iv) the Company would be
permitted by virtue of the Company's pro forma Consolidated Interest Coverage
Ratio, immediately after giving effect to such transaction, to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Interest Coverage
Ratio test set forth in the covenant described below the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock."
The Indenture provides that, in the event of a sale or other disposition
(including by way of merger or consolidation) of all or substantially all of the
assets or all of the Capital Stock of any Guarantor, then such Guarantor will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided, however, that the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the Indenture. See
"-- Put Option of Holders -- Asset Sales." In addition, the Indenture provides
that, in the event the Board of Directors designates a Guarantor to be an
Unrestricted Subsidiary, then such Guarantor will be released and relieved of
any obligations under its Subsidiary Guarantee, provided that such designation
is conducted in accordance with the applicable provisions of the Indenture.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to May 15, 2003,
except as set forth below under "-- Redemption for Taxation Reasons."
Thereafter, the Notes will be subject to redemption at any time at the option of
the Company, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the 12 month period beginning on May 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003.............................................. 104.813%
2004.............................................. 103.208
2005.............................................. 101.604
2006 and thereafter............................... 100.000
</TABLE>
Notwithstanding the foregoing, on or prior to May 15, 2001, the Company may
redeem up to 35% of the aggregate principal amount of the Notes originally
issued at a redemption price of 109.625% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Qualified Equity
Offerings, provided that (a) at least 65% of
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<PAGE> 64
the aggregate principal amount of the Notes originally issued remain outstanding
immediately after the occurrence of each such redemption and (b) each such
redemption occurs within 60 days of the date of the closing of each such
Qualified Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption will be made by the Trustee on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of the Notes to be redeemed at
its address as shown in the security register. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on the Notes called for redemption.
REDEMPTION FOR TAXATION REASONS
The Indenture provides that the Company may at any time redeem, in whole
but not in part, the outstanding Notes at a redemption price of 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption if it has become or would
become obligated to pay any Additional Amounts in respect of the Notes as a
result of (a)(i) any change in or amendment to the laws (or regulations
promulgated thereunder) of Canada (or any political subdivision or taxing
authority thereof or therein) or (ii) any change in or amendment to any official
position regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or is effective on or after
the date of the Indenture and (b) such obligation cannot be avoided by the
Company taking reasonable measures available to it. See "-- Additional Amounts."
ADDITIONAL AMOUNTS
The Indenture provides that payments made by or on behalf of the Company
under or with respect to the Notes will be made free and clear of and without
withholding or deduction for or on account of any present or future tax, duty,
levy, interest, assessment or other governmental charge imposed or levied by or
on behalf of the Government of Canada or any province or territory thereof or by
any authority or agency therein or thereof having power to tax ("Taxes"), unless
the Company (or any Paying Agent) is required to withhold or deduct Taxes under
Canadian law or by the interpretation or administration thereof by the relevant
taxing authority. If the Company (or any Paying Agent) is so required to
withhold or deduct any amount for or on account of Taxes from any payment made
under or with respect to the Notes, the Company (and each Paying Agent) will pay
to each holder of the Notes that are outstanding on the date of the required
payment, such additional amounts ("Additional Amounts") as may be necessary so
that the net amount received by such holder (including the Additional Amounts)
after such withholding or deduction will not be less than the amount such holder
would have received if such Taxes had not been withheld or deducted, provided
that no Additional Amounts will be payable with respect to a payment made to a
holder of the Notes (an "Excluded Holder") (a) with which the Company does not
deal at arm's length (within the meaning of the Income Tax Act (Canada)) at the
time of making such payment or (b) which is subject to such Taxes by reason of
the holder being connected with Canada or any province or territory thereof
otherwise than by the mere holding of the Notes or the receipt of payments
thereunder. The Company will also (a) make such withholding or deduction and (b)
remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Company will furnish, within 30 days after
the date the payment of any Taxes is due pursuant to applicable law, to the
holders of the Notes that are outstanding on the date of the required payment,
copies of tax receipts evidencing that such payment has been made by the
Company. The Company will indemnify and hold harmless each holder of the Notes
that are outstanding on the date of the required payment (other than an Excluded
Holder) and upon written request reimburse each such holder for the amount of
(a) any Taxes so levied or imposed and paid by such holder as a result of
payments made under or with respect to the Notes,
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(b) any liability (including, without limitation, penalties, interest and
expense) arising therefrom or with respect thereto and (c) any Taxes imposed
with respect to any reimbursement under clause (a) or (b) above.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company becomes obligated to pay
Additional Amounts with respect to such payment, the Company will deliver to
each Paying Agent an Officers' Certificate stating the fact that such Additional
Amounts will be payable, and the amount so payable and will set forth such other
information as necessary to enable such Paying Agent to pay such Additional
Amounts to the holders of the Notes on the payment date. Whenever in the
Indenture or this Prospectus there is mentioned, in any context, (a) the payment
of principal (and premium, if any), (b) purchase prices in connection with a
purchase of the Notes, (c) interest or (d) any other amount payable on or with
respect to any of the Notes, such mention shall be deemed to include mention of
the payment of Additional Amounts provided for in this section to the extent,
that, in such context, Additional Amounts are, were or would be payable in
respect thereof.
The obligations of the Company described in the two preceding paragraphs
will survive the satisfaction and discharge of the Indenture.
MANDATORY REDEMPTION
Except as set forth below under "-- Put Option of Holders," the Company is
not required to make mandatory redemption or sinking fund payments with respect
to the Notes.
PUT OPTION OF HOLDERS
Change of Control
The Indenture provides that, upon the occurrence of a Change of Control,
the Company will be required to make an offer (a "Change of Control Offer") to
purchase all or any portion (equal to $1,000 or an integral multiple thereof) of
each holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Company will mail a
notice to each holder of Notes and the Trustee describing the transaction that
constitutes the Change of Control and offering to purchase the Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of the Notes as a result of a Change of Control.
On or before the Change of Control Payment Date, the Company will, to the
extent lawful, (a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (c) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of the Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each holder of the Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided, however, that each such new Note will
be in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company purchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. In addition, the Company
could enter into certain transactions, including acquisitions, refinancing or
other recapitalizations, that could affect the Company's capital structure or
the value of the Notes, but that would not constitute a Change of Control. The
occurrence
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of a Change of Control may result in a default under instruments governing other
senior indebtedness of the Company and give the lenders thereunder the right to
require the Company to repay all outstanding obligations thereunder. The
Company's ability to purchase the Notes following a Change of Control may also
be limited by the Company's then existing financial resources. Should a Change
of Control occur at a time when the Company lacks sufficient funds to make the
Change of Control Payments or is prohibited from purchasing the Notes under
instruments governing other senior indebtedness (and the Company is unable to
obtain the consent of the holders of such senior indebtedness or to prepay such
senior indebtedness), an Event of Default would occur under the Indenture. See
"-- Events of Default and Remedies."
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following: (a) the sale, lease, transfer, conveyance or other
disposition (other than by merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or assets of
the Company and its Subsidiaries, taken as a whole, (b) the adoption, by holders
of Capital Stock of the Company, of a plan relating to the liquidation or
dissolution of the Company, (c) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" (as such term is used in Section 13(d) (3) of the Exchange Act) becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of more than 50% of the voting power of the outstanding voting
stock of the Company or (d) the first day on which more than a majority of the
members of the Board of Directors are not Continuing Directors; provided,
however, that a transaction in which the Company becomes a Subsidiary of another
Person (other than a Person that is an individual) shall not constitute a Change
of Control if (i) the shareholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or more
intermediaries, at least a majority of the voting power of the outstanding
voting stock of such other Person immediately following the consummation of such
transaction and (ii) immediately following the consummation of such transaction,
no "person" (as such term is defined above), other than such other Person (but
including the holders of the Equity Interests of such other Person),
"beneficially owns" (as such term is defined above), directly or indirectly
through one or more intermediaries, more than 50% of the voting power of the
outstanding voting stock of the Company.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (a) was a member of the Board of Directors on the
Issue Date or (b) was nominated for election to the Board of Directors with the
approval of, or whose election to the Board of Directors was ratified by, at
least a majority of the members of the Board of Directors who were members of
the Board of Directors on the Issue Date or who were so elected to the Board of
Directors thereafter.
The definition of Change of Control includes an event by which the Company
sells, leases, transfers, conveys or otherwise disposes of all or substantially
all of the properties or assets of the Company and its Subsidiaries, taken as a
whole. The phrase "all or substantially all" is subject to applicable legal
precedent and there is no precise legal standard; as a result, in the future
there may be uncertainty as to whether or not a Change of Control has occurred.
Accordingly, the holders of the Notes and the Company may not agree that a
particular disposition of properties or assets constitutes the disposition of
"all or substantially all" of the properties or assets of the Company and its
Subsidiaries, taken as a whole, requiring the Company to make an offer to
purchase the Notes, in which case the holders may have the burden of proving
that such transaction constitutes the disposition of "all or substantially all"
of the properties or assets of the Company and its Subsidiaries, taken as a
whole.
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Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in accordance with the definition of such term, the results
of which determination shall be set forth in an Officers' Certificate delivered
to the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (b) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided, however, that the amount of (i) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (ii) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are converted within thirty business days by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received) shall be
deemed to be cash for purposes of this provision. Notwithstanding the foregoing,
the Company need not comply with the preceding clause (b) in connection with any
Asset Sale in exchange for a promissory note on a basis consistent with past
practice so long as the aggregate outstanding amount of all such notes at any
time outstanding does not exceed 5.0% of the book value of the Company's
Productive Assets (as shown on the Company's most recent balance sheet, prepared
on a consolidated basis in accordance with GAAP, less accumulated depreciation
and amortization) immediately after giving effect to any such Asset Sale.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any such Restricted Subsidiary may apply such Net Proceeds to (a)
permanently repay the principal of any Indebtedness of the Company ranking in
right of payment at least pari passu with the Notes or (b) acquire (including by
way of a purchase of assets or stock, merger, consolidation or otherwise)
Productive Assets. Pending the final application of any such Net Proceeds, the
Company or any such Restricted Subsidiary may temporarily reduce outstanding
revolving credit borrowings or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million (or the
equivalent thereof in any other currency or currency units), the Company will be
required to make an offer to all holders of the Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of the Notes that may be purchased out of
the Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture; provided, however, that, if the Company
is required to apply such Excess Proceeds to purchase, or to offer to purchase,
any Pari Passu Indebtedness, the Company shall only be required to offer to
purchase the maximum principal amount of the Notes that may be purchased out of
the amount of such Excess Proceeds multiplied by a fraction, the numerator of
which is the aggregate principal amount of the Notes outstanding and the
denominator of which is the aggregate principal amount of the Notes outstanding
plus the aggregate principal amount of Pari Passu Indebtedness outstanding. To
the extent that the aggregate principal amount of the Notes tendered pursuant to
an Asset Sale Offer is less than the amount that the Company is required to
purchase, the Company may use any remaining Excess Proceeds for general
corporate purposes in any manner not prohibited by the Indenture. If the
aggregate principal amount of the Notes surrendered by holders thereof exceeds
the amount that the Company is required to purchase, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of the Notes as a result of an Asset Sale Offer.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any such payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (b) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any of its
Restricted Subsidiaries (other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company); (c) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value, any Indebtedness that is subordinated in right of payment
to the Notes or the Subsidiary Guarantees, except a payment of interest or
principal at Stated Maturity; or (d) make any Restricted Investment (all such
payments and other actions set forth in clauses (a) through (d) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Interest Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock;" and
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (b), (c), (d) and (e), but including Restricted
Payments permitted by clauses (a) and (f) of the next succeeding
paragraph), is less than the sum of (A) 50% of the cumulative Consolidated
Net Income of the Company for the period (taken as one accounting period)
from June 1, 1998 to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (B) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the date of the Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than any
such Equity Interests, Disqualified Stock or convertible debt securities
sold to a Restricted Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (C) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any), plus (D)
in the event that any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary, the lesser of (1) an amount equal to the fair market
value of the Company's Investments in such Restricted Subsidiary and (2)
the amount of Restricted Investments previously made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary, plus (E) $10.0
million.
The foregoing provisions will not prohibit any of the following: (a) the
payment of any dividend within 60 days after the date of declaration thereof if
at said date of declaration such payment would have complied with the provisions
of the Indenture; (b) the redemption, purchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other
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Equity Interests of the Company (other than any Disqualified Stock), provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, purchase, retirement, defeasance or other acquisition shall be
excluded from clause (iii)(B) of the preceding paragraph; (c) the defeasance,
redemption, purchase, retirement or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of, or in exchange
for, Permitted Refinancing Indebtedness; (d) the payment of any dividend or
distribution by a Restricted Subsidiary of the Company to the Company or any of
its Wholly Owned Restricted Subsidiaries; (e) the acquisition of Equity
Interests by the Company in connection with the exercise of stock options or
stock appreciation rights by way of a cashless exercise or in connection with
the satisfaction of withholding tax obligations; and (f) the repurchase,
redemption or other acquisition of any Equity Interests by the Company held by
any employee of the Company or any Restricted Subsidiary, or on behalf of any
employee benefit plan, provided that the aggregate price paid for all such
repurchased, redeemed or acquired Equity Interests shall not exceed $750,000 (or
the equivalent thereof in any other currency or currency unit) in any calendar
year.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in the
manner contemplated by the definition of the term "fair market value," and the
results of such determination shall be evidenced by an Officers' Certificate
delivered to the Trustee. Not later than five business days following the date
of making any Restricted Payment (other than a Restricted Payment permitted by
clause (d) or (e) of the second preceding paragraph), the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur" or an
"incurrence") any Indebtedness (including, without limitation, any Acquired
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company and its Restricted
Subsidiaries may incur Indebtedness, and the Company may issue Disqualified
Stock, if the Consolidated Interest Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness or
Disqualified Stock had been issued or incurred at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(a) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Facilities in an aggregate principal amount
at any one time outstanding not to exceed the greater of (i) 85% of the
amount of Eligible Receivables and (ii) $30.0 million (or the equivalent
thereof in any other currency or currency unit), plus any fees, premiums,
expenses (including costs of collection), indemnities and similar amounts
payable in connection with such Indebtedness, and less any amounts
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repaid permanently in accordance with the covenant described under the
caption "-- Put Option of Holders -- Asset Sales;"
(b) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(c) the incurrence by the Company and its Restricted Subsidiaries of
Hedging Obligations;
(d) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Original Notes, the Exchange Notes, the
Subsidiary Guarantees and the Indenture;
(e) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries, provided that
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company, or any sale or other transfer
of any such Indebtedness to a Person that is neither the Company nor a
Wholly Owned Restricted Subsidiary of the Company, shall be deemed to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(f) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company or any Restricted Subsidiary thereof in the
ordinary course of business, including guarantees or obligations of the
Company or any Restricted Subsidiary thereof with respect to letters of
credit supporting such bid, performance or surety obligations (in each case
other than for an obligation for money borrowed); and
(g) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund Indebtedness that was permitted by the Indenture to be
incurred (other than Indebtedness incurred pursuant to clauses (a) and (e)
of this covenant).
The Indenture also provides that the Company will not, and will not permit
any Guarantor to, directly or indirectly, incur any Indebtedness which by its
terms (or by the terms of any agreement governing such Indebtedness) is
subordinated to any other Indebtedness of the Company or of such Guarantor, as
the case may be, unless such Indebtedness is also by its terms (or by the terms
of any agreement governing such Indebtedness) made expressly subordinate to the
Notes or the Subsidiary Guarantees of such Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or of such Guarantor, as the case may be.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens, to secure (a) any Indebtedness of the Company
or such Restricted Subsidiary (if it is not also a Guarantor), unless prior to,
or contemporaneously therewith, the Notes are equally and ratably secured, or
(b) any Indebtedness of any Guarantor, unless prior to, or contemporaneously
therewith, the Subsidiary Guarantees are equally and ratably secured; provided,
however, that if such Indebtedness is expressly subordinated to the Notes or the
Subsidiary Guarantees, the Lien securing such Indebtedness will be subordinated
and junior to the Lien securing the Notes or the Subsidiary Guarantees, as the
case may be, with the same relative priority as such Indebtedness has with
respect to the Notes or the Subsidiary Guarantees.
Sale-and-Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale-and-leaseback
transaction; provided, however, that the Company or any Restricted Subsidiary,
as applicable, may enter into a sale-and-leaseback transaction if (i) the
Company or such Restricted Subsidiary could have (a) incurred Indebtedness in an
amount equal to the Attributable
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Indebtedness relating to such sale-and-leaseback transaction pursuant to the
Consolidated Interest Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Disqualified Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described under the caption "-- Liens,"
(ii) the gross cash proceeds of such sale-and-leaseback transaction are at least
equal to the fair market value (as determined in accordance with the definition
of such term, the results of which determination shall be set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale-and-leaseback transaction and (iii) the transfer of assets
in such sale-and-leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with, the covenant described
above under the caption "-- Put Option of Holders -- Asset Sales."
Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell or otherwise
dispose of any Capital Stock of any Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company), unless (a) such transfer, conveyance, sale or other disposition is of
all the Capital Stock of such Restricted Subsidiary and (b) the Net Proceeds
from such transfer, conveyance, sale or other disposition are applied in
accordance with the covenant described above under the caption "-- Put Option of
Holders -- Asset Sales," and (ii) will not permit any Restricted Subsidiary of
the Company to issue any of its Equity Interests to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company, except, in the
case of both clauses (i) and (ii) above, as would be permitted under the
definition of "Wholly Owned Restricted Subsidiary."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (b) make loans or advances to the Company or any of its
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (1) the Credit Facilities or
Existing Indebtedness, each as in effect on the date of the Indenture, (2) the
Indenture and the Notes, (3) applicable law, (4) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (5) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(c) above on the property so acquired, (7) customary provisions in bona fide
contracts for the sale of property or assets or (8) Permitted Refinancing
Indebtedness with respect to any Indebtedness referred to in clauses (1) and (2)
above, provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are not materially more restrictive, taken as
a whole, than those contained in the agreements governing the Indebtedness being
refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (a) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger
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(if other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia or Canada or any province thereof, (b) the Person formed by
or surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, (c) immediately after such transaction
no Default or Event of Default exists and (d) except in the case of a merger of
the Company with or into a Wholly Owned Restricted Subsidiary of the Company,
the Company or the Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (a) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person or, if there is no such comparable
transaction, on terms that are fair and reasonable to the Company or such
Restricted Subsidiary, and (b) the Company delivers to the Trustee (i) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million (or the equivalent
thereof in any other currency or currency unit), a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million (or the equivalent thereof in any other currency or currency unit),
an opinion as to the fairness to the Company or the relevant Subsidiary of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm that is, in the judgment of the Board of
Directors, qualified to render such opinion and is independent with respect to
the Company; provided, however, that the following shall be deemed not to be
Affiliate Transactions: (A) any employment agreement or other employee
compensation plan or arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the Company or
such Restricted Subsidiary; (B) transactions between or among the Company and
its Restricted Subsidiaries; (C) Permitted Investments and Restricted Payments
that are permitted by the provisions of the Indenture; (D) loans or advances to
officers, directors and employees of the Company or any Restricted Subsidiary
made in the ordinary course of business and consistent with past practices of
the Company and its Restricted Subsidiaries in an aggregate amount not to exceed
$2.0 million (or the equivalent thereof in any other currency or currency unit)
outstanding at any one time; (E) indemnities of officers, directors and
employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions; and (F) the payment of reasonable and customary regular
fees to directors of the Company or any of its Restricted Subsidiaries who are
not employees of the Company or any Subsidiary.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, acquire or create another
Restricted Subsidiary, then such newly acquired or created Restricted
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Subsidiary shall execute a Subsidiary Guarantee and deliver an Opinion of
Counsel in accordance with the terms of the Indenture.
Reports
Whether or not the Company is required to do so by the rules and
regulations of the Commission, the Company will file with the Commission (unless
the Commission will not accept such a filing) and, within 15 days of filing, or
attempting to file, the same with the Commission, furnish to the holders of the
Notes (a) all quarterly and annual financial and other information with respect
to the Company and its Subsidiaries that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, and (b) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, the Company and the Guarantors will furnish to the holders of the
Notes and prospective purchasers of the Notes, upon their request, the
information, if any, required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (a) default for 30 days in the payment when due of interest or
Liquidated Damages on the Notes; (b) default in payment when due of the
principal of or premium, if any, on the Notes; (c) failure by the Company to
comply with the provisions described under the caption "-- Put Option of
Holders" or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets;"
(d) failure by the Company for 60 days after notice to comply with any of its
other agreements in the Indenture or the Notes; (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists or is created after the date of the Indenture, which
default (i) is caused by a failure to pay principal of or premium or interest on
such Indebtedness prior to the expiration of any grace period provided in such
Indebtedness, including any extension thereof (a "Payment Default") or (ii)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates in
excess of $5.0 million (or the equivalent thereof in any other currency or
currency unit) and provided, further, that if any such default is cured or
waived or any such acceleration rescinded, or such Indebtedness is repaid,
within a period of 10 days from the continuation of such default beyond the
applicable grace period or the occurrence of such acceleration, as the case may
be, such Event of Default and any consequential acceleration of the Notes shall
be automatically rescinded, so long as such rescission does not conflict with
any judgment or decree; (f) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million (or
the equivalent thereof in any other currency or currency unit), which judgments
are not paid, discharged or stayed for a period of 60 days; (g) failure by any
Guarantor to perform any covenant set forth in its Subsidiary Guarantee, or the
repudiation by any Guarantor of its obligations under its Subsidiary Guarantee
or the unenforceability of any Subsidiary Guarantee against a Guarantor for any
reason and (h) certain events of bankruptcy or insolvency with respect to the
Company or any Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. The holders of a majority in principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of all of the
holders rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events
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of Default (except nonpayment of principal, interest, premium or Liquidated
Damages that have become due solely because of the acceleration) have been cured
or waived. Holders of the Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
by notice to the Trustee may on behalf of the holders of all of the Notes waive
any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of the
principal of or interest or Liquidated Damages on the Notes.
The Company will be required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company will be required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, member, partner or
stockholder or other owner of Capital Stock of the Company or any Guarantor, as
such, shall have any liability for any obligations of the Company or any
Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of the Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws, and it is the view of the Commission that
such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of itself and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (a) the rights of holders of
outstanding Notes to receive payments in respect of the principal of and
premium, interest and Liquidated Damages on such Notes when such payments are
due from the trust referred to below, (b) the Company's obligations with respect
to the Notes concerning issuing temporary Notes, registration of transfer or
exchange of the Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (c) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (d) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance"), and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain other events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default and Remedies" will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and premium, interest and Liquidated Damages, if any, on
the outstanding Notes on the stated maturity or on the applicable
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redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date, (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred, (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit), (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture) to
which the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound, (vi) the Company
must have delivered to the Trustee an opinion of counsel to the effect that the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder of the Notes may transfer or exchange the Notes in accordance with
the Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company will not be required to transfer or
exchange any Note selected for redemption. Also, the Company will not be
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes, and all references to "holders" in this "Description of the Notes" are
to registered holders unless otherwise indicated.
AMENDMENT AND WAIVER
Except as provided below, the Indenture or the Notes may be amended with
the consent of the holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (a) reduce the
principal amount of the Notes whose holders must consent to an amendment or
waiver, (b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption or purchase of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Put Option of Holders"), (c) reduce the rate of or change the time
for payment of interest on any Note, (d) waive a Default or Event of Default in
the payment
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of principal of or premium, interest or Liquidated Damages on the Notes (except
a rescission of acceleration of the Notes by the holders of at least a majority
in principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (e) make any Note payable in money other than
that stated in the Notes, (f) make any change in the provisions of the Indenture
relating to waivers of past defaults or the rights of holders of the Notes to
receive payments of principal of or premium, interest or Liquidated Damages on
the Notes (except as permitted in clause (g) hereof), (g) waive a redemption
payment with respect to any Note (other than a payment required by the covenants
described above under the caption "-- Put Option of Holders"), (h) make any
change in the ranking of the Notes relative to other Indebtedness of the Company
or the Subsidiary Guarantees relative to other Indebtedness of the Guarantors,
in either case in a manner adverse to the holders, or (i) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to holders of
the Notes in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of the Notes or
that does not materially adversely affect the legal rights under the Indenture
of any such holder, to secure the Notes pursuant to the requirements of the
"Liens" covenant, to add any additional Guarantor or to release any Guarantor
from its Subsidiary Guarantee, in each case as provided in the Indenture, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the Indenture
or the Notes, unless such consideration is offered to be paid or agreed to be
paid to all holders of the Notes which so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
THE TRUSTEE
State Street Bank and Trust Company serves as trustee under the Indenture.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York.
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CONSENT TO JURISDICTION
The Indenture provides that any suit, action or proceeding with respect to
the Indenture, the Notes or the Subsidiary Guarantees may be brought in any New
York state court located in the Borough of Manhattan in the City of New York and
that the Company and the Guarantors will submit to the non-exclusive
jurisdiction of such courts.
ENFORCEABILITY OF JUDGMENTS; INDEMNIFICATION FOR FOREIGN CURRENCY JUDGMENTS
A significant portion of the assets of the Company and its subsidiaries are
in Canada, so any judgment obtained in the United States against the Company,
including judgments relating to payments with respect to the Notes, may not be
fully collectible within the United States.
The Company has been informed by its Canadian counsel that the laws of the
Province of Ontario permit an action to be brought in a court of competent
jurisdiction in the Province of Ontario on any final and conclusive judgment in
personam of any state court located in the Borough of Manhattan in the City of
New York ("New York Court") that is not impeachable as void or voidable under
the internal laws of the State of New York for a sum certain if (a) the court
rendering such judgment had jurisdiction over the judgment debtor, as recognized
by the courts of the Province of Ontario (and submission by the Company in the
Indenture to the jurisdiction of the New York Court will be sufficient for this
purpose) and the judgment debtor was properly served in the action leading to
such judgment; (b) such judgment was not obtained by fraud or in a manner
contrary to natural justice and the enforcement thereof would not be
inconsistent with public policy, as such term is understood under the laws of
the Province of Ontario, or contrary to any order made by the Attorney General
of Canada under the Foreign Extraterritorial Measures Act (Canada) or by the
Competition Tribunal under the Competition Act (Canada); (c) the enforcement of
such judgment does not constitute, directly or indirectly, the enforcement of
foreign revenue, expropriation or penal laws or other laws of a public law
nature; (d) no new admissible evidence relevant to the action is discovered
prior to the rendering of judgment by the court in the Province of Ontario; and
(e) the action to enforce such judgment is commenced within the applicable
limitation period. In the opinion of such counsel, there are no reasons under
present law of the Province of Ontario for avoiding recognition of such
judgments of New York Courts under the Indenture or on the Notes based upon
public policy.
The Indenture also provides that obligations of the Company to any holder
of the Notes or the Trustee shall, notwithstanding any judgment in a currency
(the "Judgment Currency") other than United States dollars (the "Agreement
Currency"), be discharged only to the extent that on the day following receipt
by such holder of the Notes or the Trustee, as the case may be, of any amount in
the Judgment Currency, such holder of the Notes or the Trustee may in accordance
with normal banking procedures purchase the Agreement Currency with the Judgment
Currency. If the amount of the Agreement Currency so purchased is less than the
amount originally to be paid to such holder of the Notes or the Trustee, as the
case may be, in the Agreement Currency, the Company agrees, as a separate
obligation and notwithstanding such judgment, to pay to such holder of Notes or
the Trustee, as the case may be, the difference, and if the amount of the
Agreement Currency so purchased exceeds the amount originally to be paid to such
holder of the Notes or the Trustee, as the case may be, such holder of the Notes
or the Trustee, as the case may be, agrees to pay to or for the account of the
Company such excess, provided that such holder of the Notes or the Trustee, as
the case may be, shall not have any obligation to pay any such excess as long as
a default by the Company or any Guarantor in its obligations under the Notes,
the Indenture or the Subsidiary Guarantees has occurred and is continuing, in
which case such excess may be applied by such holder of the Notes or the
Trustee, as the case may be, to such obligations.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to American Eco
Corporation, 11011 Jones Road, Houston, Texas 77070, Attention: Treasurer.
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FORM, DENOMINATION AND REGISTRATION
Global Notes; Book Entry Form
The Exchange Notes will be evidenced initially by one or more global notes
(the "Global Note") which will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
DTC's nominee. Except as set forth below, record ownership of the Global Note
may be transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Owners of beneficial interests in the Global Note may hold their interests
in the Global Note directly through DTC if such person is a participant in DTC
or indirectly through organizations (including Euroclear and CEDEL) that are
participants in DTC (the "Participants"). Persons who are not Participants may
beneficially own interests in the Global Note held by DTC only through
Participants or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). So long as
Cede & Co., as the nominee of DTC, is the registered owner of the Global Note,
Cede & Co. for all purposes (except with respect to the determination of
Additional Amounts payable) will be considered the sole holder of the Global
Note. Owners of beneficial interests in the Global Note will be entitled to have
certificates registered in their names and to receive physical delivery of
Certificated Notes.
Payment of principal of and premium, interest and Liquidated Damages, if
any, on the Global Note will be made to Cede & Co., the nominee for DTC, as
registered owner of the Global Note, by wire transfer of immediately available
funds on the applicable payment date. Neither of the Company nor the Trustee,
nor any agent of either of them, will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company has been informed by DTC that, with respect to any payment of
principal of, or premium, interest or Liquidated Damages, if any, on the Global
Note, DTC's practice is to credit Participants' accounts on the applicable
payment date, with payments in amounts proportionate to their respective
beneficial interests in the Notes represented by the Global Note as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants to owners of beneficial
interests in the Notes represented by the Global Note held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Transfers between Participants will be effected in the ordinary way in
accordance with DTC's rules and will be settled in immediately available funds.
The laws of some states require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Global Note to such persons may be limited. Because DTC can
only act on behalf of Participants, who in turn act on behalf of Indirect
Participants and certain banks and other parties, the ability of a person having
a beneficial interest in the Notes represented by the Global Note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate evidencing such interest.
Neither the Company nor the Transfer Agent, nor any agent of either of
them, will have responsibility for the performance of DTC or its Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised the Company that it will
take any action permitted to be taken by a holder of the Notes (including,
without limitation, the presentation of the Notes for exchange as described
below) only at the direction of one or more Participants to whose account with
DTC interests in the Global Note are credited, and only in respect of the Notes
represented by the Global Note as to which such Participant or Participants has
or have given such direction.
DTC has also advised the Company that DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the
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clearance and settlement of securities transactions between Participants through
electronic book-entry changes to accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the Initial Purchaser.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause Certificated Notes to be
issued in exchange for the Global Notes.
Certificated Notes
Investors in the Notes may request that Certificated Notes be issued in
exchange for the Notes represented by the Global Note. Furthermore, Certificated
Notes may be issued in exchange for the Notes represented by the Global Note if
no successor depositary is appointed by the Company as set forth above.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors agreed to file the Exchange Offer Registration Statement (of which
this Prospectus is a part) with the Commission on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company began offering to the holders
of Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (a) the Company and the Guarantors
are not permitted to consummate the Exchange Offer because the Exchange Offer is
not permitted by applicable law or Commission policy or (b) any holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (i) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (ii) it may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not available for such resales, the Company will
file with the Commission a Shelf Registration Statement to cover resales of the
Original Notes by the holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. If a Shelf Registration Statement is required, the Company will use
its reasonable best efforts to cause such Shelf Registration Statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Original Note until
(A) the date on which such Original Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer, (B) following
the exchange by a broker-dealer in the Exchange Offer of an Original Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (C) the
date on which such Original Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (D) the date on which such Original Note is distributed to the
public pursuant to Rule 144 under the Securities Act or may be distributed to
the public pursuant to Rule 144(k) under the Securities Act.
The Registration Rights Agreement provides that (a) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after May 21, 1998, the date on which the Original Notes were originally
issued under the Indenture (the "Closing Date"), (b) the Company will use its
reasonable best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 135 days after the Closing
Date, (c) unless the Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer and use its
reasonable best efforts to issue, on or prior to 180 days after the Closing
Date, Exchange Notes in exchange
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for all Notes tendered prior thereto in the Exchange Offer and (d) if obligated
to file the Shelf Registration Statement, the Company will use its reasonable
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 60 days after such filing obligation arises and to cause the Shelf
Registration Statement to be declared effective by the Commission on or prior to
120 days after such obligation arises. If (i) the Company fails to file any of
the Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (ii) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness, (iii) the Company fails to consummate the
Exchange Offer within 180 days of the Closing Date with respect to the Exchange
Offer Registration Statement or (iv) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will pay Liquidated Damages to each
holder of Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes held by such
holder. The amount of Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of Transfer Restricted Securities with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.20 per week per $1,000
principal amount of Transfer Restricted Securities. All accrued Liquidated
Damages with respect to Transfer Restricted Securities will be paid by the
Company on each Damages Payment Date (as defined in the Registration Rights
Agreement) to the Global Note holder by wire transfer of immediately available
funds or by federal funds check and to holders of Certificated Securities by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of the Notes are required to make certain customary representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer. In the event that the Company files a Shelf
Registration Statement, holders of the Notes will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their Original
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of properties or assets from such Person. Acquired
Indebtedness shall be deemed to be incurred on the date the acquired Person
becomes a Restricted Subsidiary or the date of the related acquisition of
properties or assets from such Person.
"Affiliate" of any specified Person means an "affiliate" of such Person, as
such term is defined for purposes of Rule 144 under the Securities Act.
"Asset Sale" means (a) the sale, lease, conveyance or other disposition (a
"disposition") of any properties, assets or rights (including, without
limitation, by way of a sale and leaseback), excluding dispositions in the
ordinary course of business (provided that the disposition of all or
substantially all of the properties or assets of the Company and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Put Option of Holders -- Change
of Control" and the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation, or Sale of Assets" and not by the provisions
of the Asset Sales covenant), (b) the issue or sale by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, and (c) any Event of
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Loss, whether, in the case of clause (a), (b) or (c), in a single transaction or
a series of related transactions, provided that such transaction or series of
related transactions (i) has a fair market value in excess of $1.0 million (or
the equivalent thereof in any other currency or currency unit) or (ii) results
in the payment of net proceeds (including insurance proceeds from an Event of
Loss) in excess of $3.0 million (or the equivalent thereof in any other currency
or currency unit). Notwithstanding the foregoing, the following transactions
will be deemed not to be Asset Sales: (A) a disposition of obsolete or excess
equipment or other properties or assets; (B) a disposition of properties or
assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly
Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary; (C) a disposition of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary; (D)
a Restricted Payment that is permitted by the Indenture or a Permitted
Investment; (E) a disposition of any of the three notes receivable owned by the
Company on the date of the Indenture in the aggregate principal amount of
approximately $43.0 million; and (F) any trade or exchange by the Company or any
Restricted Subsidiary of equipment or other assets for equipment or other assets
owned or held by another Person, provided that the fair market value of the
assets traded or exchanged by the Company or such Restricted Subsidiary
(together with any cash or Cash Equivalents) is reasonably equivalent to the
fair market value of the assets (together with any cash or Cash Equivalents) to
be received by the Company or such Restricted Subsidiary.
"Attributable Indebtedness" in respect of a sale-and-leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale-and-leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease that is terminable by the lessee upon
payment of penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (a) United States dollars, (b) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (c) certificates of deposit and Eurodollar
time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank organized under
the laws of any country that is a member of the Organization for Economic
Cooperation and Development having capital and surplus in excess of $500.0
million (or the equivalent thereof in any other currency or currency unit), (d)
purchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (b) and (c) above entered into with
any financial institution meeting the qualifications specified in clause (c)
above, (e) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Service and in each case
maturing within 270 days after the date of acquisition, (f) deposits available
for withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (c) above, provided all such deposits do not exceed $3.0
million (or the equivalent thereof in any other currency or currency unit) in
the aggregate
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at any one time, and (g) money market mutual funds substantially all of the
assets of which are of the type described in any of the foregoing clauses (a)
through (e).
"Common Stock" means the common shares of the Company, no par value.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted or excluded in calculating Consolidated Net Income for such period, (a)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries, (b) Consolidated Interest Expense of such Person and its
Restricted Subsidiaries, and (c) depreciation and amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) of such Person and its
Restricted Subsidiaries, in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Interest Coverage Ratio" means with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Consolidated Interest Expense of such Person for such period;
provided, however, that the Consolidated Interest Coverage Ratio shall be
calculated giving pro forma effect to each of the following transactions as if
each such transaction had occurred at the beginning of the applicable
four-quarter reference period: (a) any incurrence, assumption, guarantee,
repayment, purchase or redemption by such Person or any of its Restricted
Subsidiaries of any Indebtedness (other than revolving credit borrowings)
subsequent to the commencement of the period for which the Consolidated Interest
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Consolidated Interest Coverage Ratio is made (the
"Calculation Date"); (b) any acquisition that has been made by such Person or
any of its Restricted Subsidiaries, or approved and expected to be consummated
within 30 days of the Calculation Date, including, in each case, through a
merger or consolidation, and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date; and (c) any other transaction that may
be given pro forma effect in accordance with Article 11 of Regulation S-X under
the Securities Act as in effect from time to time; provided further, however,
that (i) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (ii) the Consolidated
Interest Expense attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Consolidated Interest Expense will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (a) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations but excluding amortization of debt
issuance costs) and (b) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
provided that (a) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (b) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders and
(c) the cumulative effect of a change in accounting principles shall be
excluded.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person and its Restricted
Subsidiaries as of such date less the amount of consolidated stockholders'
equity attributable to Disqualified Stock or treasury stock of such Person and
its Restricted Subsidiaries as of such date, in each case determined in
accordance with GAAP.
"Credit Facilities" means, with respect to any Person, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or trade
letters of credit, and any renewals, refinancings or replacements thereof.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as a result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature or are
redeemed or retired in full; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof (or of
any security into which it is convertible or for which it is exchangeable) have
the right to require the issuer to purchase such Capital Stock (or such security
into which it is convertible or for which it is exchangeable) upon the
occurrence of any of the events constituting an Asset Sale or a Change of
Control shall not constitute Disqualified Stock if such Capital Stock (and all
such securities into which it is convertible or for which it is exchangeable)
provides that the issuer thereof will not purchase or redeem any such Capital
Stock (or any such security into which it is convertible or for which it is
exchangeable) pursuant to such provisions prior to compliance by the Company
with the provisions of the Indenture described under the caption "-- Put Option
of Holders -- Change of Control" or "-- Put Option of Holders -- Asset Sales,"
as the case may be.
"Eligible Receivables" means the consolidated U.S. or Canadian trade
receivables of the Company (other than the trade receivables of Unrestricted
Subsidiaries of the Company) not overdue for more than 60 days, less the
allowance for doubtful accounts, as determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any property or asset of the Company
or any Restricted Subsidiary, (a) any damage to such property or asset that
results in an insurance settlement with respect thereto on the basis of a total
loss or a constructive or compromised total loss or (b) the confiscation,
condemnation or requisition of title to such property or asset by any government
or instrumentality or agency thereof. An Event of Loss shall be deemed to occur
as of the date of the insurance settlement, confiscation, condemnation or
requisition of title, as applicable.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Credit Facilities) in
existence on the date of the Indenture, until such amounts are repaid, but shall
not include any Indebtedness that is repaid with the proceeds of the Offered
Notes.
The term "fair market value" means, with respect to any asset or
Investment, the fair market value of such asset or Investment at the time of the
event requiring such determination, as determined in good faith by the Company,
or, with respect to any asset or Investment in excess of $5.0 million (other
than cash or Cash Equivalents), as determined by a reputable appraisal firm that
is, in the judgment of such Board of Directors, qualified to perform the task
for which such firm has been engaged and independent with respect to the
Company.
"GAAP" means (i) generally accepted accounting principles in Canada, which
are in effect from time to time, so long as the Company prepares its
consolidated financial statements in accordance with such
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principles, and (ii) otherwise generally accepted accounting principles in the
United States, which are in effect from time to time.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (c) any foreign currency futures contract, option or similar agreement
or arrangement designed to protect such Person against fluctuations in foreign
currency rates, in each case to the extent such obligations are incurred in the
ordinary course of business of such Person.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP. The amount of any Indebtedness
outstanding as of any date shall be (a) the accreted value thereof, in the case
of any Indebtedness that does not require current payments of interest, and (b)
the principal amount thereof, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; provided, however, that the following shall not constitute Investments:
(i) extensions of trade credit or other advances to customers on commercially
reasonable terms in accordance with normal trade practices or otherwise in the
ordinary course of business, (ii) Hedging Obligations and (iii) endorsements of
negotiable instruments and documents in the ordinary course of business. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Issue Date" means the first date on which Notes are issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement).
"Net Income" means, with respect to any Person, the net income (or loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (i) any Asset Sale (including, without
limitation, dispositions pursuant to sale-and-leaseback transactions) or (ii)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
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"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of (without duplication)
(a) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, sales commissions, recording
fees, title transfer fees, title insurance premiums, appraiser fees and costs
incurred in connection with preparing such asset for sale) and any relocation
expenses incurred as a result thereof, (b) taxes paid or estimated to be payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (c) amounts required to be applied
to the repayment of Indebtedness (other than under a revolving credit facility)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and (d) any reserve established in accordance with GAAP or any amount
placed in escrow, in either case for adjustment in respect of the sale price of
such asset or assets, until such time as such reserve is reversed or such escrow
arrangement is terminated, in which case Net Proceeds shall include only the
amount of the reserve so reversed or the amount returned to the Company or its
Restricted Subsidiaries from such escrow arrangement, as the case may be.
"Non-Recourse Debt" means Indebtedness (a) as to which neither the Company
nor any of its Restricted Subsidiaries (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or is otherwise directly or indirectly liable (as a guarantor or
otherwise) or (ii) constitutes the lender, (b) no default with respect to which
(including any rights the holders thereof may have to take enforcement action
against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or
both) the holders of Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity and (c) as to
which the lenders have been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Pari Passu Indebtedness" means, with respect to any Net Proceeds from
Asset Sales, Indebtedness of the Company and its Restricted Subsidiaries the
terms of which require the Company or such Restricted Subsidiary to apply such
Net Proceeds to offer to purchase such Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company, (b) any Investment in Cash
Equivalents, (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties or assets to, or is liquidated into, the
Company or a Wholly Owned Restricted Subsidiary of the Company, and (d) any
Investment made as a result of the receipt of non-cash consideration from (i) an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Put Option of Holders -- Asset Sales" or
(ii) a disposition of assets that does not constitute an Asset Sale.
"Permitted Liens" means (a) Liens securing Indebtedness incurred pursuant
to clause (a) of the second paragraph of the covenant entitled "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock," (b) Liens in favor of the
Company and its Restricted Subsidiaries, (c) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary of the Company, provided that such Liens were in
existence prior to its contemplation of such merger or consolidation and do not
extend to any property other than those of the Person merged into or
consolidated with the Company or any of its Restricted Subsidiaries, (d) Liens
on property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company, provided that such Liens were in existence
prior to its contemplation of such acquisition and do not extend to any other
property, (e) Liens to secure the performance of statutory obligations, surety
or appeal bonds, bid or performance bonds, insurance obligations or other
obligations of a like nature incurred in the ordinary course of business, (f)
Liens securing Hedging Obligations, (g) Liens existing on the date of the
Indenture, (h) Liens securing Non-Recourse Debt, (i) any interest or title of a
lessor under a Capital Lease Obligation or an operating lease, (j) Liens arising
by reason of deposits necessary to obtain standby letters of credit in the
ordinary course of business, (k) Liens on real or personal property or assets of
the Company or a Restricted Subsidiary thereof to secure Indebtedness incurred
for the purpose of (i) financing all or any part of the purchase price of such
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property or assets incurred prior to, at the time of, or within 120 days after,
the acquisition of such property or assets or (ii) financing all or any part of
the cost of construction of any such property or assets, provided that the
amount of any such financing shall not exceed the amount expended in the
acquisition of, or the construction of, such property or assets and such Liens
shall not extend to any other property or assets of the Company or a Restricted
Subsidiary (other than any associated accounts, contracts and insurance
proceeds) and (l) Liens securing Permitted Refinancing Indebtedness with respect
to any Indebtedness referred to in clauses (c), (d), (g) and (k) above.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided, however, that (a) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus premium, if any,
and accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith), (b) such Permitted Refinancing Indebtedness has a
final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, (c) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to the Notes on terms at least as favorable, taken as a whole,
to the holders of the Notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded and (d) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; provided, however, that a
Restricted Subsidiary that is also a Guarantor may guarantee Permitted
Refinancing Indebtedness incurred by the Company, whether or not such Restricted
Subsidiary was an obligor or guarantor of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; provided further, however,
that if such Permitted Refinancing Indebtedness is subordinated to the Notes,
such guarantee shall be subordinated to such Restricted Subsidiary's Subsidiary
Guarantee to at least the same extent.
"Productive Assets" means assets (other than assets that would be
classified as current assets in accordance with GAAP) of the kind used or usable
by the Company or its Restricted Subsidiaries in the business of providing
commercial and industrial support and specialty fabrication services to a
variety of industries, including the energy, pulp and paper and power generation
industries (or any business that is reasonably complementary or related thereto
as determined in good faith by the Board of Directors).
"Qualified Equity Offering" means (a) any sale of Equity Interests (other
than Disqualified Stock) of the Company pursuant to an underwritten offering
registered under the Securities Act or (b) any sale of Equity Interests (other
than Disqualified Stock) of the Company so long as, at the time of consummation
of such sale, the Company has a class of common equity securities registered
pursuant to Section 12(b) or Section 12(g) under the Exchange Act.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that is incorporated or organized under the laws of the United States, any state
thereof or the District of Columbia or Canada or any province thereof that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date of the Indenture.
"Stated Maturity" means, with respect to any mandatory sinking fund or
other installment of interest or principal on any series of Indebtedness, the
date on which such payment of interest or principal was scheduled to be paid in
the original documentation governing such Indebtedness, and shall not include
any contingent obligations to repay, redeem or purchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
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"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof), (b) any partnership (i) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (ii)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof) and (c) any other
Person whose results for financial reporting purposes are consolidated with
those of such Person in accordance with GAAP.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary at the time of such designation (a)
has no Indebtedness other than Non-Recourse Debt, (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless such agreement, contract,
arrangement or understanding does not violate the terms of the Indenture
described under the caption "-- Certain Covenants -- Transactions with
Affiliates," and (c) is a Person with respect to which neither the Company nor
any of its Restricted Subsidiaries has any direct or indirect obligation (i) to
subscribe for additional Equity Interests or (ii) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results, in each case, except to the extent otherwise
permitted by the Indenture. Any such designation by the Board of Directors shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Incurrence of Indebtedness and Issuance of
Disqualified Stock," the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary, provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (A) such Indebtedness is permitted under
the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (B) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person to the extent (a) all of the outstanding Capital Stock
or other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned directly or indirectly by such Person or (b) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction or another foreign jurisdiction in order
for such Restricted Subsidiary to transact business in such foreign
jurisdiction, provided that such Person, directly or indirectly, owns the
remaining Capital Stock or ownership interests in such Restricted Subsidiary
and, by contract or otherwise, derives the economic benefits of ownership of
such Restricted Subsidiary to substantially the same extent as if such
Restricted Subsidiary were a wholly owned Restricted Subsidiary.
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CERTAIN TAX CONSIDERATIONS
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE
PURCHASER AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY
PARTICULAR INVESTOR IS MADE. ACCORDINGLY, PROSPECTIVE PURCHASERS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX
CONSEQUENCES TO THEM HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES,
INCLUDING ANY CONSEQUENCES OF AN INVESTMENT IN THE ORIGINAL NOTES OR THE
EXCHANGE NOTES ARISING UNDER STATE, PROVINCIAL OR LOCAL TAX LAWS OR TAX LAWS OF
JURISDICTIONS OUTSIDE THE UNITED STATES OR CANADA. THE SUMMARY DOES NOT ADDRESS
ANY NOTES THAT MAY BE ISSUED UNDER THE INDENTURE OTHER THAN THE ORIGINAL NOTES
AND THE EXCHANGE NOTES.
UNITED STATES TAXATION
General
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, rulings and decisions now in effect, all of which are subject to
change (including changes in effective dates) or possible differing
interpretations. Unless otherwise stated, this summary deals only with United
States holders who are initial purchasers from the Initial Purchasers and who
hold the Notes as capital assets within the meaning of Code Section 1221. This
summary does not purport to deal with persons in special tax situations, such as
financial institutions, tax-exempt entities, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding the
Notes as a hedge against currency risk or a position in a "straddle" for tax
purposes, or persons whose functional currency is not the United States dollar.
HOLDERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES ARISING UNDER ANY OTHER TAX JURISDICTION.
Holders of the Notes should note that no rulings have been or are expected
to be sought from the Internal Revenue Service (the "Service") with respect to
any of the federal income tax considerations discussed below, and no assurance
can be given that the Service will not take contrary positions.
As used herein, the term "United States holder" means a beneficial owner of
the Notes that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof (other than a partnership that is not treated as a
United Stated person under any applicable Treasury Regulations), (iii) an estate
whose income is subject to United States federal income tax regardless of its
source, or (iv) a trust if a court within the Unites States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. As used herein, the term "Non-United States holder" means a beneficial
owner of the Notes that is not a United States holder.
Interest
Interest (including any Additional Amounts and any other amounts treated as
interest for U.S. income tax purposes) on the Notes will generally be taxable to
a United States holder as ordinary income at the time it is paid or accrued in
accordance with the United States holder's regular method of accounting, and
will generally constitute foreign source income for U.S. income tax purposes. A
United States holder may be entitled to a deduction or, subject to certain
complex limitations, a foreign tax credit with respect to certain Canadian
withholding taxes imposed on such payments. For purposes of foreign tax credit
calculations, interest received or accrued on the Notes will generally be
treated as "passive" or "financial services" income (or, if Canadian withholding
tax is imposed at a rate exceeding 5%, as "high withholding tax interest"
income).
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In the event that the conditions described under "Description of the
Notes -- Registration Rights; Liquidated Damages" are not met, then Liquidated
Damages will become payable on the Notes. The Company intends to take the
position that it is more likely than not that the Liquidated Damages will not be
required to be paid. If any Liquidated Damages become payable, certain rules
regarding original issue discount may become applicable. Generally, these rules
require that a United States holder accrue income on the Notes under an accrual
method of accounting using a constant yield method regardless of such holder's
usual method of accounting.
Sale or Disposition of the Notes
Upon the sale, exchange, redemption or retirement of a Note, a United
States holder generally will recognize gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement (including
amounts treated as a premium paid by the Company upon redemption of the Notes
and excluding amounts attributable to accrued but unpaid interest on the Notes
that the United States holder has not previously included in gross income) and
such United States holder's adjusted tax basis in the Note. A United States
holder's adjusted tax basis in the Notes will equal the issue price of the
Notes, which will be the first price at which a substantial amount of the Notes
are sold for money (excluding sales to bond houses, brokers or similar persons
or organizations acting in the capacity as underwriters, placement agents or
wholesalers) decreased by the amount of any payments on such Note, other than
payments of qualified stated interest, prior to disposition. Pursuant to the
Taxpayer Relief Act of 1997, in the case of an individual holder, any capital
gain recognized on the disposition of the Notes will generally be subject to
U.S. federal income tax at a stated maximum rate of (i) 20%, if the United
States holder's holding period in the Notes was more than 18 months at the time
of such sale, exchange, redemption or other disposition, (ii) 28%, if the United
States holder's holding period in such Notes was more than one year, but not
more than 18 months at the time of such sale, exchange, redemption, or other
disposition, or (iii) at ordinary graduated rates if the United States holder's
holding period in such Notes was less than one year at the time of the sale,
exchange, redemption, or other disposition. The ability to use capital losses to
offset ordinary income in determining taxable income is generally limited.
The exchange of an Original Note for an Exchange Note should not be
considered a taxable transaction for U.S. income tax purposes. A United States
holder's basis in an Exchange Note will equal such holder's basis in the
Original Note at the time of the exchange. A United States holder will be
permitted to include the holding period of the Original Note onto the holding
period of the Exchange Note so received.
Backup Withholding and Information Reporting
Generally, information reporting will apply to certain payments of
principal and interest on the Notes to and the receipt of proceeds from a sale
of the Notes by United States holders, other than certain exempt recipients
within the meaning of applicable Treasury regulations. United States holders
generally will not be subject to backup withholding tax of 31% unless (i) the
payee fails to provide its taxpayer identification number to the payor, (ii) the
payee fails to provide certification as to exempt status, or (iii) certain other
conditions exist. Any amounts withheld under the backup withholding rules will
be allowed as a credit or a refund against such holder's United States federal
income tax liability, provided that certain required information is provided to
the Service.
CANADIAN TAXATION
The following is, as of the date hereof, a fair and adequate summary of the
principal Canadian federal income tax consequences to a holder who acquires an
Exchange Note pursuant to the Exchange Offer and who for purposes of the Income
Tax Act (Canada) (the "Act") is not and is not deemed to be a resident of
Canada, holds an Original Note and will hold an Exchange Note as capital
property, and at all relevant times, deals at arm's length with the Company,
does not use or hold and is not deemed to use or hold an Original Note or
Exchange Note in the course of carrying on a business in Canada and is not an
insurer for whom the Original Notes or Exchange Notes are its designated
insurance properties. This summary is based on the current provisions of the Act
and the regulations thereunder, counsel's understanding of the current published
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administrative practices of Revenue Canada, Customs, Excise and Taxation, and
all specific proposals to amend the Act and the regulations announced by the
Minister of Finance prior to the date hereof. This summary does not otherwise
take into account or anticipate changes in the law or administrative practice,
whether by judicial, governmental or legislative decisions or action, nor does
it take into account tax legislation or considerations of any province or
territory of Canada or any jurisdiction other than Canada.
The payment by the Company of interest, premium or principal on the
Exchange Notes will be exempt from Canadian withholding tax.
No other taxes on income (including taxable capital gains) will be payable
under the Act in respect of the exchange of an Original Note for an Exchange
Note, in respect of the holding, redemption or disposition of the Exchange Notes
or in respect of the receipt of interest, premium or principal thereon.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchanged Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with any resale of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that for a period of 120 days after the Expiration Date, it will use
reasonable efforts to make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale; provided that such Participating Broker-Dealer indicates in the Letter
of Transmittal that it is a Participating Broker-Dealer.
The Company will not receive any proceeds from any sale of Exchange Notes
by Participating Broker-Dealers or any other persons. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it shall extend the 120-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers have received copies of the
supplement or amended Prospectus necessary to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any Participating Broker-Dealers) and certain
parties related to the holders against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Thelen Reid & Priest LLP, New York, New York. Bruce A. Rich, a partner in the
firm of Thelen Reid & Priest LLP, is the Secretary of the Company. As to all
matters of Canadian federal and Ontario law, Thelen Reid & Priest LLP will rely
upon the opinion of Cassels Brock & Blackwell, Toronto, Ontario, Canada. The
matters referred to under "Certain Tax Considerations -- Canadian Taxation" will
also be passed upon by Cassels Brock & Blackwell.
EXPERTS
The consolidated financial statements of the Company at and for the year
ended November 30, 1997 have been audited by PricewaterhouseCoopers LLP,
independent accountants for the Company. The consolidated financial statements
of the Company at November 30, 1996 and for each of the two years in the period
ended November 30, 1996 have been audited by Karlins Fuller, independent
accountants for the Company until May 7, 1997. At the Company's 1998 Annual
Meeting of Shareholders, PricewaterhouseCoopers LLP was appointed as the
auditors of the Company for fiscal year 1998.
In March 1997, the Company selected PricewaterhouseCoopers LLP to act as
independent accountants for the Company and informed Karlins Fuller, the
Company's independent accountants since 1993, of its decision. The Company's
shareholders ratified the appointment of PricewaterhouseCoopers LLP at the
Annual Shareholders' Meeting held on May 7, 1997. In connection with its audits
for the years ended November 30, 1994, 1995 and 1996, there were no
disagreements with Karlins Fuller on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
Karlins Fuller's reports on the Company's financial statements for the fiscal
years ended November 30, 1994, 1995 and 1996 contained no adverse opinions or
disclaimers of opinion and were not modified or qualified as to uncertainty,
audit scope, or accounting principles.
87
<PAGE> 93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN ECO CORPORATION
Report of Independent Accountants of Coopers & Lybrand
L.L.P. ................................................... F-2
Report of Independent Accountants of Karlins Fuller Arnold &
Klodosky, P.C. ........................................... F-3
Consolidated Balance Sheet at November 30, 1997 and 1996.... F-4
Consolidated Statement of Income for the three years ended
November 30, 1997......................................... F-5
Consolidated Statement of Shareholders' Equity for the three
years ended November 30, 1997............................. F-6
Consolidated Statement of Changes in Financial Position for
the three years ended November 30, 1997................... F-7
Notes to Consolidated Financial Statements.................. F-8
Consolidated Balance Sheet at May 31, 1998 and November 30,
1997 (Unaudited).......................................... F-30
Consolidated Statement of Operations for the three and six
months ended May 31, 1998 and 1997 (Unaudited)............ F-31
Consolidated Statement of Changes in Financial Position for
the six months ended May 31, 1998 and 1997 (Unaudited).... F-32
Notes to Consolidated Financial Statements (Unaudited)...... F-33
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
American Eco Corporation
We have audited the consolidated balance sheet of American Eco Corporation and
subsidiaries as of November 30, 1997, and the consolidated statements of income,
shareholders' equity and changes in financial position for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Eco
Corporation and subsidiaries as of November 30, 1997, and the consolidated
results of their operations and changes in financial position for the year then
ended in conformity with generally accepted accounting principles in Canada.
Coopers & Lybrand L.L.P.
Miami, Florida
March 4, 1998
F-2
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
American Eco Corporation
We have audited the accompanying consolidated balance sheet of American Eco
Corporation as of November 30, 1996 and 1995, and the consolidated statements of
income, shareholders' equity and changes in financial position for the years
then ended, which as described in Note 15, have been prepared on the basis of
accounting principles generally accepted in Canada. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States (and in Canada). U.S. standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Eco
Corporation as of November 30, 1996 and 1995, and the consolidated results of
its operations and changes in financial position for the years then ended in
conformity with generally accepted accounting principles in Canada.
Karlins Fuller Arnold & Klodosky, P.C.
Houston, Texas
January 31, 1997
F-3
<PAGE> 96
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
AT NOVEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 1,259 $ 317
Accounts receivable, trade, less allowance for doubtful
accounts of $2,078 in 1997 and $346 in 1996,
respectively........................................... 50,349 21,098
Current portion of notes receivable....................... 17,757 6,695
Costs and estimated earnings in excess of billing......... 13,145 3,446
Inventory................................................. 18,079 14,846
Deferred income tax....................................... 1,133 1,393
Prepaid expenses and other current assets................. 6,920 4,499
-------- --------
TOTAL CURRENT ASSETS.............................. 108,642 52,294
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 33,023 25,199
-------- --------
OTHER ASSETS
Goodwill, net of accumulated amortization of $1,592 in
1997 and $762 in 1996,
respectively........................................... 30,484 18,969
Notes receivable.......................................... 28,578 280
Investments............................................... 9,142 7,645
Other Assets.............................................. 1,917 97
-------- --------
TOTAL OTHER ASSETS................................ 70,121 26,991
-------- --------
TOTAL ASSETS...................................... $211,786 $104,484
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 28,400 $ 18,822
Notes payable............................................. 8,904 20,399
Current portion of long-term debt......................... 8,081 1,708
Billings in excess of costs and estimated earnings........ 3,350 419
-------- --------
TOTAL CURRENT LIABILITIES......................... 48,735 41,348
-------- --------
LONG-TERM LIABILITIES
Long-term debt............................................ 51,722 6,720
Deferred income tax liability............................. 3,144 1,373
Other liabilities......................................... 1,086 --
-------- --------
TOTAL LONG-TERM LIABILITIES....................... 55,952 8,093
-------- --------
TOTAL LIABILITIES................................. 104,687 49,441
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital............................................. 75,577 39,411
Share capital subscribed.................................. -- 34
Contributed surplus....................................... 2,845 2,845
Cumulative foreign exchange............................... (1,511) --
Retained earnings......................................... 30,188 12,753
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 107,099 55,043
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $211,786 $104,484
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 97
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
REVENUE.............................................. $ 220,478 $ 119,529 $ 46,684
----------- ----------- ----------
COSTS AND EXPENSES
Direct costs of revenue............................ 162,882 87,203 39,456
Selling, general and administrative expenses....... 31,243 20,616 2,814
Interest expense, net.............................. 4,946 1,747 713
Depreciation and amortization...................... 5,382 2,232 1,107
Gain on sale of assets and subsidiaries............ (2,682) (2) (370)
Foreign exchange income............................ (557) (221) (96)
----------- ----------- ----------
201,214 111,575 43,624
----------- ----------- ----------
INCOME BEFORE PROVISION FOR (RECOVERY OF) INCOME
TAXES.............................................. 19,264 7,954 3,060
PROVISION FOR (RECOVERY OF) INCOME
TAXES.............................................. 1,829 (809) 208
----------- ----------- ----------
NET INCOME........................................... $ 17,435 $ 8,763 $ 2,852
=========== =========== ==========
Earnings per common share
Basic.............................................. $ 1.08 $ 0.81 $ 0.40
=========== =========== ==========
Adjusted basic..................................... $ 1.03 $ 0.78 $ 0.38
=========== =========== ==========
Fully diluted...................................... $ 0.90 $ 0.74 $ 0.36
=========== =========== ==========
Weighted average number of shares used in computing
earnings per common share
Basic.............................................. 16,218,034 10,846,516 7,217,005
=========== =========== ==========
Adjusted basic..................................... 17,667,960 11,435,636 8,174,509
=========== =========== ==========
Fully diluted...................................... 21,809,562 12,325,043 8,995,005
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 98
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARE CAPITAL SHARE CUMULATIVE TOTAL
------------------- CAPITAL CONTRIBUTED FOREIGN RETAINED SHAREHOLDERS'
SHARES AMOUNT SUBSCRIBED SURPLUS CURRENCY EARNINGS EQUITY
---------- ------- ---------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1994............... 6,822,341 $6,511 $ 805 $2,845 $ -- $ 1,138 $ 11,299
Conversion of debentures................. 1,147,250 3,454 -- -- -- -- 3,454
Issued for acquisitions.................. 681,381 2,513 -- -- -- -- 2,513
Issued for cash.......................... 78,500 145 -- -- -- -- 145
Issued for services...................... 130,000 460 -- -- -- -- 460
Share issue cost......................... -- (1,280) -- -- -- -- (1,280)
Subscriptions collected.................. -- -- (707) -- -- -- (707)
Net income............................... -- -- -- -- -- 2,852 2,852
---------- ------- ----- ------ ------- ------- --------
Balance, November 30, 1995............... 8,859,472 11,803 98 2,845 -- 3,990 18,736
Conversion of debentures................. 198,820 1,284 -- -- -- -- 1,284
Issued for acquisitions.................. 4,283,204 27,269 -- -- -- -- 27,269
Issued for cash.......................... 594,940 1,743 -- -- -- -- 1,743
Issued for services...................... 281,000 1,753 -- -- -- -- 1,753
Share issue cost......................... -- (4,441) -- -- -- -- (4,441)
Subscriptions collected.................. -- -- (64) -- -- -- (64)
Net income............................... -- -- -- -- -- 8,763 8,763
---------- ------- ----- ------ ------- ------- --------
Balance, November 30, 1996............... 14,217,436 39,411 34 2,845 -- 12,753 55,043
Conversion of debentures................. 3,126,366 21,150 -- -- -- -- 21,150
Issued for acquisitions.................. 1,010,913 8,570 -- -- -- -- 8,570
Issued for notes......................... 811,260 7,784 -- -- -- -- 7,784
Issued for cash.......................... 376,575 1,613 -- -- -- -- 1,613
Issued for services...................... 66,530 578 -- -- -- -- 578
Share issue cost......................... -- (3,563) -- -- -- -- (3,563)
Cumulative foreign exchange.............. -- -- -- -- (1,511) -- (1,511)
Subscriptions collected.................. 20,000 34 (34) -- -- -- --
Net income............................... -- -- -- -- -- 17,435 17,435
---------- ------- ----- ------ ------- ------- --------
Balance, November 30, 1997............... 19,629,080 $75,577 $ -- $2,845 $(1,511) $30,188 $107,099
========== ======= ===== ====== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 99
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 17,435 $ 8,763 $ 2,852
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of assets and subsidiaries................... (2,682) (2) (370)
Depreciation and amortization............................. 5,382 2,232 1,107
Change in deferred income taxes........................... 1,829 490 (64)
Noncash income, net....................................... 325 -- --
Change in certificate of deposit, restricted.............. -- (8) (6)
Change in accounts receivable............................. (15,932) (1,823) (1,356)
Change in notes receivable................................ (14,000) -- --
Change in costs and estimated earnings in excess of
billings............................................... (7,824) (363) (1,059)
Change in inventory....................................... 106 (2,511) 189
Change in prepaid expenses................................ 1,424 (748) 256
Change in accounts payable and accrued liabilities........ (4,523) (2,312) 981
Change in billings in excess of costs and estimated
earnings............................................... (458) 34 75
-------- -------- -------
Net cash provided by (used in) operating activities......... (18,918) 3,752 2,605
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (3,134) (4,803) (386)
Proceeds from sale of equipment........................... 3,448 53 --
Acquisition of business, net of cash acquired............. (10,493) (568) (805)
Proceeds from notes receivable............................ 996 3,257 288
Disbursements for notes receivables....................... (2,094) (8,350) (625)
Increase in investment.................................... (1,277) (6,156) (727)
-------- -------- -------
Net cash used in investing activities....................... (12,554) (16,567) (2,255)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... 33,500 14,920 800
Proceeds from long-term debt.............................. 58,500 428 --
Principal payments on notes payable....................... (53,196) (7,412) (739)
Principal payments on long-term debt...................... (7,607) (1,015) (464)
Proceeds from sales/leaseback............................. 4,000 -- --
Deferred foreign exchange................................. -- -- (27)
Debt issuance costs....................................... (1,917) -- --
Debenture issuance costs.................................. -- (193) --
Stock issuance costs...................................... (2,479) -- (125)
Issuance of common stock.................................. 1,613 5,506 229
-------- -------- -------
Net cash provided by (used in) financing activities......... 32,414 12,234 (326)
-------- -------- -------
NET INCREASE (DECREASE) IN CASH............................. 942 (581) 24
CASH AT BEGINNING OF YEAR................................... 317 898 874
-------- -------- -------
CASH AT END OF YEAR......................................... $ 1,259 $ 317 $ 898
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 100
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNITED STATES DOLLARS IN THOUSANDS)
American Eco Corporation and its wholly-owned subsidiaries ("the Company"
or "AEC") provide industrial services, environmental services and specialty
manufacturing to the petrochemical, refining, forest products and offshore
fabrication industries.
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
differences between Canadian and United States GAAP are described in Note 15.
The accompanying consolidated financial statements include the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Revenue Recognition -- The Company recognizes revenues and profits on fixed
price contracts using the percentage-of-completion method. Under the
percentage-of-completion method, contract revenues are accrued based upon the
percentage that accrued costs to date bear to total estimated costs. As
contracts can extend over more than one accounting period, revisions in
estimated total costs and profits during the course of work are reflected during
the period in which the facts requiring the revisions become known. Losses on
contracts are charged to income in the period in which such losses are first
determined.
Inventory -- Inventory is valued on the lower of cost or market method,
with cost determined on the first-in, first-out method.
Property, Plant and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are provided over the estimated useful lives of
the respective assets using the straight-line method over the following periods
based on their estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 20-40 years
Fabrication machinery, mobile and other equipment........... 3-15 years
</TABLE>
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to earnings as
incurred. When property and equipment are retired or otherwise disposed of, the
cost thereof and the applicable accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is reflected in earnings.
Goodwill -- The cost in excess of the fair value of the net assets of
businesses acquired at their respective acquisition dates are amortized on a
straight-line basis over 40 years. On an annual basis, the Company assesses the
carrying value in order to determine whether an impairment has occurred, taking
into account both historical and forecasted results of operations.
Income Taxes -- The Company reflects income taxes based on the tax
allocation method. Under this method, timing differences between reported and
taxable income result in provisions for taxes not currently payable. Such timing
differences arise principally as a result of claiming depreciation and
amortization for tax purposes at amounts differing from those charged to income.
Other Assets -- Included in other assets is approximately $1.5 million of
debt issuance costs which are being amortized over the term of the debt.
Earnings Per Share -- Basic earnings per share has been calculated on the
basis of net earnings for the year divided by the weighted average number of
common shares outstanding during the period. Adjusted basic earnings per share
has been calculated assuming the actual debt conversions occurring during the
year had taken place at the beginning of the year, or at the date of issuance if
issued during the year. Fully diluted
F-8
<PAGE> 101
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings per share additionally assumes all options and warrants have been
exercised at the later of the beginning of the fiscal period or the option issue
date.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
<S> <C> <C> <C>
Cash paid during the years for:
Interest.................................................. $4,718 $1,614 $713
Income taxes.............................................. $ 281 $ -- $ 66
</TABLE>
Translation of Financial Statements into United States Dollars -- The
consolidated financial statements are expressed in United States dollars using
foreign currency translation procedures established by the Canadian Institute of
Chartered Accountants.
For self-sustaining operations, the assets and liabilities denominated in a
foreign currency are translated at exchange rates in effect at the balance sheet
date. The resulting gains and losses are accumulated in a separate component of
shareholders' equity. Revenues and expenses are translated at average exchange
rates prevailing during the period. For integrated purposes current assets,
current liabilities and long-term debt are translated into United States dollars
using year end rates of exchange; all other assets and liabilities are
translated at applicable historical rates of exchange. Revenues, expenses and
certain costs are translated at annual average exchange rates except for
inventory, depreciation and amortization which are translated at historical
rates. Realized exchange gains and losses and currency translation adjustments
relative to long-term monetary items with a fixed and ascertainable life are
deferred and amortized on a straight-line basis over the life of the item.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications -- Certain amounts from prior years have been
reclassified to conform to the current year's presentation.
2. BUSINESS COMBINATIONS
1997
Effective February 28, 1997, the Company acquired all of the outstanding
common stock of Chempower, Inc. ("Chempower"). All of the stockholders of
Chempower, other than two principal stockholders (the "Principal Stockholders")
received $6.20 in cash for each of their Chempower shares. The Principal
Stockholders received a portion of their consideration in cash and the balance
was represented by a $15.9 million promissory note paid in August 1997. Based
upon a total of approximately 7.6 million Chempower shares outstanding, the
total acquisition cost was approximately $50 million, including acquisition
costs of approximately $3 million. The acquisition was partially funded by a
placement by the Company of $15 million, 9.5%, 10 year Convertible Debentures.
Concurrent with the Chempower acquisition, the Company entered into installment
purchase agreements with Holiday Properties, a general partnership owned by the
Principal Stockholders. These agreements provide for the acquisition of three
parcels of real property which had been leased to Chempower. The aggregate
purchase price for the three properties amounted to $4.5 million, of which $.5
million was paid on February 28, 1997. The purchase price and expenses
associated with the acquisition exceed the fair value of net assets acquired by
approximately $12 million.
F-9
<PAGE> 102
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective September 1, 1997, the Company acquired all of the outstanding
common stock of CCG Commercial Construction Group, Inc. in exchange for 265,000
shares of Company common stock with a fair market value of approximately $2.6
million. The aggregate purchase price and expenses associated with the
acquisition exceed the fair value of net assets acquired by approximately $3
million.
1996
Effective January 1, 1996, the Company acquired all of the outstanding
common stock of Environmental Evolutions, Inc. in exchange for 400,000 shares of
Company common stock with a fair market value of $2.4 million. The purchase
price and expenses associated with the acquisition exceeded the fair value of
net assets by approximately $3.3 million and has been included in goodwill. Pro
forma results were not material to the Company's financial position or results
of operations. See Note 3 to Consolidated Financial Statements.
Effective May 31, 1996, the Company acquired substantially all the assets
and assumed certain liabilities of United Eco Systems, Inc. ("United Eco"). The
purchase price consisted of 315,000 shares of Company common stock with a fair
market value of $2.5 million. The purchase price and expenses associated with
the acquisition exceeded the fair market value of net assets acquired by
approximately $2.8 million and has been included in goodwill. Pro forma results
were not material to the Company's financial position or results of operations.
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Separation and Recovery Systems, Inc. ("SRS"). The purchase price
consisted primarily of 753,634 shares of the Company common stock with a fair
market value of $5.7 million, which approximated the book value of SRS.
Effective July 22, 1996, the Company acquired all of the outstanding common
stock of Industra Service Corporation ("Industra"). AEC exchanged 0.425 common
shares for each common share of Industra, or 1,647,459 shares of AEC common
shares. The purchase price and expenses associated with the acquisition exceeded
the fair value of net assets of the business acquired by approximately $5.6
million.
All acquisitions have been accounted for using the purchase method;
accordingly, the assets and liabilities have been recorded at their estimated
fair values at the date of acquisition. The excess purchase price and related
expenses over the fair value of net assets acquired is included in Goodwill.
Under the purchase method of accounting, the results of operations are included
in the consolidated financial statements from their acquisition dates.
The unaudited pro forma results, assuming the CCG, Chempower, SRS and
Industra acquisitions had occurred at December 1, 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $245,898 $252,928
Net income.................................................. $ 12,348 $ 9,997
Basic earnings per share.................................... $ 0.74 $ 0.80
</TABLE>
The unaudited pro forma summary is not necessarily indicative either of
results of operations that would have occurred had the acquisitions been made at
the beginning of the periods presented, or of future results of operations of
the combined companies.
1995
In July, 1995, the Company acquired all of the outstanding capital stock of
Lake Charles Construction Corporation in exchange for issuance of 520,000 shares
of the Company's common stock valued at $2 million. The purchase price and
expenses associated with the acquisition exceeded the fair value of net assets
acquired by approximately $4.6 million.
F-10
<PAGE> 103
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of total assets, total liabilities and goodwill from the above
business combinations are as follows:
<TABLE>
<CAPTION>
NET BOOK
CONSIDERATION ASSETS LIABILITIES VALUE GOODWILL
------------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1997
Chempower.................... $50,000 $55,543 $15,543 $40,000 $10,000
CCG.......................... 2,600 5,103 5,503 (400) 3,000
1996
Environmental Evolutions..... 2,400 370 1,270 (900) 3,300
United Eco................... 2,500 5,489 5,789 (300) 2,800
SRS.......................... 5,700 11,907 6,207 5,700 --
Industra..................... 16,300 27,816 17,116 10,700 5,600
</TABLE>
3. DISPOSAL OF ECO ENVIRONMENTAL AND ENVIRONMENTAL EVOLUTIONS
On August 31, 1997, the Company sold its wholly owned subsidiaries, Eco
Environmental, Inc. and Environmental Evolutions, Inc., to Eurostar Interests,
Ltd. ("Eurostar"), a company controlled by the Vice-Chairman of AEC, in exchange
for a note in the amount of $11 million. This note bears interest at the rate of
10% and is due on August 31, 1998. The note is collateralized by all of the
common stock of Eurostar and is also supported by a performance bond in the
amount of $3 million. As a result of this transaction, the Company recorded a
gain of approximately $2.5 million.
4. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
EIF Holdings, Inc., due August, 1998, maximum borrowings of
$20 million, interest at prime plus 2%, uncollateralized.
See Note 5 to Consolidated Financial Statements........... $17,876 $4,908
George E. Phillips Holdings, Ltd., $2.8 million due January,
1998, quarterly payments of $446,166 from February, 1998
through August, 2002, with final payment due in November
2002, interest at 10% collateralized by 50% of the issued
and outstanding shares of common stock of Mid Atlantic
Recycling Technologies, Inc. ("MART"). See Note 21 to
Consolidated Financial Statements......................... 14,000 --
Eurostar, due August 1998, interest at 10%, collateralized
by 100% of the issued and outstanding shares of common
stock of Eurostar and a performance bond for $3 million... 11,000 --
Receivables from joint ventures. See Note 6 to Consolidated
Financial Statements...................................... 1,500 --
Notes receivable from officers and directors................ 1,468 840
</TABLE>
F-11
<PAGE> 104
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Mid Atlantic Recycling Technologies, Inc., monthly payments
of $5,175, interest at 12.5%, collateralized by
equipment................................................. 219 --
Kam Biotechnology International, LLC, due December,1998,
interest at 6% uncollateralized........................... 200 200
Impala Development, Ltd., interest at 12%, collateralized by
144,500 shares of AEC common stock........................ -- 775
Miscellaneous notes receivable.............................. 72 252
------- ------
46,335 6,975
Current portion............................................. 17,757 6,695
------- ------
Long-term portion........................................... $28,578 $ 280
======= ======
</TABLE>
5. EIF HOLDINGS, INC.
During June, 1996, the Company purchased 4,600,000 shares of EIF Holdings,
Inc. ("EIFH") common stock for $2.8 million. On November 7, 1996, the Company
acquired an additional 200,000 shares of EIFH common stock through the issuance
of 25,000 shares of its common stock, and on November 20, 1996, the Company
purchased 4,000,000 shares of EIFH in exchange for $70 thousand and 300,000
shares of the Company's common stock. At November 30, 1997, the Company's total
investment in EIFH was approximately $5.2 million and represents 36% of EIFH's
total common stock. Additionally during 1996, the Company entered into a Stock
Purchase Agreement with EIFH whereby the Company has an option to purchase
10,000,000 shares of EIFH for $1 million. This option is subject to EIFH
stockholders increasing the authorized number of common shares. The Company has
accounted for its investment in EIFH pursuant to the equity method of accounting
commencing January 1, 1997.
In February 1996, the Company agreed to loan money to EIFH pursuant to a
line of credit agreement with a maximum borrowing of $5.2 million. This line of
credit was not collateralized and was due on July 31, 1997. Effective July 31,
1997, the line of credit was renewed, extended and modified to increase the
maximum borrowing amount to $15 million and extend the maturity to February 18,
1998. On September 30, 1997, the Company increased the maximum borrowing amount
to $20 million. This renewal included an option for the Company to convert the
entire indebtedness into common shares of EIFH at 85% of the average market
price of the previous five days, subject to approval of an increase in the
number of authorized shares by EIFH's stockholders. On February 18, 1998, the
Company extended the maturity date of the line of credit to August 18, 1998. As
of November 30, 1997, the total receivable from EIFH is $17.9 million, which
includes accrued interest of $1.04 million. The Company received interest income
of $0.8 million related to the loan outstanding during 1997.
On December 22, 1997, the Company granted an option to Frank Fradella,
Chief Executive Officer of EIFH, to purchase the Company's 8,800,000 shares of
EIFH for a price of $0.65 per share. Additionally, the Company granted Frank
Fradella a proxy to vote the Company's shares of EIFH.
On November 19, 1997, EIFH completed its acquisition of JL Manta, Inc.
("Manta"), an Illinois corporation which provides specialized maintenance
services for clients in the industrial, environmental and low-level nuclear
sectors. Pursuant to the terms of a Stock Purchase Agreement, EIFH acquired all
of the issued and outstanding common stock of Manta for consideration of $4.7
million in cash and $2.2 million in convertible promissory notes of EIFH,
payable in installments with a final payment due on November 18, 2000 (the
"Stockholder Notes"). Subject to the approval by EIFH stockholders of an
amendment to EIFH's charter authorizing the requisite amount of stock, at any
time after June 30, 1998 the holders of the Stockholder Notes may convert any
principal payment due under the Stockholder Notes into shares of
F-12
<PAGE> 105
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EIFH's common stock at a conversion price equal to the closing transaction price
of EIFH Stock on the date a conversion notice is received by EIFH.
Also concurrently with the Acquisition, in connection with financing
provided to EIFH, EIFH issued a $6.5 million Convertible Promissory Note. The
Note bears interest at the rate of 5 1/4% per annum, becomes due on May 18, 1999
and is collateralized by a pledge of all of the Manta Stock. Subject to approval
of EIFH's Stockholders of an amendment to EIFH's charter authorizing the
requisite amount of preferred and common stock at a conversion price of $1.00
per share, with such Preferred Convertible Stock convertible into EIFH common
stock.
Also in connection with the Acquisition, EIFH issued a $2.5 million
Promissory Note. The note bears interest at the rate of 9% per annum and becomes
due on February 16, 1998. The loan amount represented by the note was used by
EIFH to refinance certain indebtedness of Manta.
The Company's investment in EIFH exceeds the net assets of EIFH by
approximately $15 million. Such amounts are being amortized over 40 years. As of
November 30, 1997, the quoted market value of the Company's 8.8 million shares
of EIFH is approximately $4.1 million.
Summarized financial information for EIFH as of September 30, 1997 and for
the nine months then ended is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 13,806
Noncurrent assets........................................... 870
Current liabilities (including note payable to the
Company).................................................. 25,017
Stockholders' deficit....................................... (10,341)
Revenues.................................................... 10,858
Operating loss.............................................. (1,344)
Net loss.................................................... (100)
</TABLE>
6. INVESTMENT IN JOINT VENTURES
The Company, through it's wholly owned subsidiary SRS, participates in four
joint ventures with equity interests ranging from 33% to 50%. Each of these
joint ventures is involved in operating SRS' waste treatment equipment.
At November 30, 1997, the Company's total investment in these joint
ventures is approximately $3.7 million and the Company has receivables from the
joint ventures of approximately $1.5 million. During 1997, the Company sold and
leased certain equipment to the joint ventures in the amount of approximately $5
million. The Company has deferred profit on these transactions to the extent of
its ownership interest in the amount of approximately $1.6 million. The results
of operations and financial position of these joint ventures are not material to
the Company's financial position and results of operations as of November 30,
1997.
F-13
<PAGE> 106
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land........................................................ $ 5,570 $ 1,965
Buildings................................................... 14,140 7,345
Fabrication machinery, mobile and other equipment........... 18,678 20,901
Furniture and fixtures...................................... 1,978 1,645
Equipment under capital leases.............................. 1,040 626
Leasehold improvements...................................... 1,389 908
------- -------
42,795 33,390
Accumulated depreciation and amortization................... 9,772 8,191
------- -------
$33,023 $25,199
======= =======
</TABLE>
Depreciation expense for the years ended November 30, 1997, 1996 and 1995
was $4,467, $1,695 and $986, respectively.
8. INVENTORY
The components of inventory are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 6,358 $ 3,897
Consumable supplies......................................... 3,345 2,103
Finished goods.............................................. 8,376 8,846
------- -------
$18,079 $14,846
======= =======
</TABLE>
F-14
<PAGE> 107
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT INCLUDING CAPITAL LEASES
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Note payable to Union Bank of California, payable $2,386,364
per quarter beginning May 31, 1998, interest at LIBOR plus
3.25% collateralized by the stock of AEC's subsidiaries,
their guarantees and substantially all assets of AEC...... $52,500 $ --
Note payable to Deere Park Capital Management, payable
interest only until June, 1998 then monthly payments of
$83,333 plus interest until final payment in May, 2000,
interest at 10%, uncollateralized......................... 5,000 --
Note payable to Semamor Enterprises, L.P., payable interest
only until June, 1998 then monthly payments of $16,667
plus interest until final payment in May, 2000, interest
at 10%, uncollateralized.................................. 1,000 --
Note payable to Bank of America, payable $83,000 per month
beginning January, 1997, plus interest at bank's reference
rate plus 0.75%, collateralized by receivables, inventory,
machinery and equipment of SRS............................ -- 3,000
Note payable to Hongkong Bank of Canada, payable $23,000 per
month, including interest at 9.00%, collateralized by real
estate of Industra........................................ -- 2,062
Note payable to The C.A. Turner Construction Company, Texas
payable $92,000 quarterly including interest at 8.00%,
collateralized by substantially all of the fixed assets of
C.A. Turner Construction, Inc. and Action Contract
Services, Inc., two subsidiaries of the Company, maturing
December 2000............................................. -- 1,240
Notes payable, other........................................ 1,303 2,126
------- ------
59,803 8,428
Current portion............................................. 8,081 1,708
------- ------
Long-term portion........................................... $51,722 $6,720
======= ======
</TABLE>
The aggregate principal payments on long-term debt during the years
subsequent to November 30, 1997 are: 1998 -- $8,081; 1999 -- $11,381;
2000 -- $13,914; 2001 -- $9,686; 2002 -- $9,582; thereafter $7,159.
At November 30, 1997, there is approximately $8,904 of notes payable
outstanding. Included in this amount is a payable to Union Bank of California
under a revolving credit facility in the amount of $8,500. The maximum
borrowings under the credit facility is $12,000, bears interest at either the
prime rate plus 2% or LIBOR plus 3% and is collateralized by substantially all
of the assets of the Company. This revolving credit facility expires on August
31, 2002. Additionally, the Company has a balance of $397 under a revolving
credit facility with Comerica. The maximum borrowings under this facility are
$500 and it is collateralized by the assets of CCG.
Under the Union Bank of California credit facility, the Company is required
to maintain certain financial ratios and is restricted by covenants from certain
corporate actions including a prohibition on the Company paying dividends.
At November 30, 1996, the Company had borrowings under various credit
facilities, all of which were repaid in connection with the borrowings from
Union Bank of California in 1997.
F-15
<PAGE> 108
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LEASE AGREEMENTS
The Company leases equipment and office and warehouse space under operating
leases that expire at various times through September 2002. Future minimum
payments, by year and in the aggregate, under these operating leases, consisted
of the following at November 30:
<TABLE>
<S> <C>
1998................................................ $2,662
1999................................................ 2,210
2000................................................ 1,751
2001................................................ 1,464
2002................................................ 629
------
Total minimum lease payment......................... $8,716
======
</TABLE>
Rent expense for the years ended November 30, 1997, 1996 and 1995 amounted
to $634, $538 and $181, respectively.
In May, 1997, the Company entered into a sales/leaseback transaction with a
third party for machinery and equipment. In conjunction with this transaction,
the Company recorded a deferred gain of $1.2 million, which is being amortized
over the sixty month life of the lease.
11. COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Costs, estimated earnings and billings are summarized as
follows:
Costs incurred on uncompleted jobs.......................... $186,518 $66,476
Estimated earnings.......................................... 28,432 8,417
-------- -------
214,950 74,893
Billings to date............................................ 205,155 71,866
-------- -------
$ 9,795 $ 3,027
======== =======
Included in the accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings.......... $ 13,145 $ 3,446
Billings in excess of costs and estimated earnings.......... (3,350) (419)
-------- -------
$ 9,795 $ 3,027
======== =======
</TABLE>
12. RELATED PARTY TRANSACTIONS
For the years ended November 30, 1997, 1996 and 1995, the Company had
business transactions with related parties. The details of these transactions
and balances owing from and to these parties are as follows:
During the year ended November 30, 1997, fees aggregating $522 were paid to
a director in his capacity as an officer of the Company. Of this amount $20 is
included in share issue costs, as a reduction to common stock, and $502 is
included in administrative expenses. Additionally, another director was paid
$113 for services rendered during the year, which is included in deferred
financing costs.
During the year ended November 30, 1996, fees aggregating $120 were paid to
a director, in his capacity as an officer of the Company. Of this amount, $80 is
included in deferred financing costs, $30 is included in share issue costs, as a
reduction to common stock, and $10 is included in administrative expenses.
Additionally, another director was paid $109 services rendered during the year,
of which $27 is included in deferred financing costs, $18 is included in share
issue costs, as a reduction to common stock, and $64 is included in
administrative expenses.
F-16
<PAGE> 109
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended November 30, 1995, fees aggregating $84 were paid to
a director, in his capacity as an officer of the Company. Of this amount, $75 is
included in share issue costs, as a reduction to common stock, and $9 is
included in administrative expenses. Additionally, another director was paid
$140 for services rendered during the year, of which $110 is included in
deferred bid costs and $30 is included in deferred financing costs.
13. INCOME TAXES
CANADA
Income tax expense varies from the amount that would be computed by
applying the basic combined Canadian federal and provincial rate of 44.34%, as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Basic rate applied to pre-tax income...................... $ 8,542 $ 3,526 $ 419
Reduction due to income taxed in other jurisdictions...... (5,316) (2,603) --
Other..................................................... (247) (137) (315)
Reduction of income taxes due to application of loss carry
forwards................................................ (2,507) (786) (104)
------- ------- -----
Effective Canadian tax expense............................ $ 472 $ -- $ --
======= ======= =====
</TABLE>
UNITED STATES
The components of the provision for (recovery of) income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Federal................................................... $ 4,076 $ (865) $ 16
State..................................................... 360 50 128
Reduction of income taxes due to application of loss
carryforwards........................................... (1,701) -- --
Benefits from previously unrecorded tax items............. (1,529) -- --
Other..................................................... 151 6 64
------- ------- -----
Effective US tax expense (benefit)........................ $ 1,357 $ (809) $ 208
======= ======= =====
Total tax expense (benefit) consisting of
Current................................................. $ -- $ (815) $ 144
Deferred................................................ 1,829 6 64
------- ------- -----
$ 1,829 $ (809) $ 208
======= ======= =====
</TABLE>
Deferred income taxes result from timing differences between the recording
of income for accounting purposes and for income tax purposes and from the
estimated future tax benefit from operating losses when, in the opinion of
management, realization of such benefits is not virtually certain.
14. SHARE CAPITAL
AUTHORIZED SHARE CAPITAL
The authorized share capital consists of unlimited Class A Preference
shares and unlimited, no par value common shares.
F-17
<PAGE> 110
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHARE WARRANTS
As of November 30, 1997, the Company had 3.6 million outstanding share
warrants, which call for the issuance of one common share upon presentation of
the warrant at issue prices ranging from $4.00 to $9.56. These warrants expire
at various times through September, 2002.
STOCK OPTIONS
In May 1997 the Stockholders adopted the Company's 1997 Stock Option Plan
(the "Plan"). Under the Plan, the Company is authorized to issue 2,956,700
options to purchase shares.
Information with regard to stock options is as follows:
<TABLE>
<CAPTION>
OPTION
SHARES PRICE RANGE
--------- -----------
<S> <C> <C>
Outstanding, November 30, 1994.............................. 43,800 $1.75-$2.10
Granted..................................................... 512,500 $1.80-$1.86
Cancelled................................................... -- --
Exercised................................................... (60,600) $1.75-$2.10
---------
Outstanding, November 30, 1995.............................. 495,700 $1.75-$1.86
Granted..................................................... 460,313 $3.23-$9.76
Cancelled................................................... (66,000) $3.23-$5.69
Exercised................................................... (336,850) $1.79-$6.00
---------
Outstanding, November 30, 1996.............................. 553,163 $1.76-$9.76
Granted..................................................... 993,500 $6.67-$7.72
Cancelled................................................... (143,888) $1.76-$7.09
Exercised................................................... (261,075) $1.79-$7.72
---------
Outstanding, November 30, 1997.............................. 1,141,700 $1.79-$9.76
=========
Options current exercisable................................. 391,300 $1.79-$9.76
=========
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 were $6.42, $3.04 and $1.01, respectively.
The weighted average exercise price and remaining term as of November 30,
1997 are $6.42 and 4.0 years, respectively.
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND PRACTICES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian Basis") which
differ in certain respects from those principles and practices that the Company
would have followed had its consolidated financial statements been prepared in
accordance with accounting practices generally accepted in the United States
("U.S. Basis").
During 1997, the Company sold $18 million aggregate principal amount of
convertible debentures (the "Debentures"). In connection with these Debentures,
the Company issued approximately 1.7 million stock purchase warrants to the
holders and as placement fees to third parties. Under Canadian Basis, the total
amount allocated to the conversion feature was being charged to interest expense
over ten years. All of these Debentures were converted during 1997 and the
unamortized amount of $11.8 million was charged to equity. Had the U.S. Basis
been followed, the intrinsic value of the conversion feature of approximately
$3.5 million would have been charged to interest expense immediately as the
Debentures contained a beneficial conversion feature on the date of issuance.
F-18
<PAGE> 111
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During June, 1996, the Company acquired a 16% interest in EIFH. This
interest was accounted for under the cost method of accounting. Commencing on
January 1, 1997, the Company began accounting for its investment in EIFH under
the equity method as its ownership percentage had increased to 36%. Under
Canadian Basis, the change is accounted for prospectively. Under U.S. Basis, the
Company would have recorded an adjustment to accrue its proportionate share
(16%) of EIFH's losses from the period when the Company first invested in EIFH
through the period when they commenced equity method accounting. The total
amount of additional losses which the Company would have recorded is
approximately $1.5 million.
Under Canadian Basis, income tax losses available to be carried forward are
recognized only when there is virtual certainty that they will be realized.
Under U.S. Basis, income tax losses available to be carried forward are
recognized when it is more likely than not that they will be realized. For the
years ended November 30, 1996 and 1995, there were no significant differences
between these two methods.
Under U.S. Basis, utilization of pre-acquisition net operating losses
should be credited to goodwill rather than as a reduction in the income tax
provision, as is practice under Canadian Basis. Therefore, under U.S. Basis, the
goodwill and income tax provision would have been adjusted by approximately $1.0
million.
The following is a reconciliation of net income under Canadian Basis to net
income under U.S. Basis.
<TABLE>
<CAPTION>
CANADIAN U.S.
BASIS BASIS
-------- -------
<S> <C> <C>
Pre-tax income.............................................. $19,264 $14,264
Tax provision............................................... 1,829 2,878
------- -------
Net income.................................................. $17,435 $11,386
======= =======
</TABLE>
Under U.S. Basis, primary and fully diluted earnings per share is
calculated using the treasury stock method. The calculation of earnings per
share under U.S. Basis is as follows:
<TABLE>
<S> <C>
Net income.................................................. $ 11,386
Net income per share -- Primary............................. $ 0.66
Net income per share -- Fully diluted....................... $ 0.65
Weighted average number of shares
Primary..................................................... 17,142,519
Fully Diluted............................................... 18,784,330
</TABLE>
SFAS No. 123 "Accounting for Stock Based Compensation," issued in October
1995, defines a fair value method of accounting for employee stock options.
Under this fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the vesting period.
SFAS No. 123 allows, and the Company has elected, to continue to measure
compensation cost in accordance with APB No. 25 for purposes of the U.S. to
Canadian GAAP reconciliation. Accordingly, the Company is providing the
disclosures required by SFAS No. 123.
F-19
<PAGE> 112
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma net income and basic earnings per share amounts below have
been derived using the Black-Scholes stock option pricing model with the
following assumptions for each stock option grant during the respective year:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assumptions
Risk-free interest rates................. 6.37%-6.63% 5.60%-5.75% 5.68%-5.75%
Expected life of stock options (years)... 5 5 5
Expected volatility of common stock...... 55% 55% 55%
Expected annual dividends of stock
options................................ 0 0 0
Net income -- as reported................ $ 17,435 $ 8,763 $ 2,852
Net income -- pro forma.................. $ 17,191 $ 8,311 $ 2,543
Basic earnings per share -- as
reported............................... $ 1.08 $ 0.81 $ 0.40
Basic earnings per share -- pro forma.... $ 1.06 $ 0.77 $ 0.35
</TABLE>
The pro forma effects on net income and income per common share for fiscal
1997, 1996 and 1995 may not be representative of the pro forma effects
Statements of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" may have in future years.
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share", which is effective for years ending after December
15, 1997. This statement replaces the presentation of primary earnings per share
with a presentation of basic earnings per share ("EPS"). Basic EPS excludes the
dilution effect of common stock equivalents previously included in primary EPS
and is computed by dividing net earnings by the weighted-average number of
common shares outstanding for the period. The calculation of diluted EPS will
not change under SFAS No. 128. The adoption of SFAS 128 by the Company, will not
materially change the amounts disclosed as basic EPS.
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which are both effective for
years beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purposes financial
statements. It further requires that an enterprise a) classify items of other
comprehensive income by their nature in a financial statement and b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The adoption of SFAS 130 and 131 are for disclosure purposes only.
16. RETIREMENT PLANS
The Company has a profit-sharing plan (defined contribution) retirement
plan covering substantially all employees, except employees who are members of a
union who bargained separately for retirement benefits. Employees are eligible
upon attaining the age of twenty-one (21) and completing one (1) year of
service. The amount of contribution to the plan is determined annually by the
Board of Directors and may vary from zero to fifteen percent of covered
compensation.
The Company, through it's collective bargaining agreements with various
unions, contributes to the unions' retirement plans. For the years ended
November 30, 1997, 1996 and 1995, an expense of $2.7 million, $1.5 million and
$0.6 million, respectively, was incurred for these retirement plans.
F-20
<PAGE> 113
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. CONVERTIBLE DEBT
On January 24, 1997, the Company sold $15 million aggregate principal
amount of 9.5% Convertible Debentures ("January Debentures") due January 24,
2007, together with 1,125,000 warrants to purchase the Company's common stock at
a price of $9.56. In connection with this transaction, the Company issued
300,000 warrants to a placement agent and incurred costs of approximately $1.5
million.
On February 14, 1997, the Company sold $1 million aggregate principal
amount of 9.5% Convertible Debentures ("February Debentures") due February 14,
2007, together with 71,429 warrants to purchase the Company's common stock at a
price of $9.49. In connection with this transaction, the Company incurred costs
of approximately $100 thousand.
On March 3, 1997, the Company sold $3 million aggregate principal amount of
9.5% Convertible Debentures ("March Debentures") due March 3, 2007, together
with 225,000 warrants to purchase the Company's common stock at a price of
$9.21. In connection with this transaction, the Company incurred costs of
approximately $50 thousand.
The total proceeds have been allocated between the warrants issued to the
holders, the conversion feature and debt based on discounted cash flows and an
effective interest rate of 12%. All of these debentures were converted into
common shares during 1997 and the unamortized costs were charged to
shareholders' equity upon conversion.
18. LITIGATION
The Company had been involved in an arbitration with a customer whereby the
customer claimed damages from the Company totaling $19.3 million consisting of
delay damages and cost of completion. The Company counter claimed $2.4 million
for breach of subcontract and $10.0 million for the customer bad faith and
intentional misconduct. On June 16, 1997, the arbitrator ruled in favor of the
Company and awarded the Company $1.3 million net of costs of $1.1 million. The
Company has received such amounts and has included them in its results of
operations for 1997.
At November 30, 1997, there were various claims and disputes incidental to
the business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
affect upon the Company's financial position, results of operations or cash
flows.
19. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and trade accounts receivable. At
November 30, 1997 and 1996, the Company had notes receivable balances of $46,335
and $6,975, respectively, with various entities or persons as described in Note
4 to Consolidated Financial Statements. Although some of the notes are
collateralized or partially collateralized, the ultimate collectibility is
dependent on the financial conditions of the various debtors. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base and their diverse
industries and geographic areas. The Company has write offs, net of recoveries
of $466 in 1997, $286 in 1996 and $60 in 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these items. The carrying amounts of long-term debt
approximate fair value because the interest rates on these instruments change
with market interest rates.
F-21
<PAGE> 114
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SEGMENTS OF THE BUSINESS
The Company operates in Canada and the United States in three primary
industry segments: (1) Environmental Remediation Services which involves
asbestos removal, insulation and other environmental services, (2) Industrial
Support Services which involves the repair, maintenance and modification of
boilers, pressure vessels and tubing used in industrial facilities and the
provision of engineering services and (3) Specialty Fabrication Services which
involves construction of high-quality custom steel and alloy products. It is the
Company's policy to price intersegment contracts on an equivalent basis to that
used for pricing external contracts. The following is a summary of selected data
for these business segments:
<TABLE>
<CAPTION>
ENVIRONMENTAL INDUSTRIAL SPECIALTY
REMEDIATION SUPPORT FABRICATION TOTAL
SERVICES SERVICES SERVICES CONSOLIDATED
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
1997
Contract income..................... $12,125 $147,424 $60,929 $220,478
Operating income (loss) before
depreciation and amortization..... (514) 15,104 11,763 26,353
Depreciation and amortization....... 923 3,336 1,123 5,382
Capital expenditures during the
year.............................. 312 1,871 1,536 3,719
Identifiable assets................. 7,375 133,390 71,021 211,786
1996
Contract income..................... $18,489 $ 94,584 $ 6,456 $119,529
Operating income before depreciation
and amortization.................. 3,123 6,701 1,886 11,710
Depreciation and amortization....... 699 1,063 470 2,232
Capital expenditures during the
year.............................. 516 1,336 6,155 8,007
Identifiable assets................. 25,702 58,028 20,754 104,484
1995
Contract income..................... $ 5,362 $ 41,322 $ -- $ 46,684
Operating income (loss) before
depreciation and amortization..... (57) 4,471 -- 4,414
Depreciation and amortization....... 214 893 -- 1,107
Capital expenditures during the
year.............................. 54 1,675 -- 1,729
Identifiable assets................. 5,507 25,554 -- 31,061
</TABLE>
F-22
<PAGE> 115
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides information with respect to the geographic
segmentation of the Company's business:
<TABLE>
<CAPTION>
TOTAL
CANADA UNITED STATES CONSOLIDATED
-------- ------------- ------------
<S> <C> <C> <C>
1997
Contract income................................... $ 50,835 $169,643 $220,478
Operating income before depreciation and
amortization.................................... 7,728 18,625 26,353
Depreciation and amortization..................... 1,223 4,159 5,382
Capital expenditures during the year.............. 124 3,595 3,719
Identifiable assets............................... 122,472 89,314 211,786
1996
Contract income................................... $ 6,509 $113,020 $119,529
Operating income before depreciation and
amortization.................................... 90 11,620 11,710
Depreciation and amortization..................... 166 2,066 2,232
Capital expenditures during the year.............. 6,151 1,856 8,007
Identifiable assets............................... 20,988 50,789 71,777
1995
Contract income................................... -- $ 46,684 $ 46,684
Operating income before depreciation and
amortization.................................... -- 4,414 4,414
Depreciation and amortization..................... -- 1,107 1,107
Capital expenditures during the year.............. -- 1,729 1,729
Identifiable assets............................... -- 21,799 21,799
</TABLE>
21. SIGNIFICANT TRANSACTIONS
In November 1997, the Company sold its 50% ownership in MART to a third
party for $14.0 million, payable quarterly over five years with interest at 10%
per annum. During fiscal 1997, two of the Company's subsidiaries (SRS & United
Eco) sold equipment and provided services to MART. SRS sold to MART equipment
for $4.0 million and United Eco provided construction, maintenance and operation
services for approximately $6.6 million. MART is a state of the art thermal
treatment facility which treats soils, sediments and other materials
contaminated with hazardous and nonhazardous chemicals.
The Consolidated Statement of Income includes revenue and direct costs of
$24.6 million and $14.4 million, respectively resulting from these transactions.
22. SUBSEQUENT EVENT -- PROPOSED ACQUISITION OF DOMINION BRIDGE CORPORATION
On February 20, 1998, the Company and Dominion Bridge Corporation entered
into a non-binding Letter of Intent which provides for a) the purchase of $5.0
million of Dominion Bridge common stock by the Company, b) a working capital
loan facility of up to $25.0 million to be provided by the Company to Dominion
Bridge, c) the engagement of the Company to provide certain management services
to Dominion Bridge, and d) the acquisition by the Company of the business and
assets of Dominion Bridge.
The purchase of $5.0 million dollars of Dominion Bridge stock was
consummated on February 20, 1998.
The proposed consideration for the acquisition is 7 1/2% convertible
subordinated notes and the principal amount of $3.00 for each outstanding share
of Dominion Bridge stock payable three years after closing and convertible into
American Eco common shares at a conversion rate of $15.00 per share. Aggregate
value of the acquisition, including debt assumed of $37.5 million would be
approximately $135.0 million.
F-23
<PAGE> 116
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. GUARANTOR FINANCIAL STATEMENT INFORMATION
Set forth below are condensed consolidating financial statements of the
Company (Parent), the Guarantor Subsidiaries and the Company on a consolidated
basis.
CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash........................................... $ 146 $ 1,113 $ -- $ 1,259
Accounts receivable............................ 1,370 48,979 -- 50,349
Amounts receivable from subsidiaries........... 57,768 (57,768) -- --
Current portion of notes receivable............ 15,573 2,184 -- 17,757
Costs and estimated earnings in excess of
billings..................................... -- 13,145 -- 13,145
Inventory...................................... -- 18,079 -- 18,079
Deferred income tax............................ 855 278 -- 1,133
Prepaid expenses and other current assets...... 5,398 1,522 -- 6,920
-------- -------- -------- --------
TOTAL CURRENT ASSETS........................... 81,110 27,532 -- 108,642
-------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, net............. 837 32,186 -- 33,023
-------- -------- -------- --------
OTHER ASSETS
Goodwill....................................... -- 30,484 -- 30,484
Notes receivable............................... 28,578 -- -- 28,578
Investments.................................... 47,474 2,372 (40,704) 9,142
Other assets................................... -- 1,917 -- 1,917
-------- -------- -------- --------
TOTAL OTHER ASSETS............................. 76,052 34,773 (40,704) 70,121
-------- -------- -------- --------
TOTAL ASSETS................................... $157,999 $ 94,491 $(40,704) $211,786
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities....... $ 1,017 $ 27,383 $ -- $ 28,400
Notes payable.................................. 8,334 570 -- 8,904
Current portion of long-term debt.............. 8,081 -- -- 8,081
Billings in excess of costs and estimated
earnings..................................... -- 3,350 -- 3,350
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES...................... 17,432 31,303 -- 48,735
-------- -------- -------- --------
LONG-TERM LIABILITIES
Long-term debt................................. 50,639 1,083 -- 51,722
Deferred income tax liability.................. 2,092 1,052 -- 3,144
Other liabilities.............................. -- 1,086 -- 1,086
-------- -------- -------- --------
TOTAL LONG-TERM LIABILITIES.................... 52,731 3,221 -- 55,952
-------- -------- -------- --------
TOTAL LIABILITIES.............................. 70,163 34,524 -- 104,687
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital.................................. 75,577 19 (19) 75,577
Contributed surplus............................ 2,845 40,685 (40,685) 2,845
Cumulative foreign exchange.................... (1,401) (110) -- (1,511)
Retained earnings.............................. 10,815 19,373 -- 30,188
-------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY..................... 87,836 59,967 (40,704) 107,099
-------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $157,999 $ 94,491 $(40,704) $211,786
======== ======== ======== ========
</TABLE>
F-24
<PAGE> 117
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE......................................... $20,952 $199,526 $-- $220,478
------- -------- --- --------
COSTS AND EXPENSES
Direct costs of revenue......................... 9,858 153,024 -- 162,882
Selling, general and administrative expenses.... 1,989 29,254 -- 31,243
Interest expense, net........................... 2,053 2,893 -- 4,946
Depreciation and amortization................... 484 4,898 -- 5,382
Gain on sale of assets and subsidiaries......... (2,459) (223) -- (2,682)
Foreign exchange income......................... (545) (12) -- (557)
------- -------- --- --------
11,380 189,834 -- 201,214
------- -------- --- --------
INCOME BEFORE PROVISION FOR INCOME TAXES........ 9,572 9,692 -- 19,264
PROVISION FOR INCOME TAXES...................... 2,100 (271) -- 1,829
------- -------- --- --------
NET INCOME...................................... $ 7,472 $ 9,963 $-- $ 17,435
======= ======== === ========
</TABLE>
F-25
<PAGE> 118
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1997
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 7,472 $ 9,963 $-- $ 17,435
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of assets and subsidiaries................... (2,459) (223) -- (2,682)
Depreciation and amortization............................. 484 4,898 -- 5,382
Changes in deferred income taxes.......................... 2,092 (263) -- 1,829
Noncash income, net....................................... 648 (323) -- 325
Change in accounts receivable............................. (1,032) (14,900) -- (15,932)
Change in notes receivable................................ (14,000) -- -- (14,000)
Change in costs and estimated earnings in excess of
billings................................................ -- (7,824) -- (7,824)
Change in inventory....................................... -- 106 -- 106
Change in prepaid expenses................................ 2,979 (1,555) -- 1,424
Change in accounts payable and accrued liabilities........ (372) (4,151) -- (4,523)
Change in billings in excess of costs and estimated
earnings................................................ -- (458) -- (458)
-------- -------- --- --------
Net cash provided by (used in) operating activities....... (4,188) (14,730) -- (18,918)
-------- -------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (461) (2,673) -- (3,134)
Proceeds from sale of equipment........................... -- 3,448 -- 3,448
Acquisition of business, net of cash acquired............. (10,481) (12) -- (10,493)
Proceeds from notes receivable............................ 775 221 -- 996
Disbursements for notes receivables....................... (5,436) 3,342 -- (2,094)
Increase in investment.................................... (1,277) -- -- (1,277)
-------- -------- --- --------
Net cash provided by (used in) investing activities....... (16,880) 4,326 -- (12,554)
-------- -------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... 33,500 -- -- 33,500
Proceeds from long-term debt.............................. 58,500 -- -- 58,500
Principal payments on notes payable....................... (15,834) (37,362) -- (53,196)
Principal payments on long-term debt...................... -- (7,607) -- (7,607)
Proceeds from sales/leaseback............................. -- 4,000 -- 4,000
Disbursements/receipts on intercompany debt............... (50,762) 50,762 -- --
Debt issuance costs....................................... (1,917) -- -- (1,917)
Debenture issuance costs.................................. -- -- -- --
Stock issuance costs...................................... (2,479) -- -- (2,479)
Issuance of common stock.................................. 1,613 -- -- 1,613
-------- -------- --- --------
Net cash provided by financing activities................. 22,621 9,793 -- 32,414
-------- -------- --- --------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH........... (1,401) 1,401 -- --
-------- -------- --- --------
NET INCREASE IN CASH...................................... 152 790 -- 942
CASH AT BEGINNING OF PERIOD............................... (6) 323 -- 317
-------- -------- --- --------
CASH AT END OF PERIOD..................................... $ 146 $ 1,113 $-- $ 1,259
======== ======== === ========
Supplemental disclosure of cash flow information
Cash payments for interest.............................. 1,788 2,930 -- 4,718
Cash payments for income taxes.......................... -- 281 -- 281
</TABLE>
Supplemental disclosure of noncash investing and financing activities
<TABLE>
<CAPTION>
COMPANY SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Notes receivable issued for sale of subsidiaries........... 11,000 -- -- 11,000
Notes receivable increase to EIF through stock issuance.... 7,784 -- -- 7,784
Acquisition of subsidiaries through issuance of stock...... 5,296 -- -- 5,296
Debentures converted to stock.............................. 21,500 -- -- 21,500
Transfer of assets to/from parent and subsidiaries......... (26) 26 -- --
Acquisition of equipment for notes payable................. -- 58 -- 58
Transfer of investment from subsidiary to parent........... 1,000 (1,000) -- --
</TABLE>
F-26
<PAGE> 119
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1996
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................. $ (6) $ 323 $ -- $ 317
Accounts receivable.............................. 338 20,760 -- 21,098
Amounts receivable from subsidiaries............. 13,948 (13,948) -- --
Current portion of notes receivable.............. 6,509 186 -- 6,695
Costs and estimated earnings in excess of
billings....................................... -- 3,446 -- 3,446
Inventory........................................ -- 14,846 -- 14,846
Deferred income tax.............................. -- 1,393 -- 1,393
Prepaid expenses and other current assets........ 2,615 1,884 -- 4,499
------- -------- -------- --------
TOTAL CURRENT ASSETS............................. 23,404 28,890 -- 52,294
------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, net............... 1,282 23,917 -- 25,199
------- -------- -------- --------
OTHER ASSETS
Goodwill......................................... -- 18,969 -- 18,969
Notes receivable................................. 280 -- -- 280
Investments...................................... 31,998 260 (24,613) 7,645
Other assets..................................... 97 -- -- 97
------- -------- -------- --------
TOTAL OTHER ASSETS............................... 32,375 19,229 (24,613) 26,991
------- -------- -------- --------
TOTAL ASSETS..................................... $57,061 $ 72,036 $(24,613) $104,484
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities......... $ 1,389 $ 17,433 $ -- $ 18,822
Notes payable.................................... 12,330 8,069 -- 20,399
Current portion of long-term debt................ -- 1,708 -- 1,708
Billings in excess of costs and estimated
earnings....................................... -- 419 -- 419
------- -------- -------- --------
TOTAL CURRENT LIABILITIES........................ 13,719 27,629 -- 41,348
------- -------- -------- --------
LONG-TERM LIABILITIES
Long-term debt................................... -- 6,720 -- 6,720
Deferred income tax liability.................... -- 1,373 -- 1,373
Other liabilities................................ -- -- -- --
------- -------- -------- --------
TOTAL LONG-TERM LIABILITIES...................... -- 8,093 -- 8,093
------- -------- -------- --------
TOTAL LIABILITIES................................ 13,719 35,722 -- 49,441
------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital.................................... 39,411 9 (9) 39,411
Share capital subscribed......................... 34 -- -- 34
Contributed surplus.............................. 2,845 24,604 (24,604) 2,845
Cumulative foreign exchange...................... -- -- -- --
Retained earnings................................ 1,052 11,701 -- 12,753
------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY....................... 43,342 36,314 (24,613) 55,043
------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....... $57,061 $ 72,036 $(24,613) $104,484
======= ======== ======== ========
</TABLE>
F-27
<PAGE> 120
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1996
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE......................................... $ 622 $118,907 $-- $119,529
------- -------- --- --------
COSTS AND EXPENSES
Direct costs of revenue......................... -- 87,203 -- 87,203
Selling, general and administrative expenses.... (1,797) 22,413 -- 20,616
Interest expense, net........................... 314 1,433 -- 1,747
Depreciation and amortization................... 123 2,109 -- 2,232
Gain on sale of assets and subsidiaries......... -- (2) -- (2)
Foreign exchange income......................... (137) (84) -- (221)
------- -------- --- --------
(1,497) 113,072 -- 111,575
------- -------- --- --------
INCOME BEFORE PROVISION FOR INCOME TAXES........ 2,119 5,835 -- 7,954
RECOVERY OF INCOME TAXES........................ -- (809) -- (809)
------- -------- --- --------
NET INCOME...................................... $ 2,119 $ 6,644 $-- $ 8,763
======= ======== === ========
</TABLE>
F-28
<PAGE> 121
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1996
(UNITED STATES DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY GUARANTOR
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 2,118 $ 6,645 $-- $ 8,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of assets and subsidiaries............... -- (2) -- (2)
Depreciation and amortization......................... 19 2,213 -- 2,232
Changes in deferred income taxes...................... -- 490 -- 490
Noncash income, net................................... 1,750 (1,750) -- --
Change in certificate of deposit, restricted.......... -- (8) -- (8)
Change in accounts receivable......................... 417 (2,240) -- (1,823)
Change in notes receivable............................ -- -- -- --
Change in costs and estimated earnings in excess of
billings............................................ -- (363) -- (363)
Change in inventory................................... -- (2,511) -- (2,511)
Change in prepaid expenses............................ (867) 119 -- (748)
Change in accounts payable and accrued liabilities.... 1,299 (3,611) -- (2,312)
Change in billings in excess of costs and estimated
earnings............................................ -- 34 -- 34
-------- ------- --- --------
Net cash provided by (used in) operating activities... 4,736 (984) -- 3,752
-------- ------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (1,288) (3,515) -- (4,803)
Proceeds from sale of equipment....................... -- 53 -- 53
Acquisition of business, net of cash acquired......... -- (568) -- (568)
Proceeds from notes receivable........................ 361 2,896 -- 3,257
Disbursements for notes receivables................... (6,759) (1,591) -- (8,350)
Increase in investment................................ (6,156) -- -- (6,156)
-------- ------- --- --------
Net cash provided by (used in) investing activities... (13,842) (2,725) -- (16,567)
-------- ------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........................... 13,000 1,920 -- 14,920
Proceeds from long-term debt.......................... -- 428 -- 428
Principal payments on notes payable................... (175) (7,237) -- (7,412)
Principal payments on long-term debt.................. (1,015) -- (1,015)
Disbursements/receipts for intercompany debt.......... (972) 972 -- --
Deferred foreign exchange............................. -- -- -- --
Debt issuance costs................................... -- -- -- --
Debenture issuance costs.............................. -- (193) -- (193)
Stock issuance costs.................................. (4,494) 4,494 -- --
Issuance of common stock.............................. 1,743 3,763 -- 5,506
-------- ------- --- --------
Net cash provided by financing activities............. 9,102 3,132 -- 12,234
-------- ------- --- --------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH....... -- -- -- --
-------- ------- --- --------
NET INCREASE IN CASH.................................. (4) (577) -- (581)
CASH AT BEGINNING OF PERIOD........................... (2) 900 -- 898
-------- ------- --- --------
CASH AT END OF PERIOD................................. $ (6) $ 323 $-- $ 317
======== ======= === ========
Supplemental disclosure of cash flow information
Cash payments for interest.......................... 139 1,475 -- 1,614
Cash payments for income taxes...................... -- 281 -- 281
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
COMPANY SUBSIDIARIES ELIMINATION CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase in notes payable for insurance premiums...... 655 -- -- 655
Acquisition of subsidiaries through issuance of
stock............................................... 27,269 -- -- 27,269
Debentures converted to stock......................... 1,285 -- -- 1,285
</TABLE>
F-29
<PAGE> 122
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
(UNITED STATES DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1998 1997
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 37,618 $ 1,259
Accounts receivable, trade, less allowance for doubtful
accounts of $1,509 in 1998 and $2,078 in 1997,
respectively........................................... 53,750 50,349
Current portion of notes receivable....................... 16,102 17,757
Costs and estimated earnings in excess of billings........ 20,922 13,145
Inventory................................................. 19,526 18,079
Deferred income tax....................................... 1,338 1,133
Prepaid expenses and other current assets................. 6,911 6,920
-------- --------
TOTAL CURRENT ASSETS.............................. 156,167 108,642
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 44,403 33,023
-------- --------
OTHER ASSETS
Goodwill, net of accumulated amortization of $2,232 in
1998 and $1,592 in 1997, respectively.................. 31,357 30,484
Notes receivable.......................................... 27,312 28,578
Investments............................................... 15,444 9,142
Other assets.............................................. 5,018 1,917
-------- --------
TOTAL OTHER ASSETS................................ 79,131 70,121
-------- --------
TOTAL ASSETS...................................... $279,701 $211,786
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 31,441 $ 28,400
Notes payable............................................. -- 8,904
Current portion of long-term debt......................... 594 8,081
Billings in excess of costs and estimated earnings........ 3,023 3,350
-------- --------
TOTAL CURRENT LIABILITIES......................... 35,058 48,735
-------- --------
LONG-TERM LIABILITIES
Senior Notes.............................................. 120,000 --
Long-term debt............................................ 779 51,722
Deferred income tax liability............................. 3,196 3,144
Other liabilities......................................... 814 1,086
-------- --------
TOTAL LONG-TERM LIABILITIES....................... 124,789 55,952
-------- --------
TOTAL LIABILITIES................................. 159,847 104,687
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital............................................. 87,937 75,577
Contributed surplus....................................... 2,845 2,845
Cumulative foreign exchange............................... (1,647) (1,511)
Retained earnings......................................... 30,719 30,188
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 119,854 107,099
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $279,701 $211,786
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 123
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MAY 31,
(UNITED STATES DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
--------------------------- -------------------------
1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUE.................................. $ 59,461 $ 56,362 $ 117,896 $ 101,599
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Direct costs of revenue................ 49,025 41,407 94,477 78,265
Selling, general and administrative
expenses............................ 8,443 8,113 16,312 11,626
Interest expense, net.................. 910 1,448 1,670 1,864
Loss on early extinguishment of debt... 2,400 -- 2,400 --
Depreciation and amortization.......... 1,190 956 2,222 1,862
----------- ----------- ----------- -----------
61,968 51,924 117,081 93,617
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
(RECOVERY OF) INCOME TAXES............. (2,507) 4,438 815 7,982
PROVISION FOR (RECOVERY OF) INCOME
TAXES.................................. (877) -- 285 --
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................ $ (1,630) $ 4,438 $ 530 $ 7,982
=========== =========== =========== ===========
Earnings (loss) per common share
Basic.................................. $ (0.08) $ 0.30 $ 0.03 $ 0.55
=========== =========== =========== ===========
Fully diluted.......................... $ (0.08) $ 0.25 $ 0.03 $ 0.47
=========== =========== =========== ===========
Weighted average number of shares used in
computing earnings (loss) per common
share
Basic.................................. 20,604,111 14,816,802 20,295,522 14,624,864
=========== =========== =========== ===========
Fully diluted.......................... 20,604,111 20,107,079 20,295,522 18,716,184
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 124
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE SIX MONTHS ENDED MAY 31,
(UNITED STATES DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 530 $ 7,982
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on early extinguishment of debt................... 2,400 --
Depreciation and amortization.......................... 2,222 1,863
Changes in deferred income taxes....................... (153) --
Changes in accounts receivable......................... (3,151) (4,630)
Changes in costs and estimated earnings in excess of
billing............................................... (7,777) (4,402)
Change in inventory.................................... (1,447) --
Change in prepaid expenses and other current assets.... (2,462) --
Change in other assets................................. (1,640) (3,426)
Change in accounts payable and accrued liabilities..... 3,041 (9,583)
Change in billings in excess of costs and estimated
earning............................................... (327) 1,003
Change in deferred gain and other liabilities.......... (272) (566)
------- --------
Net cash used in operating activities....................... (9,036) (11,759)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,570) 683
Acquisition of business, net of cash acquired............. -- (5,210)
Increase in goodwill...................................... -- (1,540)
Proceeds from notes receivable............................ 3,022 (2,978)
Increase in investment.................................... (6,102) --
------- --------
Net cash used in investing activities....................... (4,650) (9,045)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior notes................................ 116,139 --
Proceeds from notes payable............................... 3,500 --
Proceeds from long-term debt.............................. 408 21,118
Principal payments on notes payable....................... (58,838) --
Principal payments on long-term debt...................... (12,404) --
Stock issuance costs...................................... (18) --
Issuance of common stock.................................. 1,394 5,056
------- --------
Net cash provided by financing activities................... 50,181 26,174
------- --------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH............. (136) --
------- --------
NET INCREASE IN CASH........................................ 36,359 5,370
CASH AT BEGINNING OF PERIOD................................. 1,259 317
------- --------
CASH AT END OF PERIOD....................................... $37,618 $ 5,687
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation SX
promulgated by the Securities and Exchange Commission. Such financial statements
do not include all disclosures required by generally accepted accounting
principles for annual financial statement reporting purposes. However, there has
been no material change in the information disclosed in the Company's annual
consolidated financial statements dated November 30, 1997, except as disclosed
herein. Accordingly, the information contained herein should be read in
conjunction with such annual consolidated financial statements and related
disclosures. The accompanying financial statements reflect, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results for the interim periods
presented. Results of operations for the three and six months ended May 31, 1998
are not necessarily indicative of results expected for an entire year. The
November 30, 1997 balance sheet was derived from the audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
NOTE 1. INVENTORY
The components of inventory at May 31, 1998 and November 30, 1997 are as
follows:
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1998 1997
------- ------------
<S> <C> <C>
Raw Materials............................................... $ 7,841 $ 6,358
Consumable Supplies......................................... 3,250 3,345
Finished Goods.............................................. 8,435 8,376
------- -------
$19,526 $18,079
======= =======
</TABLE>
NOTE 2. INCOME TAXES
The accompanying consolidated financial statements reflect no provision for
income taxes for the period ended May 31, 1997 due to the application of
unrecorded net operating loss carry forwards.
NOTE 3. DOMINION BRIDGE CORPORATION
On February 20, 1998, the Company and Dominion Bridge Corporation
("Dominion Bridge") entered into a non-binding Letter of Intent which provided
for (a) the purchase of $5.0 million of Dominion Bridge common stock and
warrants to purchase Dominion Bridge common stock by the Company, (b) a working
capital loan facility of up to $25.0 million to be provided by the Company to
Dominion Bridge, (c) the engagement of the Company to provide certain management
services to Dominion Bridge, and (d) the acquisition by the Company of the
business and assets of Dominion Bridge.
The purchase of $5.0 million dollars of Dominion Bridge stock was
consummated on February 20, 1998. The amount is included in the accompanying
consolidated balance sheet under the caption "Investments". Michael E. McGinnis,
Chairman and Chief Executive Officer of the Company, is also a member of the
Board of Directors of Dominion Bridge.
On March 23, 1998, the Company announced that it had withdrawn the Letter
of Intent and terminated negotiations for any further transactions due to
complexities of the transaction and the time constraints for its completion. The
Company subsequently entered into a joint venture with a subsidiary of Dominion
Bridge to perform certain contract work in connection with a gas pipeline
project in Canada. In addition, the Company and a subsidiary of Dominion Bridge
are participating in two additional contracts for the construction of two
semi-submersible drilling vessels in Canada.
NOTE 4. US INDUSTRIAL SERVICES, INC. (FORMERLY EIF HOLDINGS, INC.)
The Company had loaned money to US Industrial Services, Inc., a Delaware
corporation ("US Industrial") (formerly, EIF Holdings, Inc., a Hawaii
corporation), to a maximum amount of $20.0 million. On
F-33
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
February 18, 1998, the Company extended the maturity date of this line of credit
to August 18, 1998. At May 31, 1998, the amount due from US Industrial was $17.9
million.
On July 15, 1998, the Company exercised an option to convert $1 million of
this indebtedness into one million common shares of US Industrial. In addition,
on July 24, 1998, the Company sold the remaining US Industrial indebtedness to
an unrelated third party for $5 million in cash plus a note for $12.9 million
payable on January 29, 1999, together with interest at the rate of 10% per
annum.
NOTE 5. LITIGATION
At May 31, 1998, there were various claims and disputes incidental to the
business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
affect upon the Company's financial position, results of operations or cash
flows.
NOTE 6. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian Basis") which
differ in certain respects from those principles and practices that the Company
would have followed had its consolidated financial statements been prepared in
accordance with accounting practices generally accepted in the United States
("U.S. Basis").
During May 1998, the Company completed the sale of $120 million of 9 5/8%
Senior Notes. Upon completion of this sale, the Company extinguished its
existing bank indebtedness resulting in a charge of $2.4 million. Under Canadian
Basis, this charge is included in pretax earnings. Under U.S. Basis, however,
this charge is presented as an extraordinary item, net of tax.
On February 20, 1998, the Company purchased 1,923,077 shares of Dominion
Bridge common stock for $5.0 million. Under Canadian Basis, this investment is
accounted for as a long-term investment and the Company has determined that an
other than temporary decline in value has not occurred in this investment as of
May 31, 1998. Under U.S. Basis, the Company's investment in Dominion Bridge
would be accounted for pursuant to Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, the Company's investment in Dominion Bridge
would be classified as an available-for-sale investment which would require the
Company to carry the investment at its market value of $2.4 million at May 31,
1998 with the difference of $2.6 million from the Company's carrying value
presented as an unrealized loss on marketable securities in shareholders'
equity.
In May 1998, the Company began a joint venture with a subsidiary of
Dominion Bridge. Under Canadian Basis, this joint venture is accounted for using
the proportionate consolidation method. Under U.S. Basis, the investment in the
joint venture is accounted for using the equity method. While there is no impact
on net income, under U.S. Basis the Company would not have recorded the revenues
and cost of revenues of $1,029,000 and $871,000, respectively and instead would
have recorded its proportionate interest in the net income of the joint venture.
Under U.S. Basis, utilization of pre-acquisition net operating loss
carryforwards should be credited to goodwill rather than as a reduction of the
income tax provision, as in practice under Canadian Basis. Therefore, under U.S.
Basis, the goodwill and income tax provision would have been adjusted by
approximately $126,000 and $24,000 for the three and six months ended May 31,
1998, respectively, and by $888,000 and $1,603,000 for the three and six months
ended May 31, 1997, respectively.
During the six months ended May 31, 1997, the Company sold $19 million
aggregate principal amount of convertible debentures (the "Debentures"). Under
Canadian Basis, the total amount allocated to the conversion feature of
approximately $3 million was being charged to interest expense over ten years.
Had the U.S. Basis been followed, the $3 million would have been charged to
interest expense immediately as the conversion feature of the Debentures were
"in the money" and the Debentures were immediately convertible.
F-34
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
During the first quarter of 1997, the Company commenced accounting for its
investment in US Industrial pursuant to the equity method of accounting. Under
Canadian Basis, the change is accounted for prospectively. Under U.S. Basis,
however, this change is accounted for retroactively to when the Company first
invested in US Industrial, resulting in an additional charge of approximately
$1.5 million during the first six months of fiscal year 1997.
The following is a reconciliation of revenues, pretax income and net income
under Canadian Basis to U.S. Basis.
<TABLE>
<CAPTION>
CANADIAN BASIS U.S. BASIS
--------------------------------------- ---------------------------------------
3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
----------------- ------------------- ----------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $59,461 $56,362 $117,896 $101,599 $58,432 $56,362 $116,867 $101,599
Pretax income...................... (2,507) 4,438 815 7,982 (107) 4,438 3,214 3,483
Income tax provision............... (877) -- 285 -- (43) 888 1,269 1,603
Income (loss) before extraordinary
item............................. (1,630) 4,438 530 7,982 (64) 3,550 1,945 1,880
Extraordinary loss on
extinguishment of debt........... -- -- -- -- (1,440) -- (1,440) --
Net income (loss).................. $(1,630) $ 4,438 $ 530 $ 7,982 $(1,504) $ 3,550 $ 505 $ 1,880
</TABLE>
Under U.S. Basis, basic and diluted earnings per share are calculated using
the treasury stock method. The calculation of earnings per share under U.S.
Basis is as follows:
<TABLE>
<CAPTION>
3 MONTHS 6 MONTHS
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income............................... $ (1,504) $ 3,550 $ 505 $ 1,880
Net income per share
Basic.................................. $ (0.07) $ 0.24 $ (0.02) $ 0.13
Diluted................................ $ (0.07) $ 0.23 $ (0.02) $ 0.12
Weighted average number of shares
Basic.................................. 20,604,111 14,816,802 20,295,522 14,624,864
Diluted................................ 20,604,111 15,273,277 21,348,624 15,105,381
</TABLE>
NOTE 7. SENIOR NOTES
In May 1998, the Company completed placement of $120,000,000 of 9 5/8%
Senior Notes that mature May 15, 2008. Interest on the notes is payable
semi-annually in arrears on May 15, and November 15 of each year, commencing
November 15, 1998. The Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after May 15, 2003, at specified redemption
prices.
The Notes are senior general unsecured obligations of the Company, ranking
pari passu in right of payment with all other senior indebtedness of the Company
and senior in right of payment to any subordinated indebtedness of the Company
incurred in the future. The Indenture contains certain covenants that, among
other things, will limit the ability of the Company and certain of its
subsidiaries to incur additional indebtedness, pay dividends or make other
distributions, purchase equity interest or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, issue or sell
capital stock of subsidiaries, engage in sale-and-leaseback transactions, sell
assets or enter into certain mergers or consolidations.
The Company used proceeds of $71.2 million to repay credit facilities,
other outstanding indebtedness and accrued interest associated with such
indebtedness. The remainder of the net proceeds will be used for general
corporate purposes, funding of joint venture start-up costs and future
acquisitions. As a result of the refinancing, the Company recorded a $2.4
million charge for the early extinguishment of debt, primarily related to the
prepaid financing costs of the bank debt.
F-35
<PAGE> 128
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER COVERED BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Information.................... 1
Summary Historical and Pro Forma
Financial Data....................... 8
Risk Factors........................... 9
Use of Proceeds........................ 15
Capitalization......................... 16
The Exchange Offer..................... 17
Unaudited Pro Forma Financial
Information.......................... 26
Selected Historical Consolidated
Financial Data....................... 31
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................ 33
Business............................... 39
Management............................. 50
Certain Relationships and Related
Transactions......................... 55
Security Ownership of Management and
Principal Stockholders............... 56
Description of the Notes............... 57
Certain Tax Considerations............. 83
Plan of Distribution................... 86
Legal Matters.......................... 87
Experts................................ 87
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
================================================================================
================================================================================
$120,000,000
[AMERICAN ECO CORPORATION LOGO]
AMERICAN ECO CORPORATION
OFFER TO EXCHANGE ITS 9 5/8% SERIES B SENIOR NOTES DUE 2008, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 9 5/8%
SERIES A SENIOR NOTES DUE 2008
-------------------
PROSPECTUS
-------------------
August , 1998
================================================================================
<PAGE> 129
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
12.2 -- Statement regarding computation of ratios.
</TABLE>
II-1
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
AMERICAN ECO CORPORATION
By /s/ MICHAEL E. MCGINNIS
-----------------------------------
Michael E. McGinnis
Chairman of the Board
and Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MICHAEL E. MCGINNIS Principal Executive
- ----------------------------------------------------- Officer and Director
Michael E. McGinnis, Chairman of the Board and Chief
Executive Officer
/s/ FRANK J. FRADELLA Principal Executive
- ----------------------------------------------------- Officer and Director
Frank J. Fradella, President and Chief Operating
Officer
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen, Senior Vice President and Chief
Financial Officer
/s/ BARRY CRACOWER* Director August 10, 1998
- -----------------------------------------------------
Barry Cracower
/s/ WILLIAM A. DIMMA* Director
- -----------------------------------------------------
William A. Dimma
/s/ HON. DONALD R. GETTY* Director
- -----------------------------------------------------
Hon. Donald R. Getty
/s/ JOHN C. PENNIE* Director
- -----------------------------------------------------
John C. Pennie
/s/ FRANCIS J. SORG* Director
- -----------------------------------------------------
Francis J. Sorg
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-2
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
THE TURNER GROUP, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
- ------------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-3
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
C.A. TURNER CONSTRUCTION COMPANY
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MATTHEW D. HILL* Director
- -----------------------------------------------------
Matthew D. Hill
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-4
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
ACTION CONTRACT SERVICES, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
August 10, 1998
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-5
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
C.A. TURNER MAINTENANCE, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MATTHEW D. HILL* Director
- -----------------------------------------------------
Matthew D. Hill
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-6
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
H.E. CO. SERVICES, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MATTHEW D. HILL* Director
- -----------------------------------------------------
Matthew D. Hill
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-7
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
CAMBRIDGE CONSTRUCTION SERVICE CORP.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
August 10, 1998
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-8
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
LAKE CHARLES CONSTRUCTION
CORPORATION
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-9
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
UNITED ECO SYSTEMS, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
August 10, 1998
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-10
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
ECO SYSTEMS, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
August 10, 1998
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-11
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
MM INDUSTRA LIMITED
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-12
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
SEPARATION AND RECOVERY
SYSTEMS, INC.
By /s/ JOSEPH DEFRANCO*
-----------------------------------
Joseph DeFranco
President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOSEPH DEFRANCO* Principal Executive
- ----------------------------------------------------- Officer and Director
Joseph DeFranco
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-13
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA SERVICE CORPORATION
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ WILLI HAMM* Director August 10, 1998
- -----------------------------------------------------
Willi Hamm
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
/s/ JOHN PENNIE* Director
- -----------------------------------------------------
John Pennie
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-14
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
SEPARATION AND RECOVERY SYSTEMS
LIMITED
By /s/ JOSEPH DEFRANCO*
-----------------------------------
Joseph DeFranco
Chairman and President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOSEPH DEFRANCO* Principal Executive
- ----------------------------------------------------- Officer and Director
Joseph DeFranco
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer August 10, 1998
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-15
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA ENGINEERS & CONSULTANTS, INC.
By /s/ DAVID L. NORRIS*
----------------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-16
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA THERMAL SERVICE
CORPORATION
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-17
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
NUS, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-18
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA SERVICE CORP.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer August 10, 1998
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
/s/ LARRY CUNDY* Director
- -----------------------------------------------------
Larry Cundy
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-19
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer August 10, 1998
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
/s/ LARRY CUNDY* Director
- -----------------------------------------------------
Larry Cundy
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-20
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
INDUSTRA THERMAL SERVICE CORP.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer August 10, 1998
Bruce D. Tobecksen
/s/ WILLI HAMM* Director
- -----------------------------------------------------
Willi Hamm
/s/ LARRY CUNDY* Director
- -----------------------------------------------------
Larry Cundy
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-21
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
CHEMPOWER, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ ERNEST M. ROCHESTER* Director August 10, 1998
- -----------------------------------------------------
Ernest M. Rochester
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
/s/ TOOMAS J. KUKK* Director
- -----------------------------------------------------
Toomas J. Kukk
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-22
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
GLOBAL POWER COMPANY
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ PATRICK F. BYRNE* Director August 10, 1998
- -----------------------------------------------------
Patrick F. Byrne
/s/ ROBERT E. ROHR* Director
- -----------------------------------------------------
Robert E. Rohr
/s/ DALE C. CRUMLEY* Director
- -----------------------------------------------------
Dale C. Crumley
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-23
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
BROOKFIELD CORPORATION
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer and Director
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ ROBERT E. ROHR* Director
- -----------------------------------------------------
Robert E. Rohr
/s/ DAN MARCHAK* Director
- -----------------------------------------------------
Dan Marchak
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-24
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
SOUTHWICK CORPORATION
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ JAMES G. OWENS* Director
- -----------------------------------------------------
James G. Owens
/s/ TOOMAS J. KUKK* Director
- -----------------------------------------------------
Toomas J. Kukk
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-25
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
CONTROLLED POWER LIMITED
PARTNERSHIP
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President of Southwick
Corporation, General Partner
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President of Southwick
Corporation, General Partner
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ JAMES G. OWENS* Director of Southwick
- ----------------------------------------------------- Corporation, General
James G. Owens Partner
/s/ TOOMAS J. KUKK* Director of Southwick
- ----------------------------------------------------- Corporation, General
Toomas J. Kukk Partner
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-26
<PAGE> 155
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
and State of Texas.
This registration statement has been signed below by the following persons
in the capacities and on the date indicated.
SPECIALITY MANAGEMENT GROUP, INC.
By /s/ DAVID L. NORRIS*
-----------------------------------
David L. Norris
Vice President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DAVID L. NORRIS* Principal Executive
- ----------------------------------------------------- Officer
David L. Norris
Vice President
/s/ BRUCE D. TOBECKSEN* Principal Financial and August 10, 1998
- ----------------------------------------------------- Accounting Officer
Bruce D. Tobecksen
/s/ MICHAEL E. MCGINNIS Director
- -----------------------------------------------------
Michael E. McGinnis
</TABLE>
*By: /s/ MICHAEL E. MCGINNIS
-------------------------------
Michael E. McGinnis
Attorney-in-Fact
II-27
<PAGE> 156
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
12.2 -- Statement regarding computation of ratios
</TABLE>
<PAGE> 1
EXHIBIT 12.2
AMERICAN ECO CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
The following illustrates the computation of the historical ratio of
earnings to fixed charges:
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
FISCAL YEAR ENDED NOVEMBER 30, MONTHS SIX MONTHS ENDED MAY 31,
----------------------------------------------------- ENDED ----------------------------
PRO FORMA MAY 31, PRO FORMA
1993 1994 1995 1996 1997 1997 1998 1997 1998 1998
---- ------ ------ ------ ------- --------- ------------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pretax income.............. $375 $1,008 $3,060 $7,954 $19,264 $18,215 $ 3,543 $ 7,982 $ 815 $(1,110)
Fixed charges.............. 255 723 773 1,926 5,157 6,206 12,624 2,181 1,987 6,312
---- ------ ------ ------ ------- ------- ------- ------- ------ -------
Total earnings..... $630 $1,731 $3,833 $9,880 $24,421 $24,421 $16,167 $10,163 $2,802 $ 5,202
==== ====== ====== ====== ======= ======= ======= ======= ====== =======
Interest expense........... 229 681 713 1,747 4,946 5,995 11,990 1,864 1,670 5,995
Rental expense............. 26 42 60 179 211 211 634 317 317 317
---- ------ ------ ------ ------- ------- ------- ------- ------ -------
Total fixed
charges.......... $255 $ 723 $ 773 $1,926 $ 5,157 $ 6,206 $12,624 $ 2,181 $1,987 $ 6,312
==== ====== ====== ====== ======= ======= ======= ======= ====== =======
Ratio of Earnings to Fixed
Charges.................. 2.5 2.4 5.0 5.1 4.7 3.9 1.3 4.7 1.4 0.8
==== ====== ====== ====== ======= ======= ======= ======= ====== =======
</TABLE>
